Value per door when acquiring a PM business?

Question

I am interested in purchasing a property management business out of South Carolina. It is a short term vacation property management for the most part, and there are 62 doors. They valued the company at $675,000. However, Using the gross monthly net per property, with a multiplier of 1.8 and then multiplying by 12,  I can’t fathom this $675,000 number.  I can’t understand how they valued their clients at about 10,000 each. Is this wrong?  The gross revenue is said to be 1 million.  So what would be a “per client” cost?   We are only in business two years and I want to start acquiring now.  Thanks for helping this newbie!

Samuel Eddinger · Answer

There are two ways to evaluate the business, a multiple on revenue, or a multiple on earnings (EBITDA).  Either approach should have a clawback in case properties churn out.

Depending on the book of business, 1 to 2X revenue would be appropriate.  If they are making $1,000,000 in revenue, you are getting a steal at $675,000.

Depending on the book of business, 4 to 6X earnings would be appropriate. You would want to make sure that the owners are paying themselves a market based salary of something like $120,000 a year for the work they are doing. For $675,000, you'd want to make sure there was profit of $150,000 after that earning of $120,000. All of this could be done on $1,000,000 if they are running a good PM shop.

Michael Smythe · Answer

It standard in the industry that a purchase of a PMC would have either 6-18 months of payments with clawback for portfolio runoff, or a major discount for a one-time payment.

Troy Gandee · Answer

@Tray Ross 10k per client may not be terrible, but it really depends on the management cut per booking. If these are beach rentals, that may not be a bad number. If these are run of the mill homes in residential areas, you're not likely to make that 10k back nearly as quickly.

I would be more concerned with the net profit. That's always the bottom like when buying a business anyways. Revenue projections are fine, but the bank wants to know what you're netting. See if you can get 2 years P&Ls and balance sheets to see the whole story. The revenue in my brokerage is multiple millions, but 90% of that revenue goes back to the agents, so it's not nearly as impressive as it seems initially.

Jonathan R McLaughlin · Answer

I would consider spreading some partial payments over time tied to some metrics…not to mention looking back at least 3 preferably 5 years.

Jason Allen · Answer

Full disclosure, I am not in the STR business except as an occasional customer... but, my 2 cents..

If this is essentially just buying their book of business (and no inventory/assets) do you think your all-in acquisition cost per customer would be 10k? If not, let's say you think it would cost you only 5k (including the value of your own time) per customer to build a similar book.  Do you think they will lower the price to what you think it would cost you (+some value for goodwill/value as a going concern)? If your numbers are wildly different, one of you is pretty wrong. If you really believe in your numbers, then I would say try to start one and see if your numbers were correct..

Value per door when acquiring a PM business?

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