How much should I value the purchase of a property management company?

[Bryant Hull]

I am aggressively looking for property management companies for sale in Orange County CA. I have seen pricing vary. It typically falls into 6 months of gross management fees on the low end and a year and a half of gross management fees. 

Has anyone seen any different ways to value these businesses? 

[Steve Rozenberg]

@Bryant Hull

Here are some thoughts

Model 1 - Monthly management fees. 7 months - 16 months. The number of months depends upon how well (or bad) the management company is running.

Type of business for this offer

1. Mom / Pop shop
2. Business owner is heavily involved
3. Business is running with a skeleton crew
4. There is no marketing or sales division
5. Systems are not well documented or non-existant
6. Not a lot of add ons (programs / fees)
7. Typically have another career as a real estate agent
8. Typically less than 100 properties

Model 2 - Revenue (1 - 1.5x)

Offer is made based on yearly revenue. The better the business aligns with Empire and is run efficiently the higher the rate can be offered.

1. Company is run like a business
2. Marketing and sales division
3. Property owners are not involved in decisions
4. Systems are documented and automated
5. Ancillary fees and additional programs
6. Have maintenance or real estate departments
7. Typically > 100 properties
8. Business owner not heavily involved in operations

Model 3 - 20/20 Plan variation

No or very small amount up front. Percentage (20 - 50%) of all management fees on back end for 1 year. 20% of all leasing for one year. Ability to continue to lease the property.

1. Agents that manage homes on the side
2. Not running like a business
3. < 20 properties