Acquiring Property Management Companies: Financing Deals, Finding Deals, and Integrating Processes | Fourandhalf - Internet Marketing for Property Management Companies

Acquiring Property Management Companies: Financing Deals, Finding Deals, and Integrating Processes

Mike Kalis is the CEO and president of Marketplace Homes. He joined us on the Property Management Show podcast to talk about growth plans and discuss the challenges of acquiring property management companies.

Marketplace Homes – 19 Markets and 3,100 Doors

Marketplace Homes was born 11 years ago, in metro Detroit, during the collapse of the housing market. The idea was to help people get out of their existing homes and into a new home. At that point, the only way to do it successfully was to rent out the existing property.

The company grew quickly, and they appeared on the Inc. 500 list four years in a row as one of the fastest growing companies to watch. Marketplace Homes grew in 19 markets, and they presently manage 3,100 doors. They’re adding 150 to 200 doors per month.

The goal of Marketplace Homes is to give the property management industry the multiples it deserves. They want to have 30,000 homes under management and be the first public property management company on earth.

As a company, Marketplace Homes has done a lot of acquisitions, and they want to do more.

Some people become accidental property managers, just like others become accidental landlords. The market is pretty hot right now, and brokers who were making money selling homes full time are not so enamored with the property management business anymore. They’re burning out with this business, so Marketplace Homes is pursuing the portfolios of people who are ready to retire or pursue other opportunities.  

Marketplace Homes plans to get to that 30,000 homes in five years. They currently employ 85 people, so they are ready and staffed up to handle that growth.

The Reverse of Growth and Castle Property Management

With the previous podcast focused on the lessons that could be learned from the closing of Castle Property Management and Mike’s presence in the Detroit market, it was hard not to talk about what went wrong with Castle. Like Alex, Mike believes they ran out of money. He also believes that people need to come first and tech needs to come second.  

Great people will fix lousy processes and ineffective technology. However, great technology will not fix lousy people. The team at Castle was great. But, in a service-first industry, it’s very hard to focus on the tech and succeed.

The Challenges of Acquiring Property Management Companies

Acquiring property management companies comes with a number of challenges. Three of them are pretty obvious and difficult to overcome. They are:

  • Financing the purchase.
  • Finding companies that want to be bought.
  • Integrating the companies into your own operations.

How Do Companies Like Marketplace Homes Finance Their Acquisitions?

It’s a lot like buying real estate. You pay with cash or you settle for terms. Cash can come in through investor money, operations money, or other types of income. If you’re trying to put together several deals and you have the cash flow to support it, you might explore an SBA loan. Otherwise, you can rely on outside investors, bank loans, and your own capital.

The other option is to buy a company with terms. You know that each door you acquire will generate a certain number of dollars every month. With an acquisition, you’ll take a percentage of that income and give the rest back to the owner.

It depends on what the sellers want and the buyers agree to. Some want a large check so they can go off and explore different opportunities. Others like getting a monthly payment coming in from those properties.

The key is a good partnership. The sellers have to be sure they’re going to get their payment if the deal is for terms instead of cash. To offset that risk, sellers often earn two or three times more than they would in a cash deal. Otherwise, you have to trust the buyers. If you’re worried that you won’t get paid, you probably shouldn’t do the deal.  

Deals don’t close when there’s a lack of trust. Face to face meetings can make a big difference. Meeting each other and getting an idea of what each company is about can inspire a better business relationship. Physical connections are helpful when you’re acquiring a company. So is the exit strategy. If the seller doesn’t have a clear exit strategy, there’s a good chance the deal won’t close.

So – cash, loan, or terms are the best ways to finance an acquisition. Or, some combination of all those. And, meet someone face to face when you’re buying or selling. Be honest, and talk about exit strategies.

Why Sell a Property Management Company: Fitting into Industry Shifts

Property managers who were once brokers know there’s more money to be made on the brokerage side now, and that’s a good reason for them to sell their companies. The industry has shifted. There aren’t as many accidental landlords right now. So, if you built your business off those clients, you have a shrinking portfolio.

The property management industry is in a state of suspension. Property managers do well in a down market, such as the one in 2011 and 2012. Property managers do pretty well in a hot market, too. Just look at 2015 and 2016.

Currently, the industry is in between cycles. The next couple of years will likely be quiet, especially in terms of accidental landlords. The accidental landlord client has been reduced by about 70 percent. That will continue to drop, as the investor client emerges.  

There’s also a geographical difference. In Atlanta, it’s easy for investors to put money into real estate. It makes sense. But, in New Jersey, it’s hard to get the same outcomes. Investors are priced out in markets like San Francisco. So, depending on where your company is located, the next few years will make a difference to whether you’re able to grow.

Take a look at your portfolio. Is it made up of investors who are still acquiring properties, or is it made up of accidental landlords? Investors will grow. That profit is going to happen, and hopefully those gains go towards other properties.

