Purchasing a Property Management company

[Andrew Belz]

Hi all,

I am residential real estate agent currently in the process of purchasing a property management company (mainly the contracts held). I am working both with the owner of the company and an attorney who is a family friend to make the transition over the next few months to adequately learn the business and processes. The owner is getting out of the business due to age, (76 yrs old) and in the last 7 years he has gone from managing 135 rentals down to 45 because he can't keep up. Our last step is running a forensic audit of the company (S - Corp) and then we will write up the contract to purchase. The company makes +-80k gross and +-50K net. 

I am looking to begin building the company back up and begin growing/hiring when it makes sense. I am also potentially looking to expand into managing mid-term and short-term rentals. Last I am looking to to move my real estate brokers license to an affiliated business or connect them in some way. 

Long term I would like the property management company to have +-200 units including our mid/short term and a team of 3-5 agents working alongside. I am trying to create a roadmap to get here and I am struggling. Any advice on finances, purchasing a company, who I can get to help/hire, how to structure this, or any advice in general would be greatly appreciated.. Thanks!!

[Greg Weik]

Hey @Andrew Belz, I started my company back in 2008 but in the intervening years we have sold one of our satellite offices and nearly purchased a few other PMCs. We pumped the brakes before buying any other PMCs at this point because most of them had a reason to sell, which we found out through due diligence (this guy is 76, so that's a pretty good reason). 

To your specific questions - 
"Any advice on finances, purchasing a company, who I can get to help/hire, how to structure this, or any advice in general would be greatly appreciated."

I would start by determining the ratio of owners to doors.  If there are 45 doors, you need as close to 45 owners as possible to determine the valuation.  More doors per owner equals a lower valuation. 

Make sure the property management agreements are assignable. 

Find out how many of the units are on month to month leases vs. long term leases. 

The quality of doors/quality of tenants should largely drive the purchase price.  SFRs with long-term tenants who pay on time are worth a LOT, but multi-family, subsidized housing units are worth less than $0 in my experience.  The portfolio you are buying is everything. 

Reconcile the leases with the actual security deposit escrow account to ensure everything is as it should be.  Audits are often triggered with the sale of a PMC. 

As kind of a general point: the last PMC branch I sold had about 150 doors and the buyer didn't know what they were doing.  They reached out to me weekly for the first couple of years with issues based on their incompetence (I was happy to help, to a point, but it got old), and the purchasing company lost close to all the doors in the first 5 years due to poor service, poor systems, and not really understanding how to add value to the client.  

Bottom line: most people are not cut out for PM (I'm including existing PMCs in this), and most people don't make much money doing it.  

It's an amazing business and it's like printing money if it's done right, but you have to have systems and processes that are airtight all the way through the property life cycle. 

Hope this helps point you in the right direction, feel free to DM me with any other questions!