Buying a property management business

6 Replies

I need some advise as to how much to pay for a small property management business. The owner charges an average of 7% of gross rent and 50% for lease up. I've been told to buy the accounts and not the business for liability reasons which is fine. However, I am not finding information as to how to value the acquisition of accounts. Any guidance would be appreciated. Thank you.

I had a customer of mine who just sold her 30 or so rentals for $1500 to another company.    Not sure if that's the appropriate way to price, but 1 month's worth of rents seems fair enough, you'll probably lose a few accounts on the transfer. 

How big is this management company?  

Does it manage hundreds of units, or just dozens or a handful?

I imagine your valuation would be similar to any other service based company - you will want to take a very good look at all existing contracts and financials before you can get a good idea of what it's worth. 

It's a small portfolio of approximately 50 doors.

Thank you.

Originally posted by @Brian Mathews :

I had a customer of mine who just sold her 30 or so rentals for $1500 to another company.    Not sure if that's the appropriate way to price, but 1 month's worth of rents seems fair enough, you'll probably lose a few accounts on the transfer. 

Thanks Brian!

Seems to me it makes more sense to just buy out the service contract but would tread lightly with both the owners as well as the tenants.  My experience as an owner, when you change PM's you run a 50/50 risk of losing the tenant. 

Maybe try to position it as a partnership deal with the PM, rather than a sale of the account.  

I would try to have the current PM intro's me to all the owners and tenants saying something like "here's my new partner, over the next 60 days he's going to start doing XYZ.  His phone is XXX and email is XXX.  He will be reaching out to each of you over the next weeks to......"

That is a lot less shocking than "Hello, I'm your new property manager that you've never met and didn't sign up with in the first place, but now I'm going to be handling your asset / coming by to pick up rent"

I can't imagine paying a lot for this - 1 or 2 month's management fees sounds like a good starting point.

I am not in the PM business but I have bought and sold several insurance agencies. My advice: do an asset purchase to cut off liability but keep the same name (your corp DBA the existing name), phone number, website, emails, etc. Change as little as possible until you fully get your arms wrapped around the accounts.

Most professional services trade at 1-2 X revenue or 4-7 X EBiTA. Obviously a large, well established business is going to command the upper end where a small less established business will be on the low end. Also, of the 50 doors are there any owners that would be a big hit if you lost them. Do 10+ units belong to any single owner?

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