The Property Management Show

Our guest today is Scott Brady, President of Progressive Property Management in South California. Scott and Alex discuss a specific property management growth strategy: targeting SMIPOs or Self Managing Investment Property Owners. Scott reveals how he doubled his company size every year for the last 4 years by implementing the “Blue Ocean SMIPO Strategy”. Subscribe to The Property Management Show on iTunes Today to Stay Up to Date on the Latest Episodes The Property Management Show is brought to you by Fourandhalf. We help property managers strategize and implement marketing plans that bring in owner leads. Click the image below to get a free marketing assessment and find out how to start getting better clients into your portfolio. The post Growing a Property Managing Company by Targeting Self Managing Investment Property Owners – Blue Ocean Strategy with Scott Brady appeared first on Fourandhalf Marketing Agency for Property Managers.

Kathleen Richards, President of Portola Property Management and PropertyManagementCoach.com, discusses setting fees and building a team for property management companies. Topics include revenue generation strategies, pricing models, utilizing realtors for moveouts, and optimizing organizational structure for efficiency.

Our guest today is Jordan Muela, CEO of LeadSimple.com, a sales CRM software tool designed specifically for property management firms. Jordan and Alex discuss how successful property management companies use both Pay-per-click and Pay-per-lead strategy to scale and grow their businesses. Subscribe to The Property Management Show on iTunes Today to Stay Up to Date on the Latest Episodes How to Scale a Property Management Business Through Pay Per Click and Pay Per Lead Hello and welcome to The Property Management Show. I am your host, Alex Osenenko. My day job is serving as the CEO of Fourandhalf, a marketing company working exclusively with fee-based property management companies. I have spent the last seven years of my life helping property management companies become more successful by improving sales, marketing and operational efficiencies. In this show, we’ll deconstruct success down to its key components and invite subject matter experts to help you improve every facet of your business. The topic today is how to scale a property management business through Pay-per-click or Pay-per-lead methods. Our guest is a resident expert on anything to do with sales, and he is specifically experienced in the Pay-per-lead world. He runs a company called ManageMyProperty.com. Today we are talking to Jordan Muela, the CEO of LeadSimple.com. Q: Please walk us through the ManageMyProperty.com. What does it do and what is it all about? I started in the industry working for a venture-backed Homeowners Association company back in 2007. From there, we decided to start a business that sold leads. It’s a Pay-per-lead model and it’s called ManageMyProperty. Then, we started a second company that provides lead software, and that’s called LeadSimple. Q: So ManageMyProperty is exclusively for management companies. Is it exclusively for residential property managers, or does it deal with other sorts of leads?  About 90 percent of our business is with the residential market. There’s a small portion of homeowners associations that we work with, but the vast majority of the work we do is for single family homes. Q: I see some consistencies with companies being very successful with Pay-per-lead and Pay-per-click and then some companies are more reserved about buying leads. I’ve created a list of five common traits that make companies successful with these models, and I’ve asked Jordan to put together his list as well. We’re going to compare our notes and see what we can come up with. That should help our listeners decide how to buy leads. So what is the first reason that people are successful with Pay-per-lead campaigns? People are successful because they understand what they’re paying for. There is a high volume of churn, which means there are a smaller number of companies who stay with it. They dominate because they have a great strategy and they stick with it and sell. Then, there are other companies that will come into the market, do it for a period of time and determine that it is too expensive or it doesn’t work, and they go away. That disparity does merit having an understanding of how this works. Folks that are succeeding know what they’re paying for. They understand this is an opportunity to make a sale and it’s not an actual guaranteed sales result. It’s not like getting referrals. For people who are just starting out, they don’t get past the referral stage. Referrals are fantastic, and we always want to optimize that. However, it’s not a push button mechanism that will give you leads on demand. So if you want to scale your business, you’ve got to explore the scary world of paid marketing. Pay-per-lead is one of those options. Another thing to understand is how the bidding model works. The bidding model will be a first price or second price auction. A first price auction is where you bid $10 and you pay $10. A second price auction is where you bid $10 and you pay up to $10, but the system will manage your bid and keep it as low as possible while still maintaining the best possible rank. Those are two pretty different systems. One is not better than the other, but with a lot of Pay-per-lead services, we’re talking about a paradigm where that lead is going to go to more than one vendor. Consumers are seeing a list of companies and deciding who they want to contact. They’re going to want to talk to more than one company; this is a huge asset and investment, so you’re aware of the fact that it’s nice to get quotes from more than one company. For some property managers, that comes as a surprise or a disappointment. You want an exclusive lead, but that’s not how it works. So it may not provide the best return on your investment to bid yourself all the way to the top of the list. There are 10 companies in a list and any consumer who contacts a person on that list will