In an age of entrepreneurship, crafting and selling everything from property fixer-uppers to property management companies is on the rise.
I recently had the opportunity to interview Benjamin Maciel.
Benjamin is the former owner of Donna Farrow & Company, a local property management company based in St. Joseph, Missouri.
He is now the former owner because Benjamin was able to successfully flip his property management company for a profit after owning it for about 3 years.
I figured, it’d be an interesting story to share with the property management community, which is why I decided to highlight the key takeaways of this interview in this post.
Keep on reading for the main takeaways of this honest interview that unveils what it’s really like to buy and sell a property management company.
Transcription of Buying and Selling a Property Management Company
How did you end up in property management?
I was in school, then I used the power of an “internship” to work my way into the business of property management. I started off by volunteering my time so that I could learn more about the business and I eventually just found a way to work my way up to the top.
The owner at that time, which I didn’t know about when I first started, was on her way out. She was leaving out of state. So, she was looking for a buyer and she found out that I knew people who had money. And she presented me with an offer, and I took it.
Had you always intended to be a business owner?
My first intention walking through the door of that company was “I’m going to learn everything there is to know about this particular business, property management, and real estate, so down the road, I can be a business-owner/real-estate-investor.”
I didn’t go into it saying, “I want to be an employee”. Now, when I was presented with the offer to buy the business, I knew I had maybe a five to six-year window to get in there, get it done, and sell it. I knew that was going to be my new overall goal.
I would have been okay living in the Midwest in Kansas City, but I knew the reality was that for me and my family, it wasn’t going to be the best situation in that area. So, I knew I had about a five to six-year window to get in there, get the business rocking and rolling.
Why did you choose to come up with the initial capital to buy an existing company rather than just starting one from scratch?
Looking back at it now, there is no way I would have been able to start it from the ground up and make a profit in the same window of time. That’s because in property management, the margins are so thin even in higher market areas with higher rents.
So over there, we wouldn’t even do a ten percent in some cases, because for some properties, ten percent would only be forty bucks. We would have to put in place a minimum of sixty-five, seventy dollars just to make money on units.
My advice for people is to go and find a business, find somebody that’s literally hunched over their business desk getting ready to retire or in some cases die if you’re lucky. I mean that is the ideal seller. That is the ideal scenario.
You get in there to have a business. There are a few employees. You can take that platform and you can build on it right away. From there you’re already set to start rocking and rolling versus getting in there and having to establish a rapport and introduce yourself to community and all that stuff when you’re starting a business from scratch.
What advice do you have for somebody who’s looking to buy an existing company when it comes to negotiating a sales price?
As the buyer, you want to look at cash flow. How much money is the company making?
Now, when you’re buying the business, you want to get a third-party account to review the records. For example, when I went to the final negotiation table, I found out that they didn’t include payroll taxes in the report.
Well, at that time, she had a few employees, so it was something that became an issue. You have to look and be aware of all these details. So, I would definitely recommend getting a third-party evaluation to help with negotiations.
Was there a lot of back and forth on the sales price? Take us a little bit through that process.
On the sales price, no. It’s kind of like when you buy a property. It’s not so much the sales price versus the terms. Once you realize that a seller is non-negotiable on the sales price, then you go to the next best thing which is the terms.
I mean I was going to banks. I was going to local lenders. I was going to credit unions. I was going to my college at that time which turned out to be a nightmare to get financing.
But once you get a seller in the mindset that they’re selling, it’s already sold. And people start finding out, especially in a small town.
At that point, you can wear them down until they say, “Okay. Well, we’ll take this. And I’ll finance it.” Seller’s financing is a beautiful thing. If a seller is not willing to negotiate the sales price, then you should just go to work on the terms.
I’m also coming from a standpoint where I didn’t have money. If you’re a hotshot and you have already bought five or six property management companies, then you can say, “Hey, you want five-hundred? I’ll give you three fifty cash.”
And you can go to the bank. They’ll give you the loan. Or you would have the cash or something like that. But, starting in the position I was in, you had to be creative.
Is there anything in particular that a new buyer needs to watch out for?
Yes, you need to know how much of the company’s portfolio is made up of different customers.
Imagine if half of their business is based-off of one client. You would probably want to either get the hell out of that deal or you would want to get the price re-adjusted for if that client was loss. Because if you lose that client within five, six, seven years, then they take a huge part of out of your resale price with them.
Basically, if all your units are coming from one owner, your company is less valuable than if they had a diverse array of owners.
