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.