Property management is a counter-cyclical business. This is perhaps the biggest Bull Run for real estate in 100 years. So, if you’re choosing to be a property manager instead of a broker during this period, you had better be the very best property manager in your market. You can survive, even in a competitive market, if you’re great at what you do.

But, if you’re a mom and pop shop managing 70 homes, you may need to reflect on whether you’re the best in your market. With the market trending the way it is; if you’re not the absolute dominant person in your market right now, it might not be a mistake to sell while there’s still some value in your company. That’s the thought process of Marketplace Homes.

How Do Companies Like Marketplace Homes Find Companies to Buy?

To grow through acquisition, you need to know where to find the smaller 70 to 100 unit portfolio companies with people who are burnt out. You also need to find larger companies that are ready to transition. Sometimes, it’s as simple as picking up the phone.

An acquisitions team can provide support by reaching out and staying in touch with companies that may inquire years before they’re actually ready to sell. That’s a longer sales cycle.

Networking is a big part of the acquisitions process. It’s critical to attend events like PM Grow Summit and NARPM conferences. Be open and willing to chat honestly. It’s not too hard to get lists of property managers from organizations like NARPM. Sending out emails and engaging in constant outreach is the best way to acquire those properties.

It’s hard to think about the end or exit when you’re building a business. If you have an end goal in mind while you’re growing, that’s great. The point is to build an institution instead of a one-person business. It’s not about you and it’s not even about your company. It’s about knowing how to build something that has real value. You’re creating something that produces financial results. Marketplace Homes wants to take that thing you’ve created to the next level.   

How Do Companies Like Marketplace Homes Integrate the Businesses They Buy?

After the acquisition is found and financed, it’s time to integrate the new company into the established company. This can be tricky.

The goal is to not lose owners. Marketplace Homes has an onboarding team, where specific people from each department will be assigned to the portfolio. There’s also a Solutions Team who talk to homeowners about the partnership. Every single client that’s acquired is contacted. They introduce themselves and explain what’s going on.

The exact fee structure is kept in place. You might argue that this doesn’t make sense, and may even cost money, but it can be an important way to establish trust and maintain stability.

Otherwise, most of the processes can stay the same. Some operational things may change, such as contact information for emergency repairs. Those are the things that owners are taken through, step by step. There’s also a team that contacts tenants. Similar to the onboarding process with owners, things are explained to the tenants so they know what’s changing and what isn’t.

The branding depends on the company that’s been acquired.  

For Marketplace Homes, the general practice is to absorb all of the acquired companies under their umbrella. It makes the most sense and it keeps the business simple. The exception is when there’s a brand that carries equity. And, this may change in the future. Staying open and flexible is a good way to succeed.

It wouldn’t be a Property Management Show podcast if Alex didn’t ask his guest about their customer acquisition cost. For Mike and Marketplace Homes, it changes for every funnel and every market. Generally, it’s between $400 and $700.  

The best way to reach Mike Kalis is on marketplacehomes.com. And, if you have any questions about property management marketing, you can always contact Fourandhalf.

Alex Osenenko

About Alex Osenenko

Alex’s professional mission in life is to help small businesses grow and thrive. Alex is the President and CEO of Fourandhalf.com and a Co-Founder of the PM Grow, Inc. His business philosophy is simple: Happy Customers are created by Happy Employees, which results in Happy Shareholders. Alex's deep commitment to entrepreneurship and improving the lives of small business owners everywhere empower him to host “The Property Management Show” bi-weekly Podcast and speak internationally on the subjects of Growth, Marketing, Sales, and Entrepreneurship.

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Alex Osenenko
President and CEO

Alex’s professional mission in life is to help small businesses grow and thrive. He is the President and CEO of Fourandhalf.com and is serving his 5th year on the Board of Directors for CALNARPM.

After spending 9 years in the trenches with his property management clients, Alex draws on his experience to host “The Property Management Show” Podcast and co-authors a weekly Property Management Blog on Fourandhalf.com. Alex has extensive experience speaking for various NARPM events at the local, state, regional and national level.

Alex is a graduate of San Francisco State University with an Electronic Commerce Systems Degree. His business philosophy is simple: Happy Customers are created by Happy Employees, which results in Happy Shareholders. Alex serves on the Board of Directors of CALNARPM (California Chapter of National Association of Residential Property Managers) and hosts a Podcast “The Property Management Show“, available on iTunes.

 

John Bykowski
Chief Operating Officer

After graduating from the University of Michigan with a film degree, John proceeded to do everything but. During his career, John has specialized in operations and has developed processes for small companies in diverse industries, such as bleeding-edge marketing technology, social networking, trade shows and exhibitions, and cloud software. John and Alex had worked together previously, and when he needed someone to help take Fourandhalf to the next level and beyond, Alex brought in John as his first employee, and later, business partner.

In addition, now that he’s using his film school know-how to help property managers look their best in their blogs, his mom no longer feels his degree was a complete waste of time.