Something else new buyers need to watch out for is how much of the sellers’ feelings and dreams are tied to their business. Sellers don’t always understand that it takes multiple businesses to create money.
Some sellers think they’re going to make all of their money in one shot with one business because it’s their baby, when in reality the business isn’t worth as much as they think. To them, their company is almost priceless. It’s everything they’ve buried their life too. So, they’re going to expect it be worth more than it might actually be on paper.
To you it’s just another feather on your cap. But to them, that’s their crown. You’re going to have to sit through dinners and hear about all the glory stories to get through the negotiation process, but it’s all part of the game.
What was that process like going from starting below some of the staff to becoming the owner of the company?
It was very difficult. I think we had five or six employees to begin with. In the end, there was only one or two left.
The jealousy was very intense in my particular situation. I mean, I even had people who were trying to sue me. One of them tried to sue me for age discrimination and filed a complaint. It was just nuts.
The first year was really stressful. And the reason why I say that is because it was too small of a business. When you’re at two, three, four-hundred units, you only have maybe four, or five people and you can’t afford to ruffle any feathers.
If you lose an accountant, all of a sudden, you’re three months behind, and then you got to get in there and do it yourself. All of a sudden, you basically buy yourself another job.
Looking back on it now, I think I would have still bought the business. I would have just done it a little differently. I probably would have tried to do some other things first to get more experience elsewhere. But I ended up learning everything I needed to know along the way.
What were some of the landmark changes you experienced throughout the process?
Hiring veterans was amazing. It really helped to stabilize the business, because the employee turnover was ridiculous.
I think everyone should hire as many veterans as they can. I don’t think they get enough credit. I had a person that was in finance in the military, and she was just amazing.
I had another person who worked at maintenance or something like that in the military in AGAR. And she turned out to be a great leasing agent. I truly think that military people are the perfect employees.
They helped me afford more time for myself. I could then focus more of my attention on where the market was going, see the way the local town was going. I would try to predict what they were going to look like in four or five, six years down the road.
Ideally, it would have been great if I could have kept the business. But my wife and I knew that it wasn’t the right location for us.
How did you go about finding a buyer?
Well, Google and a lot of friends. I would go on Google and basically search for brokerages I thought would be interested.
At first, I’d look at their reviews. I’d see the names. I’d Facebook the names and find a way to contact them.
I would choose them on the basis that this person looked like they were doing great or that person had really good lawyers. And this person has this. And that person has that. That’s the way I did my research.
What advice do you when it comes to increasing the value of a property management company?
Number one, get your accounting records all in order. You should make sure that you have a professional evaluation done on your business by a third-party accountant. And then you’ll take that to the business broker. That’s what I would do.
You have to make sure that your accounting records are in order at all times. Also make sure that you have standard operating procedures. There’s huge turn over in property management. It’s important that you have your processes in place if you’re look at selling your company.
And then, once you get that stuff going, you can start learning about ways to add value to your business like with late fees. After you’ve achieved that level of operations, all of a sudden, your business is working for you, instead of you for it.
It’s all about streamlining and adding on additional sources of revenue that you might not have thought of in the first place.
That was when my partner and I at that time realized, “Oh, my gosh. We’re subcontracting out all this maintenance. If we can just hire a couple of part-time veterans or guys that come in and do some of these jobs, I mean the business is going to basically pay for itself.”
And so we did that and it was just it was really a good experience. I would say, the first year was hell. First year and a half, it started turning around really quickly. Like with anything, it takes time. It’s not going to be smooth right off the bat.
When you sold your company, did you use a broker to help facilitate the deal?
Yes, definitely. At that point, I said, “I needed an evaluation from you, guys.”
I got three or four different people that said, “Well, you know, it’s worth this,” or, “worth that.” And when the numbers all started coming around the same price, I figured, “Okay, this is probably what my company is worth.”
After that, I had to decide who I thought was actually going to work hard for my business. So, the person that called me back the most, that’s who I gave it to. Because I didn’t want it to go to shambles after I sold it.
And when it was sold, they obviously set a non-compete agreement. I have to keep any new property management business I have at least one hundred miles away from my previous business.
That wasn’t a problem for me because I had told them since the beginning, “You don’t have to worry about me competing with your business.” I was getting out of this town, anyways.
Now, we’re in Portland, Oregon and it’s a totally different experience. And they’ve done amazing stuff for my old business, so I know I made the right choice. They kept a lot of the employees, all of them actually.
And they treat them really good. I couldn’t be happier for my people, for the people, you know?
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