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Interested in selling your Property Management Business?
Revolution Rental Management is always interested in acquiring property management businesses or portfolios of managed properties. We have completed several acquisitions in both Georgia and Florida, and we are currently interested in acquiring additional portfolios in all Georgia markets.
WHY SELL TO REVOLUTION? There are many reasons TO sell, but the big questions are to WHOM, and for HOW MUCH?
We Can Pay More! Many of the big acquirers in the industry operate nationwide businesses based out of places like California, where they don’t understand our market in Georgia and the revenue potential that is possible in this low-regulation environment. Revolution, on the other hand, knows this market inside and out, because we’re already here. It’s a lot easier for us to capitalize on an acquisition without having to make any changes to our policies or procedures. We can easily tuck a new company under our umbrella that is already in this state, and your clients and residents won’t even notice a disruption. In fact, they’ll probably see new added benefits that we can bring them. For this reason, we are generally willing to pay more than the common nationwide acquirer.
What are management companies selling for these days? It’s never as easy to value to a company as it is to value something like a house or a car, because there simply aren’t any publicly available resources showing what others are paying. In fact, most acquisition agreements have confidentiality clauses prohibited the parties from saying what was paid. That said, we generally see management companies purchased for between 1-2x their annual revenue. Obviously that’s a big range, so where you fall in that range will depend upon how your business is structured, your average rent in the portfolio, etc.
How will we determine the valuation of your company? The following are several key factors we look at when deciding what a management portfolio is worth.
- Gross Revenue: This is more of a rough guide than a firm valuation metric, because there are companies with lots of revenue and very low profit, and companies with low revenue that are highly profitable. But this gives you a ballpark estimate at least.
- Profit: Rather than net profit, we generally look at something called EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization). This number gives us a better idea of what our actual earnings will be on the portfolio. In most cases, management portfolios sell for between 3-6x annual EBITDA based on the last 12 months.
- Price Per Unit: This is rarely a good way to value a company, because the value of a unit can vary so widely, but we certainly look at how many units are being brought to the table. If we’re entering a new city in Georgia, then we’ll want to have at least 50 doors to acquire there, for example. We also usually wouldn’t acquire very large portfolios, say of 1,000+ doors. Our sweet spot is between 50-500 doors, but we’ll occasionally stray outside that depending upon other factors.
- Intrinsic Opportunities: While the hard numbers above are important, there are also many other opportunities that might not just be based on the existing numbers.
- Staffing: We always guarantee that existing staff will stay with us following the acquisition. We never want to see anyone out of work (unless you straight up tell us that a specific employee is a “bad seed” and needs to go). In many cases, we can find great new opportunities for advancement for existing employees that will enhance value of the acquisition.
- Location: Being in a specific key market that we’re looking to expand in is obviously a big factor. For example, a company in the Atlanta metro area is a valuable target for us, because we already cover the entire metro area, and it is very easy for us to “tuck in” a new portfolio into our existing market. On the other hand, if a company is in a key market that we want to enter and has a valuable portfolio of units there, that can be very attractive to us also.
- Office Space: Revolution operates mostly remotely, so while we always maintain a small local office, we can usually downsize office space and save money, which increases the value of the acquisition for us.
- Growth: Companies that are growing rapidly offer us an opportunity to acquire fantastic business development talent who can keep the portfolio growing after the acquisition is completed.
- Terms: We offer a wide variety of terms, from an all cash acquisition, to a structured seller-financed option over a period of years that can help you drastically reduce your tax burden and end up with more cash out of the deal.
We can minimize the dreaded clawback! Pretty much any acquisition of a property management company will involve what’s called a “clawback,” which is basically a way for the acquirer to reduce the purchase price if any units are lost in the first 6-12 months after the acquisition. In the typical acquisition by a big nationwide company, churn can be as high as 30% (or even more if poorly executed). That means the seller is frequently ending up with 30% less than originally planned from the sale. By selling to a company already in the Georgia market who knows this business inside and out, you can be sure that the churn of your portfolio will be a lot less, guaranteeing you more money in the end.
