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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.  

Property management is big business. In 2021, the property management industry generated over 88 billion dollars in the United States. Real estate comprised 16% of the national gross domestic product (GDP).

However, property management is also small business; more than 300,000 property management companies are registered in the United States, and the national industry employs over 367,000 workers and tens of thousands of self-employed managers.

You might be one of them.

And you might be looking for an exit strategy. Property management is rewarding, but it is also hard work. Dealing with prospects, tenants, employees, contractors, maintenance, repairs, weather, and Acts of God can be exhausting. Many property managers are putting in lots of hours and fantasizing every day about moving on. But they don’t have the experience or expertise to know how to sell their company.

Property management is a unique business. In almost every other industry, a company has to have volume before the owners can consider a sale. Most buyers want to see established procedures, professional management, well-maintained assets, and a certain level of revenue. The market for a business without those qualities is very small.

Unlike other kinds of companies, a property management company doesn’t need to hit a certain size or revenue milestone to be attractive to a buyer. There are buyers for almost any size portfolio, even ones with just a handful of properties under management. The price buyers are willing to pay is based on a multiple of the annual revenue performance of the properties. They base their offer on the quality of the property, location, and leases. I can help you understand and improve the quality of your offering to attract a larger pool of qualified buyers.

Even if your portfolio is distressed, there may be buyers who are looking for a fixer-upper opportunity. My first acquisition was a portfolio that was poorly managed by an exhausted manager who was in over her head. I was able to find efficiencies to save money, renegotiate contracts, and bring the rents up to market value, and the portfolio eventually became profitable. I have the contacts in the industry to find other investors who are willing to take on and turn around a portfolio that needs work to achieve its full potential.

You may also consider partnering with other property managers to increase the size and quality of your portfolio. Together, you might present a package that can appeal to buyers. The larger the portfolio, the more desirable the locations and quality of the units, and the more likely you are to attract motivated buyers.

Not many business brokers understand or specialize in property management, something I believe is essential to recognize the potential in your business and understand how to unlock it. Whether you’re looking for properties to increase your own portfolio or offload the properties you have, I can help you understand your options and connect you with the right buyer.

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.

The market for acquiring successful businesses in almost every industry is heating up. Buyers are motivated by companies with strong performance, consistent revenue, and big potential. That’s why they love the idea of buying a property management company. If you’re thinking about your exit strategy, consider these factors.

Buyers acquire companies, but what they’re really doing is buying a cash flow. Property management companies almost always have predictable and robust cash flows that renew monthly. Housing is almost recession-proof; no matter what’s happening in the economy, people still need places to live. In fact, during this time of low inventory and inflation, rents have skyrocketed, meaning that property management companies are seeing higher revenues while other industries are contracting. For every economic downside, such as low housing inventory, inflation, or rising interest rates, there’s an industry that’s benefiting. Right now, property management is that industry.

Property management companies also have enormous potential for growth without many barriers. Almost every market in Florida is growing; According to Realtor.com, in just the past year alone, Florida’s gained more than 200,000 residents, according to the latest census data, second only to Texas in population growth. Over 300,000 moved to the state in 2021. Population growth means growth for property managers. And, at least 61% of rental property owners work with property managers, so as residential units increase, so will the potential for more business.

Vertical growth is also a viable option for property managers. Referrals come from realtors and insurance agents, so if someone is already working in one or more of those industries, it can make great sense for them to take on property management as a way to vertically integrate a complimentary business. Since the properties need cleaning, landscaping, maintenance, and repairs, some property managers acquire companies providing these services as well. People in finance, real estate, and insurance also have the assets and financial expertise to acquire companies and manage them well, so this is a motivated and desirable group of potential buyers that find additional comfort in diversifying their offerings and sources of revenue.

Because it doesn’t take advanced education or multiple professional certifications to be a successful property manager, it enables a larger group of business owners and entrepreneurs to explore the industry. The low barrier to entry means a large and diverse pool of buyers can consider entering the field. Unlike a restaurant, where you need pre-existing industry expertise and must consider specialized components like chefs, food suppliers, hospitality experts, caterers, etc), there are fewer moving parts that can create a tough road to success. A single good hire (licensed broker) and the ability to maintain business practices of the existing company will be most of what they need to succeed.

Buyers want a solid return on investment when they acquire a company, and property management firms produce predictable and reliable returns. NAPRM (The National Association of Residential Property Managers) estimates that on average, property managers have a 20 percent profit margin (compared to 10% of a successful restaurant). But, property managers can increase revenue dramatically by creating and offering value-added or bundled services to property owners and tenants alike. In the organization’s 2022 state of the industry report, NAPRM said that 91 percent of its members expected revenue to grow over the next two years.

Members reported several ways they intended to grow revenue, including:

·       55% will raise rents on new leases

·       48% will raise rents on renewals

·       36% will raise rates and fees for new clients

·       30% will raise rates and fees for existing clients

·       28% will acquire properties in higher-rent communities

·       33% plan to make value-add updates, particularly in multifamily

·       24% plan to expand resident amenities and services

The property management industry offers predictable revenue and returns on investment, low barriers to entry, and plenty of potential for growth and increased revenue. No wonder buyers are considering PM companies to be one of the most attractive targets for acquisition.

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.