Smart NOI boost or shiny object?

[Steve Shaffer]

Hello all.  I am located in Fargo, ND and currently have 62 units across 16 properties. I am using third party property management at 6%.  The items I find myself needing consistently are cleaning, maintenance, lawn service, and snow removal.  Snow removal is obviously unpredictable but has been significant the last two years. There is a snow removal business for sale in my market with three plow trucks, a blower, and a dozen commercial contracts included for $35K. Owner discretionary earnings are 30-40K the last several seasons so the price is fantastic.  However, the owner hasn’t raised prices in many years and the current commercial clients aren’t obligated to stay/contracts haven’t gone out this year.  I’d be looking to establish a new S-Corp which would handle my snow removal, lawn care, maintenance, and cleaning as well as servicing other multifamily owner friends in my area.  I can stay as busy as I want/generate considerable revenue in those categories if I choose. I have good personnel for those seats on the bus.  My primary goal though is lowering my expenses for my portfolio while providing bettor service  (more responsive/dedicated maintenance and snow removal done well and in a timely manner).  I understand there is going to be a considerable time commitment on my end to start this up, get the systems figured out etc.   Has anyone done this for their portfolio?  What are your thoughts?  Good idea or shiny object?

[Greg Dickerson]

Originally posted by @Steve Shaffer:

Hello all.  I am located in Fargo, ND and currently have 62 units across 16 properties. I am using third party property management at 6%.  The items I find myself needing consistently are cleaning, maintenance, lawn service, and snow removal.  Snow removal is obviously unpredictable but has been significant the last two years. There is a snow removal business for sale in my market with three plow trucks, a blower, and a dozen commercial contracts included for $35K. Owner discretionary earnings are 30-40K the last several seasons so the price is fantastic.  However, the owner hasn’t raised prices in many years and the current commercial clients aren’t obligated to stay/contracts haven’t gone out this year.  I’d be looking to establish a new S-Corp which would handle my snow removal, lawn care, maintenance, and cleaning as well as servicing other multifamily owner friends in my area.  I can stay as busy as I want/generate considerable revenue in those categories if I choose. I have good personnel for those seats on the bus.  My primary goal though is lowering my expenses for my portfolio while providing bettor service  (more responsive/dedicated maintenance and snow removal done well and in a timely manner).  I understand there is going to be a considerable time commitment on my end to start this up, get the systems figured out etc.   Has anyone done this for their portfolio?  What are your thoughts?  Good idea or shiny object?

The answers really depends on your goals and time available to manage and keep an eye on the new business. Focus is 100% of the game. What is the ROI on time and capital invested in the new business vs scaling the portfolio. Of course you cn do both if you are a great leader, delegator, motivator and have/can find great managers. If so you can do both and use the cashflow from the snow business to invest in more properties.

The main thing to keep in mind is this will not save you money directly on your existing properties as you want to charge market rates for your properties just like you would for any other customers. This is a separate business and charging retail prices to services your properties will keep the the value of the business up. The business will be valued on a multiple of EBITDA when you go to sell it at some point which you want to plan for now and work towards the exit.