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I’ve met plenty of property management company owners who woke up one day and knew it was time to get out. They realized they’re tired, they just don’t have the energy and passion for it anymore, or they’re finally ready to move on to the next phase of their lives.

I’m happy to help them list and sell their companies, but I know they’re probably not going to get everything they want from the sale. That’s because by the time they’re ready to get out, they care more about closing quickly than negotiating the best deal. Selling under pressure, even self-imposed pressure, means the buyer always has an advantage.

That’s why I tell people that the time to plan your sale is long before you plan to sell. 

When you think through your sale in advance, you can make decisions without any pressure and without the emotional baggage of being tired and wanting out at any cost. I recommend that you start an exit plan right now – take a quiet hour or so to write down what you want to achieve from selling your company. Here are some prompts to get you started.

• At what age do you want to retire? What’s your early threshold and your absolute gone-by date?
• How much cash do you need to support your lifestyle, and for how many years?
• Do you plan to work at all, or simply enjoy retirement?
• What kind of buyer would be ideal for your PM company? Are there any individuals or companies that you’ve encountered that might be a good fit? Why?
• Can you afford to hold a note for a buyer? How long would you be willing to owner finance? What return on investment would you want to see?
• Are you willing to stay involved in the company at all after you sell? On what terms?

Writing down a plan helps you visualize what you’d like to get out of the sale of your company – not just the asking price, but also the exit terms and the timeline you think would work for you. Writing down the criteria you’re looking for in a seller means you’ll be more open to spotting an owner who might be a good fit as a buyer. 

Once you develop this seller’s mindset, you can start preparing to make your company as attractive as possible and get organized for the diligence process. I’ve written before about what you can do to increase the value of your company before a sale; planning a couple of years out allows you to accomplish these things at your own pace.

Having a plan in place means that you can control the timing of your exit and be prepared to take advantage of changes in the market. Right now, for example, the cost of debt is higher than it’s been in decades; most owners are having to finance a large share of the deal or sell at a steep discount. We don’t know what the market will be like next year, but if you’re prepared for a sale, you can take advantage of any changes that bring more buyers into the market or make them less risk averse.

When you plan ahead, you and your potential buyer can negotiate your own hybrid deal. You might choose to take an equity position in the company while the new owner focuses on growth. You’ll get the best of both worlds: cash to finance retirement or invest elsewhere and a stake in a growing company that doesn’t need you to be hands-on. 

As a property manager, you understand the value of proactive planning over a reactive response. Being proactive saves you time, money, and headaches. I suggest you manage your exit from your company like you’d manage someone else’s property. Develop a vision. Plan ahead. Be prepared. 

If I can help you understand the value of your company and help you plan for a sale, I would be happy to give you a complimentary opinion of value. 

About the author: Patrick Hurley

He’s a Tallahassee native with almost 20 years of experience in the property management, real estate, construction, and business brokerage worlds. Having owned, operated, bought, and sold property management companies in the past, Hurley is uniquely positioned to help others in the industry find their exit.  He’s been described as dependable, highly efficient, effective, and hard-working with a no-nonsense attitude. He takes pride in his professionalism and attention to detail and focuses on his client’s desired outcome.Patrick still meets with every client and passes along as much knowledge as possible. He frequently gives back to the property management community through professional speaking and value-packed article content. When he’s not helping others with a business transition, you can find him adventure-seeking with his young family.  

Here’s Why That’s a Bad Idea

Dreaded words to almost every Realtor….For Sale By Owner (FSBO). We’ve all heard them, and in almost every case, a FSBO property is going to be a messier transaction with more issues, more setbacks, and more hurdles than one conducted by experts in their trade. The sad part is that most sellers trying to “save the fee” are simply misinformed or uneducated regarding the value created by working with a Broker specializing in that field.  A true professional makes the transaction easier and can net them more money in the sale.  What seller wouldn’t want to do less work and make more money if they knew they could?

The same goes for property owners who try to manage properties on their own (especially if it’s not their primary business).  They usually create problems for themselves and cost themselves money because they don’t have the systems in place for marketing, turning, and managing what is likely the largest asset they own. Again, they’d rather avoid the fees associated with a professional property manager because they aren’t aware of all of the benefits (and potentially higher income) that can come from the service.  As brokers, we all know that vacancies can ruin your return, delayed turns eat away at profits, and leasing to the wrong tenant can be costly. As a good property manager, you pay for yourself several times over each and every year.

