Looking to purchase STR / vacation rental management company
Royal Oak, MI · Member since 2017 · 27 posts · 8 votes
Looking to purchase STR / vacation rental management company
Most Popular Reply
STR management is a business to start in my experience. I generally lean "buy", but small STRs businesses that are for sale will be a complete mess and you'll probably see a lot of churn post transaction making your effective multiple astronomical. We bought a small one (after starting one) and it's the gift that keeps on giving (sarcasm).
20 Replies
- 3yMichael BaumPro MemberOlympia, WA · Member since 2016 · 8k+ posts · 7k+ votes
Hey @Anthony Venturini, so you would be buying an existing business? I am not sure but I would think that the reviews and listings wouldn't need to transfer as the company is the same. That is assuming you get the email address, bank account etc.
The biggest issue I see is that you don't have any STR experience. Why would any owner keep you on? You would be taking on existing clients that I would assume are successful with their current PM. You would be putting that at risk. Just a question to ask.
You could start co-hosting with someone just to learn more if you can find someone who would take you on before moving up.
- 3yJohn UnderwoodPro MemberInvestor · Greer, SC · Member since 2014 · 13k+ posts · 17k+ votes
Why pay a premium to buy an existing business when you could just start a new one?
- 3yAndrew SteffensBusiness MemberTampa, FL · Member since 2022 · 4k+ posts · 3k+ votes
Quote from @Anthony Venturini:
I have been on the lookout for a vacation rental management company to purchase for a few months now. I have been looking at listings on bizquest and bizbuysell, but have not found any that are super interesting yet.
One question that I have is, given that I am not a current Airbnb or VRBO host, what will happen to the reviews? I am assuming the companies for sale will be responsible for all of the host reviews on all of their properties. When these properties get transferred to me as the new host, I will have no history, so the properties will lose all of their reviews, right?
I was considering the options that I would have in this scenario. Is there a way for the sellers to add me as a co-host and stay on as a host for a monthly fee? And then later on, replace me as the host?
Also, if anyone knows of someone selling the vacation rental business, please let me know. I love Orlando / Disney, Tampa, Del Ray Beach, and Fort Meyers areas.Hey Anthony, we are based in Tampa/St Pete/Clearwater, with properties also in NJ, Naples, and now Miami. I will send you a DM now.
Vacation Rentals of Florida53 Reviews - Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes3y
Quote from @Anthony Venturini:
If you are buying an actual business then all the marketing should be under the business name, not a personal name. You would continue running the business, so all the marketing and reviews would remain under your control.
The DIY Landlord Book4.7243 Reviews - 3yAdam BartomeoBusiness MemberReal Estate Broker · Cape Coral, FL · Member since 2015 · 2k+ posts · 1k+ votes
@Anthony Venturini @Nathan Gesner
At a minimum you would have to ensure that they give you all of the info to the website accounts. It's a little trickier than just a login and password. There are also bank accounts that are linked to these accounts and future bookings may have already been paid out to these accounts. If they have anymore then 5+ VR's then they probably have a 3-party site that links all of the sites onto one platform. You would need all of that info also. I would research running a Vacation Rental company before purchasing one. They are extremely difficult to run...
Bartomeo Property Management4.7143 Reviews - Royal Oak, MI · Member since 2017 · 27 posts · 8 votes3y
Quote from @John Underwood:
Why pay a premium to buy an existing business when you could just start a new one?
Sigh. I will bite. Why buy a home when you can just build a home?
It is much harder to get a bank loan and scale, starting your own venture from scratch vs. buying.
However, with a bank loan, I could buy a business 5x the value at $500,000 and returning over $250,000 per year. It would be much harder to convince a bank to lend me $500,000 to start a property management business from scratch. I have already convinced a bank that my prior experience translates enough into purchasing one, so now I just have to find the right fit.
Loan terms = $100k down, 8% interest, 10 years. So on a $400k loan, I am paying out $32k a year in interest and $40k in principal. There are plenty of people trying to cash out their property management businesses that they owner operated on a solid salary. I will still be $160k net and paying down the note.
If the company is older and hasn't adopted new technology, does little marketing, or has new pricing opportunity, then I could quickly add some value to that business.
I am also a realtor and getting my license in FL, so residuals can come from buyers / sellers.