** Be very leery of an all-cash buyer with giant legal teams to disguise the clawbacks! **
We Are Local! Your clients and residents want to have someone who knows the Georgia market, not some giant conglomerate with a headquarters in Silicon Valley. By partnering with a local company, you ensure that the churn is low, netting you more money.
We Can Offer Flexible Terms!
Scenario ONE = All Cash Up Front: All sellers would love to see cash up front, until you dig into some of the details this will entail. If we can come to an acceptable price, we can work out this scenario possibly involving bank financing already approved with Enterprise Bank. We are open to an all cash up front discussion, but it will entail a few things to consider:
- Capital Gains Tax – You will end up with a giant tax bill the year you sell your business, which means you will end up with a lot less cash in the end that you would have received if you spread the payout over a few years and reduced your tax burden.
- Clawback – In an all cash up front scenario, the usual clawback tends to be longer than any other term because of the threat of mass exit of accounts as a side effect of the transition. I have seen some clawbacks go as long as three years on cash sales. This exposes you to a lot more risk.
- Influence – In an all cash up front transaction, the seller is typically encouraged to cut all ties with the business and sail into the sunset. Occasionally, that seller can become an employee of the company for a short duration – but with minimal if any say so in the direction of the company.
- Less Money – Here is the kicker: an all up-front cash offer is typically lower than an owner financing offer. That amount may vary, but it could be as much as 25% lower than a deal paid out over several years.
Scenario TWO = Seller Financing: Another fantastic option to consider would be to allow us to work out terms to seller finance a portion of the purchase price. Typically, we would come to an agreement on price and terms – which would always be a higher than a cash deal.
- Structure – In the scenario of owner financing, we would agree to a cash down payment around 10% of the sale price. The remaining balance would entail the seller carrying a note from the buyer. These are typically in the range of 3 to 5 year notes, fully amortized at competitive interest rates.
- Capital Gains Tax – While you should always discuss with your CPA, in general, you will end up paying MUCH less in tax if you seller finance your deal over several years. And usually the longer you spread that term out, the lower your tax burden will be. It’s always better to end up with more money in your pocket.
- Earn Interest – In addition to the purchase price of the portfolio, you would also be getting paid interest at competitive rates. This is extra money you’re making, stacked on top of the extra money you’re getting from the lower tax burden.
- Clawbacks – Just as with a cash sale, there is still usually a clawback as part of the deal, but it is usually at far more favorable terms of 6-12 months rather than years. This greatly reduces your risk.
- More Money! – No matter how it’s structured, a seller financed deal is pretty much always going to result in you getting more money in the hand. Could be a little more, or it could be a whole lot more. But it will basically always be more.
We Cover the Entire Atlanta Metro! We are not a company just covering a small portion of the Atlanta market. We cover everywhere from LaGrange out on the Alabama border, all the way up almost to Athens, and from Canton all the way down to Thomaston. This means we won’t be new entrants to where your properties are, and we already know the market in depth. Your clients and residents will be safe with us.
One Question to Ask Yourself – “What Are YOU Going to Do After the Sale?” – We can offer various options for you depending upon what your goals are after the sale. Generally we can keep you on in a role that you would enjoy. If you love signing up new clients, we can always use someone to handle business development. If you just want to do real estate sales and get out of property management, you can hang your license with us. Let us know what you’d like to do, and we can probably make it work. Or, if you just want to walk away, that’s okay too!
Referrals for Other Companies: Maybe you aren’t looking to sell, or maybe you don’t even own a management company, but you know someone who does. If that’s the case, we pay referral fees of $2,500 for any acquisition that closes. Just fill out the referral form linked at the top of the page.
Conclusion: We hope you’ve found this to be intriguing, and if so, we hope to hear from you soon, whether you’re looking to sell your own business, or just referring us to someone else who might be. Remember, no matter what your goals, we can probably find a structure to the deal to make it work for you. We look forward to working with you!