The same goes for selling your property management company. An industry-specific, professional broker can pay for themselves several times over financially and by saving you headaches and heartaches along the way.  Starting with an objective opinion of value for your company, setting reasonable and realistic expectations sets the stage for a process to go smoother and increase the chances of a successful closing. An expert broker will help you avoid costly mistakes, and that can keep you from getting full value for your company in today’s market. Even if you think you have a buyer who’s the right fit, you may not be getting his/her best offer/terms; nonetheless, the best offer possible if it’s marketed to the right audience. The only way to know whether you’re getting top dollar is to have other offers to compare it to. There may be a buyer who’s willing to pay a premium for a company with your mix of properties or locations.

Another fatal mistake we see regularly is a company owner who has waited too long to start the selling process.  They’ve considered selling for quite some time, but by the time they’re “ready,” they’re also burnt out and want to get out the door ASAP!  They put their portfolio up for sale but are too exhausted to invest the time and resources it takes to get full price for the business. They’re willing to sell at a discount just to get out. 

Consulting with a broker early in the thought process can keep you from making rash decisions by creating and implementing an exit strategy that fits your timeframe. They will suggest ways to improve the value of your business before you sell. They’ll have ideas on how to optimize your revenue and minimize your expenses before you put your company on the market. Buyers will base their offer on profitability and potential, and seek out companies that have already raised their rents and fees to meet market value. 

A broker can also help you negotiate the best terms for your deal. They’ll be familiar with ways to structure the sale and be able to advise you on whether owner financing should be an option for you to consider. Your broker will keep the communication flowing between all parties and help resolve any issues that might hold up the deal or even cause it to fall apart.  Creating VALUE.

Just like you do for your clients,  a good business intermediary not only saves you time and trouble, they can maximize revenues and pay for their services. You can be confident that you didn’t leave money on the table and have a better chance at closing as quickly as possible.

About the author: Patrick Hurley

He’s a Tallahassee native with almost 20 years of experience in the property management, real estate, construction, and business brokerage worlds. Having owned, operated, bought, and sold property management companies in the past, Hurley is in a unique position to help others in the industry find their exit.  He’s been described as dependable, highly efficient, effective, and hard-working with a no-nonsense attitude. He takes pride in his professionalism and attention to detail and focuses on his client’s desired outcome.

Patrick still meets with every client and passes along as much knowledge as he can. He frequently gives back to the property management community in the form of professional speaking and value-packed article content. When he’s not helping others with a business transition, you can find him adventure-seeking with his young family.  

Over the years, I’ve spoken with many property managers, and the majority of them seem to undervalue the role they fill for their investor clients. Being a property manager is often viewed as a “job” or maybe even as a “Realtor” who manages properties. They don’t think of themselves as business owners, especially those who manage a smaller number of properties. They’ve been earning a good living and working hard. They enjoy the work and may have acquired more and better properties over the years, but the mindset has remained the same as the day they took the first rental property. They’ve figured things out over the course of time, but one thing they haven’t figured out is an exit strategy because they didn’t know this was such a financially beneficial option.

The good news is that no matter how small your portfolio, you probably have an asset that a buyer will be interested in and we can help you find that buyer! Here are some of the factors legitimate buyers consider:

• How many years you’ve been in management and, on average, how long you keep a property under management.
• How many units you have under management (there are buyers for almost any size portfolio) 

• The condition and age of the properties
• The average rent you’re collecting for your properties and how your rent roll is trending.
• The ratio of units to owners. There’s a sweet spot with units per owner because single owners with too many properties can make the portfolio volatile)
• Your monthly expenses and how recently they’ve been reviewed. Can you create any savings and reduce overhead?
• Your monthly payroll, including to yourself.

Many owners think that when they’re ready to retire, transition to another kind of business, or just move on, they simply let their management contracts expire or refer them to other companies. They don’t realize that there are many companies looking to expand their business through acquisition. They may be interested in some or all of your properties if they’re presented in the correct manner and financials are in order.

To make sure you aren’t missing out or falling into the “it’s just a job” category, I recommend that you work with an experienced and professional broker who knows the property management industry. You need a partner who has been there before, knows how to value your assets, can provide value to prepare for the sale, and can give you real world advice on how much your company is worth. Resources and connections cannot be undervalued when it comes to marketing your company to the right buyers and seeing it through to a successful closing.

If you’re considering selling, there are some steps you can take to make your assets more marketable, and you need to know what they are. We’ve published an article on how to plan for a sale here, and you can also reach out to us directly to schedule a call.

