Value per door when acquiring a PM business?

[Tray Ross]

I am interested in purchasing a property management business out of South Carolina. It is a short term vacation property management for the most part, and there are 62 doors. They valued the company at $675,000. However, Using the gross monthly net per property, with a multiplier of 1.8 and then multiplying by 12,  I can’t fathom this $675,000 number.  I can’t understand how they valued their clients at about 10,000 each. Is this wrong?  The gross revenue is said to be 1 million.  So what would be a “per client” cost?   We are only in business two years and I want to start acquiring now.  Thanks for helping this newbie! 

[Samuel Eddinger]

There are two ways to evaluate the business, a multiple on revenue, or a multiple on earnings (EBITDA).  Either approach should have a clawback in case properties churn out.

Depending on the book of business, 1 to 2X revenue would be appropriate.  If they are making $1,000,000 in revenue, you are getting a steal at $675,000.  

Depending on the book of business, 4 to 6X earnings would be appropriate.  You would want to make sure that the owners are paying themselves a market based salary of something like $120,000 a year for the work they are doing.  For $675,000, you'd want to make sure there was profit of $150,000 after that earning of $120,000.  All of this could be done on $1,000,000 if they are running a good PM shop.