probably contact three or four companies. If you’re in the top three or four spots, you will likely get a high percentage of the leads without paying top dollar. So it’s healthy to manage your bidding strategy well. A lot of people will ask us how well the leads convert. They want to know the conversion rate. However, it’s a misnomer that there’s a universal and meaningful statistic that can be provided. In general, it ranges from five to 40 percent. With that kind of a range, the number means nothing. What matters is how well you do with the leads. A lot of the companies that end up not succeeding with Pay-per-lead feel like the lead source didn’t work. The truth is a sufficient sample set is needed to have an informed opinion. All of the marketing channels work, but you have to be able to efficiently close your leads. Q: So the Pay-per-click works in a similar way except that it doesn’t go to other competitors. So property managers would bid on a position on a certain page for Google search. For example, the search might be “Memphis property management.” You can bid a top spot for $5 per click. You get that click, and from there you don’t get a lead; the click goes to your landing page or your website, and from there you hope to get a call. A consumer has a bit of time to research and read what you have. They can watch your video and read your reviews and then decide whether to contact a property manager. It’s similar because it’s paid marketing and I think our customers are successful with Pay-per-click because they understand unit economics. At the end of the day, if you’re willing to pay $500 for a revenue stream of $7,000 over the lifetime of the customer, paying $500 to acquire that customer works out well. Some companies have been around since the 70s and they’ve never advertised once. They manage 1,000 units. There are also companies that can achieve 1,000 units in four years. It depends on how aggressive you want to get or how much growth you’re looking for. That’s why we’re talking about scaling the business. This isn’t a sustainability strategy; you use Pay-per-click and Pay-per-lead to grow and execute your marketing plans. What is your next reason to explain why customers succeed? This is a lifestyle decision. Different companies have different goals. Some are happy to keep it as a one man show, with a lean business model. Others have significant growth ambitions, so it’s up to your own goals as a company. You definitely have to be realistic when it comes to goals. The second point with Pay-per-lead comes down to response time, or how long it takes for you to follow up on a new inbound lead. This demonstrates why some companies are radically more successful with Pay-per-lead. The whole business model dictates that you are charged per inquiry. So to facilitate that, you cannot receive inbound phone calls. That lead you are getting comes as an email or maybe a text message. It’s up to you to respond. If you ask people whether they think responding is important – you’ll get an unqualified yes. If you ask people if they personally follow up, they’ll say yes. If you’re in a room full of property managers and you ask them to raise their hands if they respond to leads within an hour, about 75 or 80 percent of them would raise their hands. Most property managers think they respond within an hour. We were very happy to accept that assumption until we actually started running a business selling leads, and we realized that this is not the case. We did some research and tracked leads and we found that in aggregate, it was taking 39 hours on average for a property manager to respond to an inbound lead and they were making 1.6 call attempts. As a lead provider, that was not a pleasant statistic to uncover. That had dire consequences for our business model, and that’s one reason we transitioned to software. When we did a broader study, we realized less than six percent of companies in any given market will respond to email leads in the first 15 minutes. The reality is that companies that call within first five minutes versus companies that call after half an hour are on average 2,000 percent more effective at getting someone on the phone. When you look at Pay-per-lead, you know your lead has competition. That lead is talking to other people. So it makes no sense to pay for these leads and not call them immediately. When you call someone immediately, keep them on the phone. Eventually, you’ll hear a competitor trying to call in and that’s a good sign. To make this happen, there has to be a process and some technology involved. If, in house, you know that when a lead comes in you will hand it off to one or two agents, you can’t let it get complicated. There has to be a system in place to distribute the leads. Even if you are the primary sales person, you need a backup person. A lot of people will resist this, but if a lead comes in from your Pay-per-lead provider, in a perfect world your administrative person or your secretary is at least calling the lead and saying thank you, and alerting them to the fact that you will be calling. Q: I’m not sure I agree with that. We record hundreds and thousands of calls in our Pay-per-click campaigns because we want to monitor quality and make sure we can help our customers get real when it comes to selling. We hear time and time again is if the answering service or someone less competent gets to the lead first, it’s usually not a pleasant conversation. Get in the mind of a person who is calling for a property manager; there’s a big need and there are specific questions. They need answers. A lot of times, they get deep into struggles with bad tenants or inspections. I feel like someone less experienced reaching out could be a bad idea, do you not agree with that? Well, let’s get more specific. If we’re talking about a call center, you’re right. A call center that handles your business as well as plumbers and electricians and attorneys should not be calling your leads or representing your business. I’m talking about someone who works inside your office and has a very limited scope of