Should I do an 75/25 Split on a Property Management Business?

Question

Hi BP Community,

A colleague of mine has owned a property management business for 10 years. He has been wanting to expand into the area in which I live, and I have been wanting to start my own property management company. He says he will teach me everything I need to know and that I can utilize his software and system and that he will split any business I bring in 75/25 (I get 75).

I think it would be great to NOT have to build my business from scratch; however, I wonder if I will be kicking myself a year from now, wishing I didn't have to give away 25%. And I am wondering if the margins are already too thin in property management and if giving up 25% would make the whole business not even worth it.

I was the in-house property manager at a few different multi-unit buildings for several years, so property management is not foreign to me. I am pretty resourceful, too, and I have started a few small businesses in the past, so I am not intimidated by the thought of doing it myself. It would be really nice, though, to join forces with a company who already has brand recognition in the area and also has its infrastructure in place.

I am wondering if anyone has any advice or creative input as to how I should structure this new business arrangement. Perhaps I should give him 25% at first, but then decrease that amount over time? My other thought is - what if he wants to sell the company at some point? Or what if I do?

Any advice would so greatly appreciated.

Thanks,

Mike

Account Closed · Answer

So he will split any new business 75/25 with you while maintaining overall ownership of the business as a whole (correct me if I am wrong)? As you noted, given the thin margins I would be skeptical as well. I have known some property managers that only manage properties that have X amount of value and refuse to go lower (for obvious reasons).

Perhaps you can structure the business on a contractual basis, say he gets 25% of X amount of deals granted YOU make Y amount of profits over Z amount of time. If those conditions are met then renew the contract for X amount of months. Since you are not in control (and he can sell the company as you mentioned) you may be able to see the iceberg up ahead and jump ship if necessary.

Patrick Liska · Answer

I agree with Account Closed, but i would add that you get to keep your clients that you bring to the business if he decides to leave, that you do not have to pay him for them afterwords. and you if you want to sell, make sure there is a clause that what ever customers you have brought in that are still there at the time you want to sell, that he will pay you for those customers.