Property Management Company - Buy vs. Build

[Dylan Thomas]

Long-time reader, first-time poster here at BP. I would like to start a discussion and/or get input from you all on a decision I've been back and forth on: buying an existing property management company or growing organically.

There are a couple of threads on management company valuation with very helpful opinions, but none seem to address the purchase of an established, fully-functional, long-tenured property management operation. I've been engaged with an owner for several months who plans to sell his business and retire. The company has been in operation for multiple decades, has great client loyalty, and consistent revenue and earnings. There are around 220 units under management with nearly a 1:1 unit-to-client ratio (which helps negate concentration risk), and the annual revenue across all sources is approximately $600K. There is a full-time staff of five (excluding owner), and the average employee tenure is around 10 years. All in all, the operation is running smoothly albeit with stagnant growth. I see significant value in the brand-name and relationships the business has, as well as a great opportunity for growth with a younger set of legs and new strategy. With SDE @ approximately 25% of revenue, I am inclined to pay roughly 1x revenue/4x earnings for this business, would love any opinions otherwise.

On the other hand, the idea of growing organically is very appealing. The stress of juggling my day job (in Commercial RE) while building to critical mass would be trying, and essentially "selling" myself and my services for a period of time are the obvious drawbacks. This would, however, eliminate customer retention risk, employee risk, and large amount of debt obligation. The upside, however, is virtually unlimited and I would have the flexibility to grow and customize the operation to my specifications from the start.

Long-winded post, but I'd love to get others' input on the crux of the issue: buying vs. building.

Disclaimer about myself for context: I have managed my own rental units as well as a handful of others, but have never worked full-time as a property manager. Long-term plan is to run full-time REI operation w/ in-house property management, short-term plan is to run a property management operation full-time. I have a finance background with several years of commercial REI experience and several years of personal REI experience.