As far as experience, I have managed properties for LTRs for many years and have done 6 successful house flips. I have a pretty good feeling that the learning curve is not that tremendous.Over 10 years, my goal would be to purchase 5-10 of these businesses and scale via acquisition and get purchased by a larger fund at a much better multiple (3x+) than a mom and pop STR management company would get.
I can't imagine a scenario where starting a commoditized venture would ever be better off than buying one that is undervalued.
- 3yJohn UnderwoodPro MemberInvestor · Greer, SC · Member since 2014 · 13k+ posts · 17k+ votes
Quote from @Anthony Venturini:
Quote from @John Underwood:
Why pay a premium to buy an existing business when you could just start a new one?
Sigh. I will bite. Why buy a home when you can just build a home?
It is much harder to get a bank loan and scale, starting your own venture from scratch vs. buying.
However, with a bank loan, I could buy a business 5x the value at $500,000 and returning over $250,000 per year. It would be much harder to convince a bank to lend me $500,000 to start a property management business from scratch. I have already convinced a bank that my prior experience translates enough into purchasing one, so now I just have to find the right fit.
Loan terms = $100k down, 8% interest, 10 years. So on a $400k loan, I am paying out $32k a year in interest and $40k in principal. There are plenty of people trying to cash out their property management businesses that they owner operated on a solid salary. I will still be $160k net and paying down the note.
If the company is older and hasn't adopted new technology, does little marketing, or has new pricing opportunity, then I could quickly add some value to that business.
I am also a realtor and getting my license in FL, so residuals can come from buyers / sellers.
As far as experience, I have managed properties for LTRs for many years and have done 6 successful house flips. I have a pretty good feeling that the learning curve is not that tremendous.Over 10 years, my goal would be to purchase 5-10 of these businesses and scale via acquisition and get purchased by a larger fund at a much better multiple (3x+) than a mom and pop STR management company would get.
I can't imagine a scenario where starting a commoditized venture would ever be better off than buying one that is undervalued.
I was thinking along the lines of working from home with a laptop and coordinating everything that would already be online and building the business with minimal investment instead of spending 500k to buy an existing one.
That's the way I built my empire, one house at a time. Ok sometimes I actually bought 5 at a time but all with cash.
Once you scale you could move into an office and hire assistants. That's just how I would do it.
- Royal Oak, MI · Member since 2017 · 27 posts · 8 votes3y
Quote from @John Underwood:
Quote from @Anthony Venturini:
Quote from @John Underwood:
Why pay a premium to buy an existing business when you could just start a new one?
Sigh. I will bite. Why buy a home when you can just build a home?
It is much harder to get a bank loan and scale, starting your own venture from scratch vs. buying.
However, with a bank loan, I could buy a business 5x the value at $500,000 and returning over $250,000 per year. It would be much harder to convince a bank to lend me $500,000 to start a property management business from scratch. I have already convinced a bank that my prior experience translates enough into purchasing one, so now I just have to find the right fit.
Loan terms = $100k down, 8% interest, 10 years. So on a $400k loan, I am paying out $32k a year in interest and $40k in principal. There are plenty of people trying to cash out their property management businesses that they owner operated on a solid salary. I will still be $160k net and paying down the note.
If the company is older and hasn't adopted new technology, does little marketing, or has new pricing opportunity, then I could quickly add some value to that business.
I am also a realtor and getting my license in FL, so residuals can come from buyers / sellers.
As far as experience, I have managed properties for LTRs for many years and have done 6 successful house flips. I have a pretty good feeling that the learning curve is not that tremendous.Over 10 years, my goal would be to purchase 5-10 of these businesses and scale via acquisition and get purchased by a larger fund at a much better multiple (3x+) than a mom and pop STR management company would get.
I can't imagine a scenario where starting a commoditized venture would ever be better off than buying one that is undervalued.
I was thinking along the lines of working from home with a laptop and coordinating everything that would already be online and building the business with minimal investment instead of spending 500k to buy an existing one.
That's the way I built my empire, one house at a time. Ok sometimes I actually bought 5 at a time but all with cash.
Once you scale you could move into an office and hire assistants. That's just how I would do it.
So you bought a home that was already built? Or did you purchase homes that were built already? Why would you purchase a home that was already built when you could build the home yourself, one house at a time?See what I did there.
- 3yMichael BaumPro MemberOlympia, WA · Member since 2016 · 8k+ posts · 7k+ votes
@Anthony Venturini, I think what you said doesn't mean what you think it means. I am not really sure what you are saying really.