Today, there are several kinds of buyers interested in property management companies. Some are first-time buyers who want a source of income and wealth building outside their usual career. Some are private equity firms looking for investments, or entrepreneurs who’ve sold a company and are looking for a place to invest their profits. Some are your competitors, looking to expand in the market or compete with one less company once they’ve acquired your portfolio. Knowing the perspective audiences and what makes them tick is just part of what sets us apart from an unspecialized business broker.

Whichever kind of buyer your company attracts, it makes sense to cash out the value of your portfolio rather than letting your contracts expire or go to a competitor with no compensation. If you’d like help assessing the value of your property management company, we have an online tool that will help, or just give us a ring and get a complimentary assessment of value. We’re here for YOU.

About the author: Patrick Hurley

He’s a Tallahassee native with almost 20 years of experience in the property management, real estate, construction, and business brokerage worlds. Having owned, operated, bought, and sold property management companies in the past, Hurley is in a unique position to help others in the industry find their exit.  He’s been described as dependable, highly efficient, effective, and hard-working with a no-nonsense attitude. He takes pride in his professionalism and attention to detail and focuses on his client’s desired outcome.

Patrick still meets with every client and passes along as much knowledge as he can. He frequently gives back to the property management community in the form of professional speaking and value-packed article content. When he’s not helping others with a business transition, you can find him adventure-seeking with his young family.  

Selling Your Property Management Company

If you’re thinking about getting out of the property management business in the next year or two, you’ll need a plan. There are plenty of steps you can take to increase the value of your portfolio and make it more attractive to potential buyers, It’s important that you put things in motion with enough time to make a difference. 

The first step to improving your portfolio is assessing your portfolio. Take a realistic look at the properties you have under management to see how attractive they’ll be to the new manager.

• How old are they, and are they in good condition?
• Are they in desirable and marketable locations?
• How long have they been under management, and how many are up for renewal within the next 12 months? 
• Are there properties (or owners) you should let go of before you consider selling the portfolio?
• When was the last time rents or fees were evaluated and raised?
• Are management contracts current and how secure are they?

Once you have these (and other) questions answered, you’ll likely have some work to do, so don’t waste time!

Getting rents and fees up to market rate is a critical step in making your company more valuable. The market has changed dramatically over the past two years, and hopefully you were on top of it. Inflation has made everything from equipment and parts to services and labor more expensive. Landlords’ (and potential buyers’) costs have gone up across the board. If you have not increased rents and implemented appropriate fees, you’re not only missing out on revenue, you’re bound to get less money for your portfolio when you’re ready to sell.

It takes time to raise rents and fees, so it may take several months before you’re caught up. But the effort will pay off not only in monthly revenue, but also in the price your company will bring when it’s marketed correctly and exposed to the right buyers. When positioned correctly, many property management companies can sell for multiples in excess of 2X the SDE (the amount a new owner can expect to earn after expenses aka “Seller’s Discretionary Earnings” ), so every additional bottomline dollar can mean $2 or more in your pocket at closing. You’ll be getting a $2+ return on every extra dollar you make, so it’s well worth the effort. 

You can also work on diversifying your portfolio. If you have a large unit/owner ratio, your company can be viewed as a higher risk portfolio. Buyers will want to see a diversity of ownership, so one or two owners canceling contracts won’t drastically impact revenues or even put the company at risk. Finding new owners to sign takes time and energy, but again, you’ll see a return on investment when you sell, and put a few extra bucks in your pocket in the meantime

Another point that often gets overlooked is assessing your current service agreements with vendor partners. Are you getting full value from your vendors? Are there other services you could combine with your rent to increase revenues? Sometimes small add-ons help make increases more palatable for owners and tenants alike, so see where you can create savings for customers and income for your company.

If you need help on tuning up your company prior to a sale, that’s just part of the value we bring.  PM Broker Group offers no cost initial consulting to help you determine what might be right for you. This is the same professional advice owners would otherwise spend thousands to get. Maximize your biggest asset in the smartest way.  To learn more click here.

About the author: Patrick Hurley

He’s a Tallahassee native with almost 20 years of experience in the property management, real estate, construction, and business brokerage worlds. Having owned, operated, bought, and sold property management companies in the past, Hurley is in a unique position to help others in the industry find their exit.  He’s been described as dependable, highly efficient, effective, and hard-working with a no-nonsense attitude. He takes pride in his professionalism and attention to detail and focuses on his client’s desired outcome.

