Larger isn’t always better, even in property management. Sometimes, a slightly smaller, but higher quality portfolio will be more valuable and will probably be less trouble to manage. Most educated buyers will look at this like “RPU” (Revenue Per Unit) as an initial assessment of a portfolio and this is impacted by your average rent rate and various revenue streams. Do you know yours? Is it in line with local and national averages, or is there work to be done?
The Pareto Principle, also known as the 80/20 rule, tells us that roughly 80% of outcomes come from 20% of causes, meaning that a small percentage of inputs often produce a disproportionately large number of results. That goes for good things (20% of your clients produce 80% of your revenues) and not so good things; 80% of your problems probably come from 20% of your portfolio properties or your tenants.
That’s why it’s always a good idea to regularly evaluate your portfolio to determine if it’s the right mix for you. Maybe some properties simply aren’t producing the results you hope for. Maybe it’s location – the property eats up valuable staff time in travel. Or it’s too far from attractive amenities or too close to undesirable elements. Perhaps it’s the level of property or tenant, bringing your average monthly rent down, but taking up just as much time – or more – to manage.
Maybe it’s an owner (or several). It’s not uncommon to have different perspectives and opinions than some owners, and you just don’t see eye to eye on how to handle issues or how and how much to invest in repairs and updates. Maybe the property is just on the edge of losing its appeal, built cheaply or so long ago that it’s no longer a draw for top-tier renters. Are they willing to invest to bring the property up to your standards and/or those of renters in the area?
Whatever the reason, there are options for you to consider. One is to give it a final shot to bring things up to your standards, investing the time and money to solve whatever the performance issue is. If you do this, have a deadline. Don’t let this effort and expenditure of resources drag on. It’s time to make it better, or make it go away. Another possibility is to have a frank conversation with an owner and work toward an early termination. Will you forgo some income? Yes, but it will also free you up quickly so you can refocus time and energy in another direction to hopefully make it up and then some. Lastly, you can let the contract expire and politely explain that it’s best to part ways. Though this is probably my last choice on the list, it is an option. This kind of delays the inevitable and seems like a copout, but there are some owners or properties that just have no hope. Sometimes, it’s the right call.
Those are the options within your portfolio, but sometimes outside the box is the best place to think.
What about finding someone to sell the contract(s) to? You know what they say about one man’s trash and another’s treasure. Use your contacts to find someone who’s a better fit for the properties. It may be someone who specializes in that kind of property or someone whose portfolio is closer geographically. There might be someone who’s just starting out as a property manager and who would appreciate acquiring a known entity with the benefit of your history and recommendations for it. Even if there isn’t any actual money in this option, maybe you’re helping someone else get started or saving a good owner (with properties that don’t fit your profile) the trouble and risk of finding someone new. Giving a hand could just be the right thing to do and boost your reputation.
I’ve written before about how micro acquisitions can help you grow your business. This is the same principle, but you’re on the opposite side of the transaction. You shrink your business (temporarily), but you are left with a higher-quality portfolio. That frees up your time and resources to find properties that are a better fit for your current business and your plans for future growth.
If I can help you start planning to sell your property management company, a good first step it to find out what it’s worth.
About Patrick Hurley:
He’s a Tallahassee native with over 20 years of experience in property management, real estate, construction, and business brokerage. 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.