Buying a property management company a good idea?

Question

Hi all!
I’m a real estate investor who has decided to get my license (based in NY) and would like to buy a property management company in the Westchester area. We self manage our own properties (5 properties with 8 doors) and love it. Wanted to know if anyone had advice or experience purchasing a property management company so we can come with a book of business or if that’s even a good idea to look into.

Any help is welcome!

Drew Sygit · Answer

Your referrence to, "come with a book of business" equalling your 8 current doors, isn't really much.

A one-man company needs at least 50-75 doors, in most markets, to scratch out a living as a PMC, preferrably 100+.

We've got clients with 30+ doors and there's no way we would consider partnering with them and giving them a percentage of our company.

So, you may want to re-examine your expectations a bit:)

Scott M. · Answer

Sorry, I do not know of any business brokers that specially trade in this kind of business. In the past we have been contacted through our network VS a business broker. That said, I would join as many forums and groups as you can and let everyone know you are looking to buy a PM company. I would also call all of them locally you are considering. Get the word out, you never know who may know.

Lowden Charles · Answer

@Drew Sygit

Thanks Drew for the heads up with the major shifts in experience between the door count hurdles (i.e. 50 being different from 100 to 200 etc.) I definitely will keep that in mind.

Also to clarify I totally understand that my 8 doors isn’t much in this industry and when I referred to the “book of business” I was implying after the acquisition is completed that would be my starting point.

Out of curiosity, do you happen to know anyone in my market (Southern NY-Westchester area) that may be open to a discussion in this industry?

Lowden Charles · Answer

@Scott M.

Thanks for the advice! This is super helpful. We have an attorney that we trust to hopefully help us through this process but I definitely like the earn-out model based on client retention!

Do you have any suggestions on business brokers that you have worked with or heard of that you would suggest I reach out to?

Scott M. · Answer

A few tips and/or things to watch out for:

- The general cost for buying out a book of contracts (not a whole business) is ~1 year management fees

- Add to the above the cost for any systems/processes/staff/equipment etc...that come with it

- One of the biggest challenges is how long clients are going to stay and what are the penalties due you (as the new contract holder) should they leave. I recall hearing a story from a manager at a conference a few years ago, he bought the contracts to 250 doors and about 1/2 of the clients left in the first quarter. Guess it all depends on if the old company is good and you are learning, clients may say forget this....or if the current manager is bad and you rock then they will love you. You can structure the deal so payments are made over the course of a year based on client retention VS paying all up front

- Scaling can be tough. There is a massive difference between 5 doors and 100 doors. 100 and 200. 200 and 500 and so on. It doesn't change much door to door. Meaning 140 is that different from 150. But somewhere between 150 and 200 things will go nuts. If you are getting staff as part of the deal make sure they are good and in it for the long term (as much as you can) or you could be holding contracts w/no staff.

I think it is great you have the passion for it and want to jump in with both feet! Get a great lawyer by your side and I am sure things will go great.

Buying a property management company a good idea?

Buying a property management company a good idea?

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