Fourandhalf published a blog, earlier this year, about the best channel for quickly growing a property management company. We went over the two main options that property managers use: running a Google Ads campaign or buying an existing property management business. The blog spurred a lot of dialogue among the members of our tribe and it became obvious that we should bring in someone who has plenty of experience in buying existing portfolios for our blog.
Today, we welcome Jock McNeill of Alliance Property Management, who has been quietly building a property management empire since becoming a property manager in 1999. Alliance Property Management has acquired six property management companies in the last 10 years and Jock is sharing his wisdom on what to keep in mind of when buying an existing property management company for yourself.
Due Diligence When Buying a Company
If you are preparing to acquire an existing property management company, you must do your due diligence. Jock says that you have to know what you’re getting into – know exactly what type of portfolio you’re buying, especially with your first one.
Make sure the portfolio is in line with the company you currently have. If you have a company portfolio built on high-end single family homes, you don’t want to buy a business that manages a completely different type of property. Make sure the properties you’re taking on are in good condition and have a historically good stream of income attached to them.
Although it sounds like you are investing in a good area if you’re buying from someone who grew 50 percent in the last year, you’re not getting seasoned accounts. Those won’t necessarily be as a good as clients that have been around for 5 or 10 years.
How Alliance Analyzes the Properties They Inherit
If you are looking to acquire an existing property management company, follow these tips that Jock uses for Alliance Property Management:
- Check the quality of the properties you receive by looking at a rent-roll and make sure that a non-disclosure agreement is always attached. You want to make sure income history is there. Ask for two or three years’ worth of records showing management fee income.
- Then, actually get into the car and drive around and look at those properties from the outside. An exterior inspection can tell you a lot about the care of the home.
Pro-Tip: An interior inspection isn’t practical, but you can do it within your first two or three months of taking over the account.
Should You Buy from a Property Management Company with a Poor Reputation?
In a perfect world, you’d want to make sure the company has a good reputation. However, it’s possible you’ll buy from someone with a bad reputation, so beware: you’re probably getting bad clients because they’ve been poorly handled. Nonetheless, not all is lost, your newfound owner base may welcome the change to a new property management company.
In those instances, Jock tries to look for situations where he can add value. An example is if a company is using an old school property management software, and you have a cloud-based software – that makes a huge incentive for them to stay with you when you take over.
How to Address Company Branding
When buying a company, Jock will usually add them to the Alliance Property Management brand unless there is value in keeping the original brand. Recently, they acquired a company in a market where Alliance didn’t exist. The brand they bought had been there for 30 years, so they made sure to keep it at it’s original name as it had a great presence already. Deciding on whether to sunset the brand or maintain it is unique in every situation.
Jock will be speaking on all of these topics at length as well as how to value a portfolio at the upcoming PM Grow Summit on January 25-27, in West Palm Beach, FL. He’ll be joined by Michael Catalano, CEO of Real Estate Connections in Silicon Valley to discuss growth through acquisitions for property managers.
If you have any questions, please contact us at Fourandhalf.