- 3yJohn UnderwoodPro MemberInvestor · Greer, SC · Member since 2014 · 13k+ posts · 17k+ votes
Quote from @Anthony Venturini:
Quote from @John Underwood:
Quote from @Anthony Venturini:
Quote from @John Underwood:
Why pay a premium to buy an existing business when you could just start a new one?
Sigh. I will bite. Why buy a home when you can just build a home?
It is much harder to get a bank loan and scale, starting your own venture from scratch vs. buying.
However, with a bank loan, I could buy a business 5x the value at $500,000 and returning over $250,000 per year. It would be much harder to convince a bank to lend me $500,000 to start a property management business from scratch. I have already convinced a bank that my prior experience translates enough into purchasing one, so now I just have to find the right fit.
Loan terms = $100k down, 8% interest, 10 years. So on a $400k loan, I am paying out $32k a year in interest and $40k in principal. There are plenty of people trying to cash out their property management businesses that they owner operated on a solid salary. I will still be $160k net and paying down the note.
If the company is older and hasn't adopted new technology, does little marketing, or has new pricing opportunity, then I could quickly add some value to that business.
I am also a realtor and getting my license in FL, so residuals can come from buyers / sellers.
As far as experience, I have managed properties for LTRs for many years and have done 6 successful house flips. I have a pretty good feeling that the learning curve is not that tremendous.Over 10 years, my goal would be to purchase 5-10 of these businesses and scale via acquisition and get purchased by a larger fund at a much better multiple (3x+) than a mom and pop STR management company would get.
I can't imagine a scenario where starting a commoditized venture would ever be better off than buying one that is undervalued.
I was thinking along the lines of working from home with a laptop and coordinating everything that would already be online and building the business with minimal investment instead of spending 500k to buy an existing one.
That's the way I built my empire, one house at a time. Ok sometimes I actually bought 5 at a time but all with cash.
Once you scale you could move into an office and hire assistants. That's just how I would do it.
So you bought a home that was already built? Or did you purchase homes that were built already? Why would you purchase a home that was already built when you could build the home yourself, one house at a time?See what I did there.
I bought one at a time that was already built for much much cheaper than new construction. Paid cash and built the business slowly and much cheaper than trying to get instant gratification at a huge price tag.
See what I did there?
- Royal Oak, MI · Member since 2017 · 27 posts · 8 votes3y
Quote from @Michael Baum:
@Anthony Venturini, I think what you said doesn't mean what you think it means. I am not really sure what you are saying really.
Build or buy is an economic decision that John was trying to give his perspective on my situation - that I should build vs. buy. However, he bought vs. built a product himself, because it was a clear economic decision with value consideration.
I can understand the sentiment that buying a business achieves instant gratification, cuts corners, etc. Regardless, it's still just an A/B test. How is my time and money most wisely spent to achieve maximum value?
- Lender · Austin, TX · Member since 2022 · 223 posts · 244 votes3y
Quote from @Anthony Venturini:
Quote from @John Underwood:
Why pay a premium to buy an existing business when you could just start a new one?
Sigh. I will bite. Why buy a home when you can just build a home?
It is much harder to get a bank loan and scale, starting your own venture from scratch vs. buying.
However, with a bank loan, I could buy a business 5x the value at $500,000 and returning over $250,000 per year. It would be much harder to convince a bank to lend me $500,000 to start a property management business from scratch. I have already convinced a bank that my prior experience translates enough into purchasing one, so now I just have to find the right fit.
Loan terms = $100k down, 8% interest, 10 years. So on a $400k loan, I am paying out $32k a year in interest and $40k in principal. There are plenty of people trying to cash out their property management businesses that they owner operated on a solid salary. I will still be $160k net and paying down the note.
If the company is older and hasn't adopted new technology, does little marketing, or has new pricing opportunity, then I could quickly add some value to that business.
I am also a realtor and getting my license in FL, so residuals can come from buyers / sellers.
As far as experience, I have managed properties for LTRs for many years and have done 6 successful house flips. I have a pretty good feeling that the learning curve is not that tremendous.Over 10 years, my goal would be to purchase 5-10 of these businesses and scale via acquisition and get purchased by a larger fund at a much better multiple (3x+) than a mom and pop STR management company would get.
I can't imagine a scenario where starting a commoditized venture would ever be better off than buying one that is undervalued.