response. This is not someone who can field all questions or have a conversation. This is simply a call to say thank you and introduce your company, and then to schedule a time for the primary sales person to have a call. If that person is in your office, they will know if you’re tied up for the next three hours. This advice is specific to Pay-per-lead. You can maybe fudge on this a little bit for an inbound call or a referral. With Pay-per-lead, it’s competitive and there are already three other people calling that lead. So it’s do or die at that point. Q: I understand that. I think the customer picks up on experience and merit and how well the person is able to answer questions. Even if the phone call is scheduled, I feel like the opportunity to connect is lost and someone else can connect. That’s why my list of reasons for success includes having a competent and dedicated sales team in place, ready to process those phone calls. Specifically, I find that people fall into the trap of tasking the sales person with other things. Maybe you’ll have your sales person do some owner reports or marketing or blogs. You end up loading your sales person with those low value tasks that need to get done, and they can’t get to the phone at the right time. Then, there are all around performance issues. Or vice versa and having your property manager field sales calls. Property managers are excellent at managing properties, and they are so emotionally invested in their accounts. But if someone new comes in, they are like strangers. They love their portfolios so much but if someone unknown approaches them about managing property, it’s like a prospect has to do as much selling as the property manager sometimes. Does that make sense? I do understand where you’re coming from. The mental orientation is important. It’s hard to switch from task to task, it comes with a price. Q: Some smaller companies don’t think they have the opportunity to hire business development representatives or sales people. However, I think a sales person is an asset on the balance sheet. Absolutely. A lot of times, I hear people say they want to buy half a sales person. Or a quarter of a sales person. That’s challenging and I don’t have the answer, but you’re right. Q: So what is point number three? Why will people be successful using Pay-per-lead services in property management? Having a compelling offer. When someone is reading about your business within the context of a list of companies, you have to stand out. You have to put yourself in the shoes of your prospect. I feel good about my services and I’m doing my best, but if I’m in the shoes of my prospect, in what way will I stand out? There are so many dimensions on which this can happen. Here’s where it’s not going to happen: by saying you have the best service. Or, you love your customers. Or, you’re number one in your market. Those phrases mean nothing and we hear them over and over again. When the Internet was new, there were these banners on the websites and everyone loved them, but then people developed banner blindness. No one can see the familiar and similar things anymore. It’s the same with offers. You need to provide a pricing offer, which is monetary, or risk offers, which is a hedge against risk, or content offers. With the pricing offer, it’s offering one month free or you give a discount on the first three months or the fee will be reduced. There is flexibility. You have plenty of ways to slice and dice and move fees. Just always have something you can give when necessary. Give a price concession that is small and nominal that makes customers feel good. You don’t want to reduce your overall fee. That is a long term give that will cost you a lot of money. Have a financial give you can offer on the front end. Offers related to risk include tenant guarantees and eviction guarantees. Be careful and do not call it insurance. You cannot provide tenant insurance or eviction insurance unless you have jumped through legal hoops and can provide insurance. You need a compelling offer that will stand out and get people to hit the submit button. Q: We are aligned on that because I think it’s similar with Pay-per-click. The success elements are similar. This one echoes it: successful companies always have stellar online reputations. Pay-per-click is a little different; they get a chance to dig in and see reviews. The Pay-per-click marketer needs to show all the good things people have said about you. There has to be a landing page that consumers go when they click your ad. It must convince people you are the best. You need a great online reputation and a clear value proposition. Having a special offer helps conversion, but if companies can show their positive reviews and establish value propositions, they can be successful. The answer to “why should I hire you?” must be very clear. If that answer is clear AND there’s a special offer in place, you’ll really be able to convert leads to business. You are so right about that. Reputation is a big deal and we live in this strange era where your reputation has a numerical assignment to it. What I didn’t mention was brand, and it’s a similar concept. In a perfect world, you have a fantastic brand and people see it and feel something. That’s beyond the scope of what we’re talking about, but reputation and brand matter a lot. Q: Brand emphasizes more stability and it really reaches established companies with more resources. Reputation can be earned within a year with hard work. I know some young companies that obsessively focus on customer experience and their competitors are baffled about what’s going on. This company all of a sudden has 800 units. This is because someone is actually picking up the phone when you call. Old school companies do a great job when they stick to their core values. If there is less emphasis on customer experience, the customer will leave a bad review and the company will suffer. It’s tough to run a business, but it’s not as tough to run a good business – do you agree? Absolutely. The reputation factor is a big equalizer. A company that’s been around 