Knowing your profit margin is a good deal in any industry, but it`s also important when valuing a property management company you`re buying or selling. There are small differences within these sales methods, but these are the three main methods used when selling a property management company. What expenses does your property management incur monthly or annually? This includes things like office space and equipment rental, personnel costs, software license fees, etc. If you find it`s a bit high, this could be a good opportunity to research areas you can save. Buying an old property that looks great can work if you`re lucky, but you`re just as likely to be over your head if you`re immersed in a market where you`re less experienced. You need a clear vision of how this company and its portfolio will fit into your existing business and portfolio from the outset so you know if it`s right or not. You may also want the existing team to remain in place or reassign it to other administrative needs. This is an important question that 80% of property managers do not ask. People see property management as a source of income, which it is. But anyone who owns a business should eventually prepare to sell it, and the sooner you start preparing, the better. Let`s say you want to go out with $5 million and the average rent you collect is $1,800.
In the open market, it would take 2,000 to 2,500 doors to close with $5 million. Some people have a lot of doors but don`t earn as much on those doors and this will change your number. As with so many things, the answer is, “It depends.” Property management companies vary widely and much of the answer depends on the level of engagement. What should a property manager do for you? Measure your business or the company you are interested in against industry standards for your market and competitors. You can track this yourself and compare your portfolio to reputable data sources – or by using property management software. For example, Buildium`s Analytics & Insights gives you rental benchmarks for your specific rental market for businesses of your size. There`s a lot to learn from the data you collect as part of your normal operations. The topic of preparing your property management for a successful outing is a big one, and our guest today is one of the brightest minds in property management.
Andrew (Andy) Propst has experience growing his business, Park Place Property Management, from 200 properties to 4,000 properties in eight years, and in the last year alone, he has added 700 doors organically and another 400 through a local portfolio purchase. Andy is also a former chairman of NARPM and now CEO of HomeRiver Group, a national company that acquires property management companies and their portfolios. Andy will share with us his ideas for any owner who wants to position their property management for a successful exit. Since coordination between maintenance companies is a huge waste of time (and sometimes unreliable), especially in a busy rental market, starting your own in-house maintenance business can be a huge advantage. In some cases, you may see that certain costs are passed on to you, especially if the manager charges a small monthly percentage. Examples can be advertising costs related to the placement of a tenant, annual inspection fees and a kind of reserve so that the management company has money to deal with unforeseen but urgent expenses. Sale of assets. The buyer buys a “business book” from the seller. Also known as goodwill. Essentially, the buyer pays for property management contracts (contracts).
Ideally, existing contracts are transferable, otherwise the seller must obtain the consent of each customer. Amortization is reset (goodwill is generally amortized over 15 years). If you`re not there and it`s your business, you`ll need to take a look at your accounting department to determine where the problem lies and fix it before investors are likely ready to consider buying the business. For those who don`t want to sell, learning how to evaluate and drive your company`s key financial drivers will successfully prepare you for the industry giants in your market. Are there opportunities to expand the business with existing properties? For example, adding fees for additional services is a way to financially grow the business. Company size (total number of managed units) Thank you for subscribing. Monthly property management resources delivered to your inbox! With a clearer understanding of the value of your business, you can take steps to increase the value of your property management company before a potential sale. I`m going to talk about the different ways to increase the value of your business. There are many factors to consider, but this will give you the foundation of what your business is worth and some ideas to increase the value of your business.
If you`re looking for a more comprehensive exam, schedule a free consultation. Clean financial records are one of the most important pieces of information that potential buyers want to see when determining if your business is a good investment. There are exceptions because your business is bigger than the market itself, but that`s true in most cases. Whether you`re looking to buy your first property management company or you`re responsible for acquisitions in a large organization, you need to have a good idea to notice the inconsistent details and red flags. The debt-to-equity ratio allows you to compare the amount of money that goes into a business and the amount of money it owes. A good debt ratio is about 4%. Companies with just over 6% have too much debt, making it difficult to find a lender if you need one. Yet, the reason why there is debt. Taking on debt to grow your business is a completely different story from the debt you chose to cover a cash deficit. Evaluating someone else`s property management company for a potential acquisition is an important factor in deciding whether the company would be a good investment.
Keep in mind that the goal is to assess the overall health of the business. It doesn`t have to be perfect, but it has to be in good condition. The next few years may or may not bring big changes in your journey as a property management company. But whether you decide to buy, sell, or stay where you are, it`s important to know the value of what`s in store for you. Knowing the recommended steps and doing your due diligence will go a long way in avoiding buyer`s (or seller`s) remorse. And even if you don`t make a large financial transaction, you`ll still have a better view of the market and the value you offer. Tax privileges on businesses are tied to the business itself and not to the owner.