Danny Morris
Director of Account Management

Born in Australia and growing up in Israel, Danny has spent a lot of time traveling the world between those two places. After completing his military service in Israel, Danny began following his biggest passion, writing, which he discovered while backpacking South America and publishing his first book.

When it was time to unpack, he returned to Australia to complete his Journalism studies amongst the beaches of sunny Perth. Danny is a huge online fan and after working in a number of related jobs, he finally gets to combine his two favorite things, working with media and people.

Marina Osenenko
Product Manager

Marina draws upon her real estate, business operations and customer service expertise for Fourandhalf. Her favorite part of being with Fourandhalf is the opportunity she has to really get to know our clients, build professional customer relationships and truly be part of a team that assists in their success.

Her time away from work is happily spent watching her children grow up and attempting to keep up with them! Any spare moments beyond nurturing her children are filled with hiking, spending time with friends, exploring the Bay Area and squeezing in a non G-rated movie every now and then.

Marie Liamzon
Product and Marketing Manager

Before joining Fourandhalf, Marie worked for one of the largest banks in the world. She took on different roles, but couldn’t find what she was looking for. She pursued a variety of side projects until she finally decided it was time for a career change.

Marie is very passionate about helping people and learning new things. In her spare time, you might catch her exploring new places and taking far too many pictures.

Kyle McLean
Customer Success

Born in San Diego County, Kyle McLean has since migrated to the Oakland woods. A fan of tall trees and tall tales, he holds a bachelor’s degree from the creative writing program at the University of California, Riverside and is a licensed California Certified Shorthand Reporter.

After a few years as a freelance court reporter, Kyle has joined Fourandhalf for an opportunity in sales and digital marketing. In addition to reading and writing, his hobbies and interests include gardening, hiking, soccer, coffee brewing, and craft beers.

Karen Wyle
Account Management

Originally from the Philadelphia area, Karen moved eight times in seventeen years all over the East Coast and to the Midwest before settling here in Northern California six years ago. She is an alumna of Brandeis University with a BA in American Studies and earned a MBA in Marketing Management from Indiana University in Bloomington. Karen’s business career has been well-rounded, with experience including advertising, direct marketing, corporate retail, product management, new product development, and new customer generation. Beyond an office setting, she has been thrilled to volunteer her time giving back to the community with KPMG’s Family for Literacy, at her daughter’s school, and as a Girl Scout Troop Leader. Karen enjoys music, good food, traveling to new places, completing jigsaw puzzles, meeting people and making connections.

Karen became a part of Fourandhalf’s Account Management team in 2016, relaunching her marketing management career after a pause to raise her family. She is excited to rejoin the business world and to work with such a strong marketing management team.

Paige DeRuyter
Account Management

Paige graduated from Chico State University with a degree in Journalism. Her favorite part of working at Fourandhalf is helping clients create and produce educational blog content to grow their business. She is an avid sushi enthusiast who enjoys riding her bike and watching college football and in her free time.

Nissim Boozaglo
Web Hosting Support

After working as a Radioshack store manager, Nissim decided to change his career path and pursue his passion for music production by getting his B.A.S. from Expression College for the Digital Arts. Nissim has a beautiful 8-year-old girl and loves cooking delicious homemade food and going camping with her! At Fourandhalf, Nissim is responsible for the implementation of the clients’ Landing Pages and Google Adwords campaigns.

Theresa Barnes
Campaign Director

Theresa Barnes was born and raised in the Bay Area and graduated with her Bachelors Degree in Communications Studies at San Francisco State University. She worked in aviation at a private FBO for 3 years, and other industries, before joining the Fourandhalf team. She finds a balance between being a young mother, work, and living a healthy lifestyle outside of work by staying as active as possible. She is dedicated to customer satisfaction and having a great work ethic.

Brittany Stephens
Campaign Director

Brittany recently moved to the Bay area after graduating from California State University Chico with a degree in Business Marketing. She is known for her excellent communication, customer service skills, and shameless nerdyness. Her passions include: music, tabasco, Lord of the Rings, and the Golden State Warriors.

Logan Jones
Business Development

After graduating from CSU Chico with a Degree in Business Marketing, Logan moved back to the East Bay and pursued a career in sales. With an attention to detail and a relentless drive, he strives to improve himself and his passions each day. When not at work Logan enjoys playing guitar and writing songs, and occasionally performing around the Bay Area. He is an avid sports fan keeping up with everything SF Giants, 49ers, Cal Bears, and Golden State Warriors.

Hope Lumbley
Account Management

Hope recently moved to the Bay Area after graduating from Chico State University with a degree in Journalism. She is coffee crazed, dog obsessed and hopes to visit all National Parks. One of the greatest times in her life was when she lived abroad in Costa Rica and hopes to travel more of Central America in the future. She feels blessed to work for a company who supports her love for travel and the need to learn more about what the world has to offer.

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