Rental Property Investor · San Diego, CA · Member since 2020 · 91 posts · 13 votes
Hello all, can I have your advice. I have an opportunity of purchasing the contracts from a property management company. I have never done this before. Two questions: (1) Do you make official offer only after signing NDA and reviewing the contracts? (2) What multiplier range on the management fee revenue is reasonable?
I feel the contract retention is unpredictable regardless how loyal the current clients are to the seller. Hence the risk to me is very high. Any suggestions or comments are welcome.
You indicate that you are an "investor". In most states, you must have a Real Estate License to manage property for more than one Owner beside yourself. You also need systems in place to effect any transfer.
You indicate that you are an "investor". In most states, you must have a Real Estate License to manage property for more than one Owner beside yourself. You also need systems in place to effect any transfer.
Thank you for the reminder. I am aware of that. I am also a realtor. I haven’t updated my profile yet. I have been managing my properties for many years. The seller is willing to wait until I obtain the broker license so I don’t need to reply on any broker.
This is a big deal...here's a good starting point (wish I had written this but it's actually from data I've collected on the topic from multiple sources):
Due Diligence & Valuation:
Audit Contracts: Verify that the management agreements are assignable and examine cancellation clauses, renewal terms, and service fees.
Analyze Portfolio Quality: Evaluate the condition of properties, owner-to-door ratios (higher owner concentration is higher risk), and tenant quality (long-term, on-time paying tenants are better than high-turnover rentals).
Financial Review: Reconcile leases with actual security deposit escrow accounts to ensure all funds are accounted for.
And, then this:
Key Risks:
Owner Turnover: Clients may leave if not properly managed during the transition.
Hidden Liabilities: Missing or invalid contracts can cause significant issues post-purchase.
License Issues: Ensure you meet state requirements, which may necessitate having a broker license.
(End)
Did the seller give you an offering memorandum (which is customary) or other document detailing the terms of the sale including vetting? Why are they selling a portion of the contracts - are these disgruntled, less profitable accounts? And, a NDA is also customary before you're given access to contracts and financials.
To me, this is a vetting play where I would engage a real estate attorney to uncover all the risks. Hope this helps...