Patrick still meets with every client and passes along as much knowledge as he can. He frequently gives back to the property management community in the form of professional speaking and value-packed article content. When he’s not helping others with a business transition, you can find him adventure-seeking with his young family.  

When it comes to selling their property management company, most owners think about a sale where they walk away from their business, and have a lump sum in their pocket. It’s the more “traditional” route, and some think it’s the only option.  While it may be the right choice for some, there’s another path that can create additional options for working a deal and has the potential to yield a higher sale price and increased proceeds in the end. Sounds interesting, doesn’t it?

Let’s talk Owner (or Seller) financing…it’s a transactional model where the owner gets a down payment on the business at the time of closing and then finances the deal with the buyer over time. Effectively, you (as the Seller) are serving as the bank, and we all know that banks have quite a good model for making money. Here are some points for consideration and reasons I think it could be a good alternative for many owners.

TAXES!!! First, it mitigates some of the tax issues that sellers face when receiving a large lump sum in a traditional sale. Your CPA would be your best authority on this, but depending on the size of the sale and your tax bracket, you could benefit dramatically from spreading your capital gains tax liability over 2 – 5 years instead of tacking it on to the current year’s income. This can be particularly appealing if your next move is retirement and your tax bracket will drop in the coming years.

**July 2023 UPDATE: With SBA(7a) rates 10.5-13%, the cost of borrowing money is the highest its been in 22 years. That means a much smaller pool of buyers that have a cap on how much money they can pay for your business. Owner financing looks alot more attractive now. 

Second, you can attract more buyers by taking traditional financial institutions out of the picture and gaining the ability be creative when negotiating a deal that works for you and the buyer. When a buyer uses a traditional lender, they’ll be subject to the lender’s policies including debt to income ratios, possible appraisals, debt coverage, and more. Lenders are becoming more risk averse in today’s market, and interest rates are very high. In a tight money environment, banks may not be willing to finance your full asking price, even if a buyer is willing to pay it. Seller financing gives you both the ability to determine what your business is worth and how the buyer pays you back over time. Even if a lender is providing some of the funding, they could be much more willing to lend when the owner carries part of the note.They understand that an involved seller increases the chance the new owner will succeed, and therefore, lowers their risk in lending.

Third, you can retain some control within the business and possibly even benefit from future growth. You can request to receive regular reports, so you can make sure the new owner is performing well enough to pay back the loan. You can influence how business gets done and make sure the clients you worked so hard to sign stay satisfied. The transition can be the toughest part for the buyer and seller, and the seller’s participation can be key to its success.

Finally, you have the chance to increase your net earnings from the sale. You will collect the interest that would normally go to the bank. Between the earned interest and a potentially higher sales price, you could be ahead 10 – 15% over a traditional banker-funded sale before you even look at the tax benefits. You can also build earn outs into the agreement to get yet another source of bonus revenue. An earnout is a contractual provision stating that the seller gets additional compensation if the business achieves specific financial goals, usually stated as a percentage of gross sales or earnings. As you protect the business by focusing on retention, and help the business grow by referring clients, you’ll earn back some of the new revenue without the challenge of operations.  Not a bad bonus, huh? Yes, there’s risk in owner financing, and I wouldn’t try to say there isn’t. In a worst-case scenario, the new owner defaults and you have to take back the business. But with risk comes return, and that risk can be mitigated by carefully vetting a buyer (with the help of your favorite Broker, of course) structuring things in a way to maximize available protection. We help you think like a banker by carefully evaluating a buyer’s financial position, industry experience, and , and constructing clear and tight agreements for the process.

Granted, this process will not be for everyone, and that’s ok.  We’re here to help you evaluate all options and determine which one will work best for you.  Considering the conversion of your business from an asset to an investment. You’d probably invest your sale payout in the stock market, anyway; wouldn’t you rather invest in a company where you can oversee and influence its growth?

Seller financing offers owners more flexibility, more choices, and more potential value for their company. I think it’s an option every seller should consider. Curious about what your property management company might be worth? Click the link

About the author: Patrick Hurley

Maximizing rents is the most effective way to maintain and grow your company’s overall worth on the market. Smart property managers understand its importance and how to do it well. 

