Buying a property management company can be an excellent way to expand your business.
However, the process of purchasing a company can be long, confusing and frustrating if you don’t know what to look for.
Lucky for you, you’ve come to the right place.
In this article, we will be going over everything that you need to know about buying an existing property management company and we’ll answer the following questions:
- What do I need to consider before I start shopping around?
- How do I accurately determine the value of an existing property management company?
- How do I finalize the sale and actually purchase the company?
So, if you are in the process of buying a property management company, but aren’t sure where to start, don’t worry, we have got you covered!
Keep reading to find out our top tips to making a decision that will set you up for success.
What to Consider When You Are Buying a Property Management Company
Whether you already own a property management company and are looking to expand, or you’re setting out to purchase your first one, there are certain factors you need to consider before committing.
As a property management company, you know that location can make or break an investment. However, it is crucial to note that location isn’t just important for rental property owners, but property management companies as well.
If your property management office is hard for clients to find or on the outskirts of town/far away from your main market area, you will risk losing business or having a hard time getting new clients.
Plus, you will not be able to help your tenants and clients efficiently if you aren’t nearby. In case of emergency, this will be an issue.
When you are considering the location of a property management company you are interested in buying, we recommend asking the following questions:
- How close is this location to the properties that you will be taking care of?
- What will be you and your staff’s commute times each day?
- Will the distance from your office to your managed properties get in the way of your ability to provide clients with high quality services?
- Is this office located in the best area for you to grow your business?
The Number of Doors vs the Number of Owners
Let’s assume you are considering buying a property management company with a high amount of doors managed. That’s great!
Further, let’s say a lot of these doors are owned by the same client. These clients are often referred to as “flagship clients”, and as a property management company, you know having a client like this will help you to dominate the market.
However, having the majority of your doors owned by just one or two clients isn’t always ideal for your long term success as a property manager.
When looking to buy a property management company, it is important to make sure that the majority of properties under management aren’t owned by one investor.
This is because if you were to lose the client, you would lose the majority of your business. When it comes to owning a successful company, balance is key!
Overhead and Operation Costs
Are you in a position to cover the cost that comes with buying a property management company? The fact is, finalizing the sale of a new property management company is just the beginning.
You will need to make sure that you are prepared with enough cash flow to cover all of your business expenses, including your employees salaries, your marketing budget, and more.
At the end of the day, if you don’t have enough cash to cover these costs, you won’t be in a position to ensure the success of your newly purchased property management company.
Once you have purchased the company, you become responsible for making sure that everything runs smoothly, and that starts with having enough cash flow to make that happen.
How to Determine the Value of the Company
Now that we have covered what you need to consider as you shop around for a property management company, let’s go over how you can determine the value of an existing company.
This is a crucial step in the buying process, as you want to make sure that you are investing your money wisely.
Add up All of the Assets
The assets of a company include everything that is owned by the business, including property, offices, vehicles, and equipment. You will need to add up the value of all these things to help determine the value of the company.
Another thing to consider when adding up a company’s assets is their online presence and how high the company ranks on Google. This all adds value to the company.
Determine How Profitable the Company Is
Is the company that you are considering actually making a profit? If they are, what exactly does their profit margin look like?
If the company’s profit margin is sitting below the 10% mark, we recommend trying to figure out why that is the case. This could either be a red flag for the company or simply untapped potential that you can fix once you are in control.
Take a Look at the Company’s Debt-To-Income Ratio
A company’s debt to income ratio shows how much income is coming in versus how much the company owes.
If a company’s debt to income ratio is larger than 35%, then they are most likely carrying too much debt, which will make operating the business successfully even harder.
Add up the Overhead Costs That Come With Running the Business
As we mentioned earlier in this article, when you purchase a property management company, the costs will only continue to add up once you have closed the sale.
However, there are some companies that will incur more overhead costs than others.
Take a look at the different kinds of costs that the company is covering on a monthly and annual basis. Look at everything including office and equipment costs, property management software fees, staff costs, and more.
All of this will add up over time and contribute to your overhead.
However, if a property management company that you are considering has a significant amount of overhead, it may not be a deal breaker, as you can always look into new ways to cut costs and save money.
Think About the Company’s Potential for Future Growth
One of the biggest things that you will have to think about when considering buying a property management company is whether or not it has true potential for growth in the long run.
Is the market that the company is located in an area with a growing demand for rental properties?
Or, has the market died down and already reached its pique?
What are the community’s future plans for development?
Aside from the location of the property management company, are there opportunities to increase the success of the business using the properties that it already has?
For example, can you add fees for additional services, or upgrade the units for higher rent?
These are all crucial questions to ask before buying a property management company, as the projected future success is a big factor in whether or not it is worth the cost of buying it.
Compare the Company With Its Competitors
Lastly, you will want to measure the property management company that you are thinking of purchasing against the industry standards of success, as well as the competition.
Determining how a property management company holds up against their competitors will help you to see just how valuable it is in the long run.
How to Buy a Property Management Company
Define Exactly What You Want
So, what kind of property management company are you looking to invest in?
Does the company you are looking at do work that is similar to what you already do?
What is the main focus of your portfolio?
By finding a property management company to purchase that has the same focus as you, you’ll be able to have a higher success rate in the long run.
Our recommendation is to know exactly what qualities you are looking for in a new business and to have a clear understanding of how your new company will fit into your current business goals.
This way, you will have a much easier time integrating a new company’s clients and properties into your existing system.
Search for Any Problems That May Be Present in the Company
If you want to buy a property management company that will succeed, you will need to be good at finding existing problems.
Be on the lookout for any problems such as high vacancy / turnover rates, poor maintenance, or anything else that can get in the way of your success.
Determine How You Would Like to Purchase the Company
How will you finance the purchase? Will you be paying in cash upfront, or will you be taking on a loan or finding investors? Weigh your options and determine which one will be the most beneficial to you and your company.
Plan For Integrating the Company Into Your Existing Business
Once you have purchased the property management company, you will need to figure out how to integrate it into your existing systems.
From collecting rent and screening tenants to learning more about your new team and setting them up for success, how are you going to make sure that your new company succeeds under your new leadership?
This is a crucial step in acquiring a new business, and can be difficult if you are buying a company that already has its own way of doing things. Try advertising your new aspect of your business on sites like LinkedIn for more exposure.
Make plans for how you will integrate your new property management company into your own business, and things should go much smoother.
The Bottom Line
If you are looking to buy a property management company, there are many things to consider before making your decision, including the location of the business and how many clients they already have.
You also must determine the value of the company in the long run to ensure that you are making a positive business decision.
Additionally, it is important to know exactly how your new company will fit into your existing business goals.
We also highly recommend seeking expert advice, such as the marketing specialists at Upkeep Media. We can help you make the best possible decision.
Reach out to us today to not only learn more about buying a property management company, but how you can generate more leads, grow, and succeed in the industry.