The prospect of acquiring a property management business is very exciting.
The hard part comes when the deal is done. How can you handle the baggage that comes with a book of business? How do you protect yourself from the potential loss of owners and employees?
There’s so much to talk about with Kathleen that this is a two-part podcast. Let’s jump into the first discussion.
Acquiring a Property Management Company: How Kathleen Did It
If you’re not aware, before she became The Property Management Coach, Kathleen was a successful property management business owner. She did not start from scratch. In fact, she acquired Portola Property Management before it was even called that. The company she bought was an established business with a decent door count.
Owners did not know that Kathleen had acquired the company right away; she was introduced as a new property manager. It was rolled out as the former owner being semi-retired and pursuing other things.
Kathleen took a few immediate steps:
- She sent out an email introducing herself. She explained she was excited to be part of the team and shared her background and experience.
- She invited any owners to call her directly with questions.
- She began calling owners and personally introducing herself to them.
This portfolio had a lot of clients who had been with the company for 30 years. They were older and the internet in 2005 was not what it is today. These personal phone calls were necessary (We didn’t even have smartphones then).
At the beginning of her ownership, Kathleen did not make any changes to the way the business was run. Continuity was important.
Acquisitions and Employees
The person Kathleen bought the business from did not tell his employees there would be a new owner. The secretive nature of the transition made things difficult. She was introduced to the staff as the new owner, and there was some stress.
Kathleen reassured them quickly. In the first week, she let the part-time leasing agent go because that employee had been lying to owners.
The company was structured as a real estate office with a property management division. There were four property managers, each with their own portfolio of business. Most of them were Realtors. One person was a full-time property manager. There was also a full-time assistant who was very valuable to Kathleen as she took over. They discussed her career goals, found money for a pay increase, and Kathleen supported this employee in getting her license and moving forward with the work she wanted to do within the company. This employee knew the owners. She knew how things worked. It was important to keep her on board.
Before buying the business, due diligence was essential. An outside CPA was brought in to look at the books. Kathleen looked at the properties on paper and drove by the homes.
It’s a different situation when you only have a couple of employees. But, even if there are 20 employees, you have to approach the business you are buying with excitement. Take time to talk to each individual employee. Reassure them as a group that you’re going to look to them because they’re the experts.
Cultural fit is critical. If you’re buying the business as your starting point, you have more space to keep things as they are. If you’re buying the business and incorporating that business into your own existing business, you have to make sure there’s a culture fit. If your existing business works in a way that’s 180 degrees different from the new business, you can expect some friction.
When Kathleen ultimately sold her company, she was told the new owner didn’t need a bookkeeper. It was painful for Kathleen to let her own bookkeeper go, but she wanted to be the one to do it so she could offer severance and support.
Employees will want to know where they stand.
Before You Acquire a Property Management Company: What to Look At
Kathleen consults with property managers preparing to buy a business. Here’s what she tells them to find out first:
- Look for pending lawsuits.
- Look for recent lawsuits.
- Review all the books. If you’re not an accountant, pay someone to audit them. You don’t want to bring on a business that’s going to cause financial problems for you as a new owner.
- Check the actual files. Are these quality accounts?
Kathleen worked for a property management company for a little while to ensure she liked the business, and she was surprised when the broker bought a whole book of business that turned out to be junk. They were crappy properties with owners who didn’t care. The new owner had to close out every door.
This portfolio was bought from a friend. Deals are often done between property managers, but remember – this is still a business. If you’re buying from a friend or colleague, do your due diligence anyway.
If the company runs well and produces cash and the employees are running it so that you don’t have to be hands-on, you’re in a good position. Compare this to a company that needs a lot. Maybe it’s a sole proprietor who doesn’t want to upgrade their software. Kathleen coached a client who inherited 200 doors when her father passed away. Everything was on paper. It was an old-school ledger and not even an Excel document had been used.
Know what you’re getting.
- Find out if the owner is willing to stay on in some capacity. Is there a clawback clause? If you buy a property management business with 100 doors but by the end of the year, owners leave and you’re left with a business that has 90 or 75 doors, you’ll want to get some of that money back.
- Look at the systems a company has in place. What kind of software do they use? This is going to matter if you’re integrating theirs into yours. It gets tricky if you’re meshing two businesses together.
Minimize Losing Owners During an Acquisition
Reach out to owners right away.
You should not be a surprise to them.
You can be proactive. Email the owner-clients and introduce yourself as the new business owner. Or, don’t introduce yourself as the owner. Call yourself the vice president or the property manager. It’s up to you.
Don’t make dramatic changes to the business because it scares people.
When you start doing things that will help – you minimize owner churn.
Improve communication. Owners will like that.
Share ideas for increasing revenue. Owners will love that.
When owners see early improvement with you, they’ll be less likely to leave.
Here’s something that may feel counter-intuitive: invite some of your owners to leave.
Kathleen knew early on that there were simply some owners that she wasn’t going to get along with. They were rude, verbally abusive, or simply difficult. So, she went straight to them and told them that she was the new property manager, and it was okay if they decided to take their property back and either manage it themselves or look for a new property management partner.
She simply asked for 60 days of notice so she could provide a smooth closeout.
Kathleen knew that these problem owners would only find some simple or stupid reason to blow up at her and fire her. She wanted to avoid that, so she gave them the opportunity to leave. She said it was okay. Many of them took her up on that and were relieved they could leave without conflict.
Does it mean losing business? Yes. But, you’re exiting the relationship on a positive note rather than a contentious one.
You won’t say this to everyone. Only the owners that you know won’t work out. It’s okay to close them out.