He’s a Tallahassee native with almost 20 years of experience in the property management, real estate, construction, and business brokerage worlds. Having owned, operated, bought, and sold property management companies in the past, Hurley is in a unique position to help others in the industry find their exit.  He’s been described as dependable, highly efficient, effective, and hard-working with a no-nonsense attitude. He takes pride in his professionalism and attention to detail and focuses on his client’s desired outcome.

Patrick still meets with every client and passes along as much knowledge as he can. He frequently gives back to the property management community in the form of professional speaking and value-packed article content. When he’s not helping others with a business transition, you can find him adventure-seeking with his young family.  

Many property managers take the path of least resistance when it comes to raising rent. I get it; raising rates is never fun, and you sometimes get pushback from tenants, but having strong systems and consistent processes in place makes it easier for everyone involved, and the payoff can be significant.

First, let’s clear up the issue of who you work for and who you work with. The tenants are your customers, but the owner is your client. Customers are people who pay rent. They’re important – we wouldn’t be in business without them – but remember, they selected the product you represent, they did not HIRE YOU.  They are replaceable, and in fact, your job is to replace them when necessary. Clients are the people who have hired you for your professional services, and they’re not easily replaced. They are where your obligations lie.

The value of your property management portfolio is determined by several factors, and a huge piece of it is directly impacted by the return you generate for your clients. So many property managers believe the easiest way to increase the value of your company is through increasing the number of units you service, but the simplest way, and one that does not increase overhead, is to make sure your rents are at market rates. 

You can rev up the value of your existing portfolio and here’s how we ensure we’re maximizing the rents for each unit.

Every good property manager knows that setting rental rates is both a science and an art. The science part gives you the range of rents based on location, size, amenities, etc. The art is knowing where your particular units should be placed within that range based on property condition, competition, and market trends. 

It’s easier, of course, to just raise everyone’s rates by the same amount (“we’ll just increase by 10 percent this year”), but that can leave a lot of value on the table.  We recommend that you make a careful evaluation each time a unit comes up for renewal and plan ahead.

Putting a strong system in place helps you keep up with this process. My company keeps very close tabs on lease renewal dates to plan the process at least 120 days from the time of lease expiration.  This provides adequate time for the resident to give it some thought and notify us of their intentions before we would need to market the property.  Not only does this keep everyone on the same page, but it also gives us time to plan for marketing and necessary turn work if the tenant doesn’t renew.  Extensive planning is the key that’s allowed us to maintain the lowest vacancy rates in our market while achieving the highest comparative rents.

If they decide to renew, that’s great. We let them know that we’ll get back to them soon with terms (which we’ve already determined.)  Meanwhile, we’ve also spoken to the owner about the unit. Are there any improvements that need to be made? Does he/she have an opinion on renewal terms, etc?

Renewals save the owner money. They don’t have to pay a leasing agent or pay for background or credit checks or cleanout fees, so there’s some inherent value there, and we can pass some of those savings on to tenants who are renewing. Everyone can come out ahead.

But, if a unit is going to turn over, it’s important to get the full value for it when the new tenant comes in. One reason is human nature; if you’re priced under comparable units in the area, a savvy prospective tenant will inevitably wonder what the discount might be hiding. 

The second is purely financial, and you can help even renewing tenants understand the process more easily this way. When you renew a lease, you’re locking in your income stream for a year (or more.) Everyone knows that the cost of everything has been increasing dramatically over the past couple of years: equipment, supplies, parts, services, utilities, and labor. If you’re not maximizing value on each unit, you’re choosing to maximize your financial risk on each unit.

In the end, the value of a property management portfolio is based on the Seller’s Discretionary Earnings (SDE), the amount of money a buyer could expect to earn from the company yearly. Every dollar of earnings from every unit counts toward that bottom line, which is what multiples and offers to purchase are based on. 

Curious about what your property management company might be worth? Click the link

About the author: Patrick Hurley

Maximizing rents is the most effective way to maintain and grow your company’s overall worth on the market. Smart property managers understand its importance and how to do it well. 

He’s a Tallahassee native with almost 20 years of experience in the property management, real estate, construction, and business brokerage worlds. Having owned, operated, bought, and sold property management companies in the past, Hurley is in a unique position to help others in the industry find their exit.  He’s been described as dependable, highly efficient, effective, and hard-working with a no-nonsense attitude. He takes pride in his professionalism and attention to detail and focuses on his client’s desired outcome.

Patrick still meets with every client and passes along as much knowledge as he can. He frequently gives back to the property management community in the form of professional speaking and value-packed article content. When he’s not helping others with a business transition, you can find him adventure-seeking with his young family.