100 years with millions in annual marketing budgets can face a small upstart that pays attention to customers. My number four point is leveraging lead nurturing. The lead refund policy with Pay-per-lead providers is a good way to introduce this. You’re paying for leads and you’re paying for closed business, ultimately. If this strategy doesn’t result in closed business, you’re going to stop paying for it. But, with Pay-per-lead, people are more attuned to the lead being the deliverable. If the lead didn’t work out, and someone else got hired, they’ll ask for a refund. A lot of Pay-per-lead companies have a refund policy. Some of them are sticklers; the biggest provider out there – All Property Management – stands solid on their refund policy and they won’t refund everything. You need to understand and accept that. This is relevant because being on the other side of it, I’ve seen these lead refund requests come in and those refunds come out of our bottom line. So we follow up with the lead to find out if they were contacted, if they were happy, and whether the lead actually exists. Doing those follow ups with refunded leads; we hear all kinds of things. Some of them will say no one ever called them. That means that a company might be trying to get the lead refund even after they didn’t contact the lead. The truth is, the average number of phone follow ups we saw was 1.6 follow ups by phone. That is terrible. You need a good follow up process in place. So when we talk about lead nurturing, we talk about having a clearly defined written and documented follow up policy. This is not your best intention or shooting from the hip, but something that is actually documented. Write it down and do your best to follow it. That will formally define what good follow up looks like. Hold yourself accountable to it. That’s for the short term. In the long term, meaning after 14 days, people write these leads off. You paid for that lead. If you keep the lead and nurture it, you’re building a relationship. Most people will disregard any leads if they don’t get the business in the first day or two. Don’t throw them away. There has to be an ongoing follow up process. It may be automated; sending out interesting and compelling emails that people will want to read. It’s not you calling every month, it’s you educating consumers and providing value. Give them information and education. Think about the monthly budget you’re spending on Pay-per-lead or Pay-per-click. Once you spend it, that money is gone. When you build and structure a lead nurturing process, it costs you money but after that one time investment, you can benefit in the long term. This will supply dividends for years and years. There is no better ROI than developing a lead nurturing system within your business. Q: Lead nurturing is something that both of our companies partner on and there has been incredible feedback with our customers. We are actually offering a free sales book download that will help listeners establish their follow up process. It’s a simple four step sales process that is available. I agree that lead nurturing is an asset and the longer you have it, the more people you have following you, which will close more business. My number four point is that Pay-per-click is more successful when lifetime customer value is increased. People with complimentary business units, like maintenance and construction or contractor services or real estate sales and investor services – those are the complementary businesses that increase the lifetime value of the customer, therefore providing better unit economics. So the customers who can squeeze $20,000 per customer in a lifetime versus $7,000, are higher bidders. They are willing to pay more, so they will outshine the competition. So my number four point is complimentary business units. I couldn’t agree more. Another way to increase your lifetime value is to develop a process for getting consistent referrals from your clients. Get reviews from your clients and be aware of services you can provide tenants as well. There are a lot of opportunities there. Companies who bid aggressively can name to the dollar what their lifetime customer value is. They calculate it, believe it and bank on it. The fifth most important reason that customers are successful with Pay-per-lead is tracking. Choosing to be disciplined and knowing what’s working and what’s not. It comes down to tracking. So when these leads are coming in, you need to know where they came from. With Pay-per-lead, that’s easy. With Pay-per-click, you can have a tracked phone number or a landing page to make this easy. You must know where leads come from. Just recently I looked and had a hard time clicking through search results to find people who are using landing pages. It’s huge for tracking and for converting. Why are more people not using landing pages? Q: There are a few misconceptions out there. The perception is that it’s too expensive to have a purpose-built landing page. With all these conversion optimization metrics – you have to know what you’re doing. So it comes down to this – it’s much easier not to do it and send customers to the website and hope for the best. I’ve found myself in those shoes before in my other experiences. You default to the easy way. What do you have to add before I share my number five point? Just that without tracking you are fundamentally flying blind and burying your head in the sand. You need to track. You need to know how many leads came from each source and you must have a way to ask people who call you how they heard about you. Track your conversion rate, too. People love to speculate on these numbers but they hate to track them. People who are saying that they close 80 percent of their leads are not using accurate data. Advertising to scale, most companies can say they close around 40 percent. If you close 80 percent of your referrals, that’s great. But get serious about tracking and establishing which lead sources are working and which aren’t. You have to track your follow up process too. How quickly are you calling people back? How many