While I agree with you on the scaling side of things, especially if you already have financing secured for this type of transaction, I would not discount the learning curve and the difference between operating short term rentals vs long term rentals, especially at scale.
- 3yMichael BaumPro MemberOlympia, WA · Member since 2016 · 8k+ posts · 7k+ votes
Quote from @Anthony Venturini:
Quote from @Michael Baum:
@Anthony Venturini, I think what you said doesn't mean what you think it means. I am not really sure what you are saying really.
Build or buy is an economic decision that John was trying to give his perspective on my situation - that I should build vs. buy. However, he bought vs. built a product himself, because it was a clear economic decision with value consideration.
I can understand the sentiment that buying a business achieves instant gratification, cuts corners, etc. Regardless, it's still just an A/B test. How is my time and money most wisely spent to achieve maximum value?
Ok, so that is clearer. In your first reply you said buy existing and buy existing etc.
So I don't think that buying an existing business is necessarily instant gratification or cutting corners. Buying a business means you get the reputation, clients, inventory, systems etc that have already been working. Assuming it is successful. Of course you might be buying a dud.
Another thing that can be leveraged is SBA loans as it is a business and not real estate. You can also use the money to buy actual properties under the right circumstances. There are a lot of hurdles with SBA but it could be worth it with the right business.
You are right that a A/B comparison is in order, but if you can buy a successful PM business with people doing PM work already, you would be ahead of the game overall not having to start from scratch.
@John Underwood isn't running a PM business. He owns and manages his own properties so what he did makes a bunch of sense and what most of us do. I know I couldn't afford to buy a portfolio of 5 or 10 STRs that are performing. STR management is a business to start in my experience. I generally lean "buy", but small STRs businesses that are for sale will be a complete mess and you'll probably see a lot of churn post transaction making your effective multiple astronomical. We bought a small one (after starting one) and it's the gift that keeps on giving (sarcasm).
- Rental Property Investor · St. Louis, MO · Member since 2019 · 63 posts · 52 votes3y
Have you considered contacting an STR broker?
- Real Estate Broker · Delray Beach, FL · Member since 2022 · 27 posts · 11 votes3y
There are several STR Management companies for sale in the Orlando market. South Florida is also a great area for STR and I do know of a PM company looking to expand into STR services… get in touch with me if you would like to learn more.
Perry
- Royal Oak, MI · Member since 2017 · 27 posts · 8 votes3y
Quote from @Sam P.:
STR management is a business to start in my experience. I generally lean "buy", but small STRs businesses that are for sale will be a complete mess and you'll probably see a lot of churn post transaction making your effective multiple astronomical. We bought a small one (after starting one) and it's the gift that keeps on giving (sarcasm).
Hmm, touche. I would counter that if they were not a mess, they would not be for sale, or they would have an extremely high price tag.
I would look at it like flipping a house. I want a house that is a complete mess that no one is looking at, but has good bones and in a good neighborhood. In this scenario, I want the STR business that has solid clients, great vendors, and awful systems.
For example, I am looking at one now. The website is pretty awful. The owners go to the properties to make sure the houses are cleaned or repaired, prior to every check in. Communications are all handled by phone and email. Keys are given to renters.
I am a software engineer by trade and a realtor / real estate investor by addiction. I could see obvious areas where automation could help. I could easily boost the website or have some contractors do it for me. I could establish all communication through Slack. Develop practices like a video walkthrough after every property is complete, attaching a tape to the front door to notify that no one else was there. And add Airbnb locks that automated check in.
Also, the company is not even listed on Google (no marketing at all). They had a rule they turn away more than 25 properties, so they didn't want to market.
Is this the right deal? I am not sure. I am positively no expert, hence why I showed up here. Maybe you can help me analyze it for a fee?
@Sam P. Quote from @Anthony Venturini:
Quote from @Sam P.:
STR management is a business to start in my experience. I generally lean "buy", but small STRs businesses that are for sale will be a complete mess and you'll probably see a lot of churn post transaction making your effective multiple astronomical. We bought a small one (after starting one) and it's the gift that keeps on giving (sarcasm).
Hmm, touche. I would counter that if they were not a mess, they would not be for sale, or they would have an extremely high price tag.
I would look at it like flipping a house. I want a house that is a complete mess that no one is looking at, but has good bones and in a good neighborhood. In this scenario, I want the STR business that has solid clients, great vendors, and awful systems.
