Whether you’re looking for a good way to start a property management business or expand your existing business, acquiring a property management company is a great way to accomplish your goal. If you’re starting out, you can save yourself the headache of training an experienced staff and quickly gain a portfolio of owners.
Like any big decision, you’ll need to weigh the pros and the cons. If you’re not careful, you could expand too rapidly and find your overhead costs skyrocketing. Maybe the location is unrealistic for you to service. These are some factors to consider when selecting which portfolio of management contracts to purchase.
The first thing to consider when selecting a purchase is the physical location of the properties. Does this property make sense for your business? If you’re relatively small it might not make sense to have your properties spread out, you will lose efficiency traveling between properties for maintenance and inspections. A larger company however, can spend resources growing in diverse locations.
Geography is also important for property management marketing. Determine your target audience and decide the best method to reach them. Digital marketing is the direction most businesses are going now, but it isn’t the only way. Knowing the area can help determine your coverage and get you the biggest impact for your dollar.
Understand the Overhead
There’s more than gross revenue to consider when buying a property management company. Understand what the overhead costs will add to your business will help you determine your price. If you’re planning to keep the existing staff, you’ll need to consider payroll and training costs.
Did the company that you’re acquiring generate their revenue through recurring fees or transactions? What about their management fees and leasing fees? These questions will help you find out how to make your revenue, but you might want to get help from a property management consulting company to help you determine how much you should charge and how to monetize your properties.
Clients vs Properties
The number of properties in the portfolio is important, but you also need to know how many clients. It’s riskier to buy 200 units owned by four clients than it is to buy 200 properties owned by 200 clients. If each client owns the same amount of properties in each scenario and one client decides to go elsewhere, you lose 50 properties in the first scenario, but only one in the second. Knowing this can help get a better idea of where to focus your efforts when buying a portfolio of contracts. It’s worth your time to investigate the properties though. You’ll want to make sure you’re not going to be taking over potential trouble.
If the geography is right for your business, and you’ve looked at the overhead costs of the purchase and the revenue offsets those costs but you still aren’t sure if it’s a good investment, RentBridge can help. RentBridge consults with portfolio buyers and sellers and we developed a series of tools to determine the ideal price of a portfolio. Contact us for more property management business solutions.