Help Valuing a Property Management Business

[Adam M.]

I have a lead on a older gentleman retiring and wanting to sell his property management business. I don't have a lot of details yet, but will be meeting in the next week to discuss. He has around 100 doors, but I'm not sure of his fee structure. In my opinion, the only guaranteed income are what's left on each contract. 

I've been looking to start a PM business and this might be a good way to grow quickly and have some credibility with potential new customers. Any advice would be much appreciated! Here are some of my initial thoughts:

1. After you pay a manager to run the operations, what is the net profit?
2. What kind of multiple for this kind of business, if any?
3. How much time/money is left on each contract?
4. If his fees are too low for me, would I "grandfather" them in?

[Kim Meredith Hampton]

@Adam M. First make sure that you get a Real Estate Brokers License.

2nd, look at the contracts and see who owns the properties, and does one person own a majority of the houses.

Are the contracts assignable?

Look at if there are any ancillary income from the contracts; late fees, leasing fees, renewal fees, nsf fees, maintenance markup? these are just a few.

Do they have all of the security deposits

Look at least 2-3 years of P & L statements

Has this owner that is retiring been involved daily and holding the owners hands, or does he have a staff to handle day to day?

If fees are too low, I would suggest keeping them the same for at least one to two years, then slowly incorporate increases.

If you pay cash, make sure that you have some sort of clawback ($$) for a certain amount of time if accounts leave in XXXX days.

Will the owner stay a certain amount of time to help in the transition?

There are a  lot of other items, but I hope this helps.

I have seen accounts cost $1500 to $4000 per, depending on a lot of the above items and then some....

You could also use the 2.5 of the gross. Make sure to back out any of the owner contributions or any other thing that he compensates himself to come up with a good number. (cell phone, health car, car etc...)