follow up attempts are made? What’s going wrong when things break down? You need an activity-based model. It’s not personality or skills. Get a good model with accountability built in. You need tracking, so get some technology that allows that to happen. Q: My number five is close to yours. These companies that are successful have a marketing plan and a dedicated budget for portfolio expansion. They are ready to accept scale and growth. Some companies dabble. They get a few leads and then they decide it’s terrible and won’t work. Or, they tried Pay-per-click five years ago and it didn’t work so they’ll avoid it. That’s like saying I tried a car before and it was terrible so I’ll never drive a car again. But there’s a variety of cars. The big Cadillac you didn’t like isn’t relevant to other cars. Besides having a system for tracking or a plan to be able to review your results and improve, you can invest money in specific channels that are working. You need a plan in place. We ask the customers we work with how many properties they want to gain next year. They’ll structure what they want and what they will accept. Those companies that aren’t successful have no vision of what they want to get out of their advertising efforts. A marketing plan is important. Absolutely. If growth is only optional, you’ll get optional results. If it’s not optional, there will be accountability and results and it will happen. Q: Do you have any parting words? Always test, experiment and don’t be content. Try new things and explore. There is so much potential and room for expansion, especially if you’re working smart and being persistent. This is an exciting time to be growing a property management company. If you want to contact Jordan, check out ManageMyProperty.com or LeadSimple.com, which is a CRM lead management platform. Thank you for joining us. The post How to Scale a Property Management Business Through Pay-Per-Click and Pay-Per-Lead appeared first on Fourandhalf Marketing Agency for Property Managers.

Our guest today is Michael Catalano, CEO of Real Estate Connections, a property management firm based in the Silicon Valley, CA. If you’ve ever wondered who to buy or sell a property management company, then this Podcast is for you. Subscribe to The Property Management Show on iTunes Today to Stay Up to Date on the Latest Episodes Here is the transcript of the interview (You can play the full interview above, or download the episode into your iTunes or Android) Hello and welcome to The Property Management Show. I am your host, Alex Osenenko. My day job is serving as the CEO of Fourandhalf, a marketing company working exclusively with fee-based property managers. I have spent the last seven years of my life helping property management companies become more successful by improving sales, marketing and operational efficiencies. In this show, we’ll deconstruct success down to its key components and invite subject matter experts to help you improve every facet of your business. The topic today is how to buy or sell a property management company. That’s a vast subject, and our guest is certainly able to speak to the topic and clarify many of the different things that can confuse the issue. Not a lot of property management companies are bought and sold every year. There are only a few experts, and Mike Catalano is one of them. He is the CEO and president of a company called Real Estate Connections in the Bay area. He’s also an angel investor and a good friend. Q: Let’s start with a question that I wonder myself: Why would someone buy a property management company? What are some of the reasons behind this? Buying a property management company is the fastest way to grow your business. It’s always great to grow organically and advertise online, and you want to attract more business through word of mouth and referrals. Those are great strategies to maintain your business and allow it to grow at a decent pace, but the quickest way to grow a company is to buy one. Q: So buying a company is essentially a way to expedite your own growth? Absolutely. If Google can guarantee that you can get 200 new properties in a year with advertising and search, but you can also do that right away by purchasing a property management company for the same amount of money that you’d pay Google, you’re getting a good deal. Q: If you want to grow your business by acquisitions, how would you find a property management company for sale? They are hard to come by. Word of mouth in the industry helps. Years ago, I would not tell a lot of people know that I was interested in purchasing, because I worried it was pretty arrogant to express your interest in buying someone’s company; a business like this can be extremely personal. But then several years ago I mentioned it in a networking group, and I learned that people are open to it. Let your local and state chapters of NARPM know. Talk to banks that hold trust accounts for property management companies. There aren’t a lot of them, so obviously the bank you use is a good place to start. I came across a few business brokers that I work with, and I let them know that I was interested in buying a property management business. So it can be a word of mouth strategy. Q: When was the first time you bought a company? I helped a company that I worked for when I was in my early 20’s. That company purchased a handful of businesses and those were the first purchases I went through. I didn’t own the company, but I went through the process and as director of operations at that property management firm, I learned how to do it. Later on in my career, I started purchasing them within my own company. It’s changed a lot over the years. The evaluations have changed, the process of finding the companies has changes and the people who want to buy and sell have changed. This is an interesting subject because it comes up at every NARPM event now, and it’s interesting to a lot of people. There’s not a perfect science, but it comes down to what works for you as the owner of a property management company. Q: Things are always changing dramatically in the