For example, I am looking at one now. The website is pretty awful. The owners go to the properties to make sure the houses are cleaned or repaired, prior to every check in. Communications are all handled by phone and email. Keys are given to renters.
I am a software engineer by trade and a realtor / real estate investor by addiction. I could see obvious areas where automation could help. I could easily boost the website or have some contractors do it for me. I could establish all communication through Slack. Develop practices like a video walkthrough after every property is complete, attaching a tape to the front door to notify that no one else was there. And add Airbnb locks that automated check in.
Also, the company is not even listed on Google (no marketing at all). They had a rule they turn away more than 25 properties, so they didn't want to market.
Is this the right deal? I am not sure. I am positively no expert, hence why I showed up here. Maybe you can help me analyze it for a fee?
@Sam P.Starting with a caveat...I obviously know nothing about this business and I'm taking everything literally as what you say...
"I would counter that if they were not a mess, they would not be for sale, or they would have an extremely high price tag." I agree with most of this, except that it's probably not a business...it's a job. So to make it a business, you need to hire someone to take over the roles. Jobs shouldn't trade at 3x earnings (which might be around what they are asking)."I would look at it like flipping a house. I want a house that is a complete mess that no one is looking at, but has good bones and in a good neighborhood." I don't think this analogy really works (I buy businesses and houses...successfully AND unsuccessfully). The house in a static object and you can control the dynamics for the most part. You have a blueprint and can do ask you wish. You underwrite, estimate budget, execute and you may or may not make money. Most of the things are controllable (price...maybe that's not so controllable but it's part of your underwrite/sensitivities of the model). And STR business has clients, houses, vendors, guests, and all sorts of other uncontrollables. You can't bend it to your will as easily :)
"The website is pretty awful." I wouldn't say this will be your biggest driver of clients/traffic/guests. Word of mouth. Being known in your niche. That'll get you clients. Sure a professional website will help when people look for you...but what seems like a nice win isn't worth much (IMO! maybe I'm wrong).
"The owners go to the properties to make sure the houses are cleaned or repaired, prior to every check in. Communications are all handled by phone and email. Keys are given to renters." Big problem here is the first part in bold. Clients will expect you do the same thing (I know this problem EXACTLY as we have been burned by this). "Well she used to go by and drop off cookies for each guest." or "She would text us when the pest control guys were going to stop by." So...the previous owners have created these expectations that, unless you want to keep doing those things (I don't think you do if you're trying to build a scalable business), you have to re-educate your clients about expectations...and some will just leave b/c they want that white glove service (which works for small operators).
"I am a software engineer by trade and a realtor / real estate investor by addiction. I could see obvious areas where automation could help. I could easily boost the website or have some contractors do it for me. I could establish all communication through Slack. Develop practices like a video walkthrough after every property is complete, attaching a tape to the front door to notify that no one else was there. And add Airbnb locks that automated check in." The automation stuff is easy and does go a long way. The hardest part here is getting cleaners and vendors to use Slack, Guesty, and/or other apps. They operate via text and phone calls.
Don't take this as me being a hater or nay-sayer. Shooters gotta shoot...entrepreneurs take risks and know the issues they face (and new ones pop up). We are stupid and think we can fix problems (and sometimes can!). But you also need to be stupid enough to take the risk and reap the rewards.
But, I stand by my original belief...BUILD THIS BUSINESS. You will get 10 clients in no time, and won't have to deal with all the mistakes the previous owner made. It'll be easier to steal their clients and make them happy. The start-up costs are VERY LOW, so any multiple above 1x is too high. Plus, clients churn at 20% regularly (people sell houses, fire you, decide to live in it)...when you add in "change" to a new owner...probably looking at 30-40% in year one.
You can win this game in your market...no doubt. It requires patience, systems, and meticulous accounting.
@Anthony Venturini, even if you love cars and worked on your own every weekend, it is different than opening a mechanic's shop. I would suggest actually managing at least a few vacation rentals before trying to own a business that runs them for others. I made a lot of mistakes running VRs when I started. I am probably still making some, but those mistakes moved me along in education. Making mistakes with other peoples houses isn't fair to them. Running long term rentals is a business. Running vacation rentals is a hospitality business. There is a lot of difference. It is your money and your life, but maybe work for a VR company for awhile before taking the leap of buying. Whatever you decide good luck. If you don't chase your dream you will never catch it. Merry Christmas by the way.
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