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Sell Your Property Management Company in California
There are many factors that go into the valuation of a property management company by a buyer. Some are objective and some are subjective. The subjective part of the evaluation is generally based on the buyer’s preferences, experience managing various types of properties, and their knowledge. For example, the laws that apply to homeowner associations do not apply to other properties. Likewise, residential landlord- tenant law applies only to rental homes and apartments. Landlord-tenant laws that apply to commercial properties are not identical to the laws that apply to residential properties. Since every potential buyer’s knowledge and experience is different, each will prefer certain types of managed properties over others. Their preferences will almost always effect their valuation of any property management portfolio. The objective part of the evaluation can be broken down into those factors that apply to buyers overall and those factors that apply to each type of property.
The factors that most buyers will consider overall are as follows:
- The number of management accounts and the revenue generated from each;
- The length of time the seller has managed each property;
- The termination provisions. Can the management accounts be terminated on short notice such as 30 days, or are the contracts written for a longer, fixed period of time such as one year;
- The size of the management accounts. Large accounts are usually more profitable but their loss is more harmful. Small accounts are usually less profitable but their loss is less harmful.
- Are the management accounts widely distributed among many clients or are they concentrated in a small number of clients. For example, a seller with 15 apartment buildings, but only 3 clients has more risk than if the 15 apartment buildings were owned by 15 different clients.
- The locations of the managed properties. Are they close to the buyer’s office or far away. Are residential rental properties located in rent controlled cities or counties that create higher management costs, or are any of the properties located in high crime areas that require extra precautions.
- How many in person client meetings are required by the management agreements and where will be meetings be held. Frequent meetings at a property 30 miles away is far different than fewer in person meetings at the manager’s office or by teleconference.
- Do the management contracts for commercial properties include leasing and extra fees for leasing, or is leasing being handled by another company?
- Do the management contracts for rental homes and/or apartments include leasing services for an additional fee?
- The number of additional employees that will be required to service the additional accounts and the cost of those employees.
- Will the key members of the staff leave or stay?
- Is maintenance handled by third party contractors or in-house? Is maintenance a profit center? Additional factors that apply to homeowner association management include:
- Are extra fees earned for handling sales escrows, refinance escrows, and assessment collections?
- Do I have the in- house experience to handle sales escrows, refinance escrows, and assessment collections?
- Who receives the late fees? The management company or the HOA? The mix of properties. Are they detached homes in planned developments, stacked condominiums, or townhomes? Stacked condominiums require the most management time while detached homes require the least amount time.
Additional factors that apply to apartments include:
- Do the buildings have on-site managers who are paid by the owners? Do they show vacant units?
- What are the responsibilities of any on- site managers and their skill levels?
- How many of the apartment buildings are located in sanctuary cities where units are commonly overpopulated?
- How many of the apartment buildings are located in strict rent controlled cities or counties where the rents don’t support a high level of maintenance, resulting in continuing tenant complaints?
Obviously, the terms of any sale are also important. Cash sales bring a higher price than those with seller financing, and sales where the price is based on revenue actually received over time will always result in the highest price. The lists provided are only partial lists because every management company is different and every buyer is different.