property management field, but there are some fundamental frameworks we can apply to this. We need to put it together and provide people with a foundation when they’re looking at these things. One of the questions I recently heard in response to a blog was: how do you evaluate a property management company? When you evaluate a company to purchase, you have to evaluate based on what it’s worth to you. A lot of times, the people selling it will set a price. So you have an idea of what they’re looking for. Then, you have to dive in deep to your finances. Figure out what makes sense for you. When I go to purchase a company, I can absorb a lot of their properties. So that allows me to pay more, knowing that I will make more. You won’t make money right off the bat because you’ll need the payment, and how you structure that is up to you. There are a few areas where you can find generalities on how prices are set. Many people do multipliers. Take the property management monthly contract and do a monthly multiplier on that. If a company has 100 properties at $100 per month, then that’s $10,000 a month in management contracts. Then, multiply from eight to sixteen, depending on the seller, the buyer, and the area you’re in. All of these things become factors. You also have to consider any other revenue they may have. But that multiplier is a starting point. You can also do yearly revenue as well, which is a smaller multiplier. You have to come up with a formula that makes sense to you. This is how I’ve seen people evaluate companies and break it down. You’re buying the contracts. That’s the most important thing to remember. There may be a maintenance department that can bring in revenue, and there could be a sales department. There might be leasing fees and other things, and if those are added into the price, you need to see at least three years of consistent income for those. You don’t want to see one $200,000 remodel of their maintenance that they don’t have often. Look at the property management contracts first and then move to other revenue that might increase the price. I like the monthly contract and finding out what they’re making per month. That gives me a starting number. The person selling probably already has their number set, and you can work backwards from there. Q: What about the brand value? Think about your own company and the money you have invested in building your brand and your website and your marketing. So it’s almost automated and consistent. You can look at your own business, Real Estate Connections, and you can predict how many properties you’re going to get over the next year because you have that long history of new business acquisitions. How does that come into play when you price a company? You have two different ways of looking at this; valuing the property management company you’re looking at and then evaluating the company. You have the numbers you’re working with, and then you have the evaluation of the company itself. You have to think about who the broker is, and whether you know that person. Are they easy to work with? You will either be buying the entire company or just the contracts. If that company is well-branded, with great relationships in the industry, that’s going to mean something. When the name alone is going to bring you value, then that’s something to look at. You can check the reputation online, take a look at how long they’ve been in business, where the properties they manage are located and what the condition of those properties are. This won’t be easy because if you’re buying 500 units, you’re not going to be able to go look at 500 properties. So you have to take a sample. Dive into their books too, which is part of your due diligence. The company’s branding is important if you are buying the whole company. There have been times where I’ve purchased the company itself with the name and other times that I’ve purchased the contracts only because I’m not interested in the name. Or, that person wants to keep the company name for the future. Q: We work with property management companies all over the country that have bought and sold companies. When new management comes in, we work towards continuity in that relationship. Can we say that smaller companies that might not have big brands are valued more on their portfolios and their management companies, while larger companies can have a different valuation based on those additional revenue streams and brand value? Is that the general thinking? Have you seen smaller companies with value in their brand get a higher price?   This market is so hot right now and everyone wants to buy a property management company, so the evaluations are similar. If you’re buying a larger company, they will have everything in place. Mom and Pop shops are smaller but there are some really good ones out there and they manage to stay in business by staying small. Larger companies have policies and procedures set, and the office dynamics are in place, so coming in and implementing things goes fast. They have great software in place and their accounting is efficient due to being larger. That can be easier to evaluate because all the numbers are right in front of you. Right now, with the way people have realized you can make money in property management; the evaluations have been pretty similar all around. Q: The appeal of consistent recurring revenue makes property management a great opportunity and it’s appealing for a lot of people. That’s why a lot of Realtors get into it. With low inventory, and nothing to buy and nothing to sell, Realtors are getting into property management themselves. Q: Let’s talk about structuring transactions. How are sales typically structured? Those vary as well. We are dealing with two different entities. Most of the time, the seller of the company has never been through the process of selling a company, so there are a lot of learning curves. In general, you want to have an agreed purchase price. Then I put together a letter of intent that includes the main points of the contract we’re hoping to complete. It’s forwarded to the company we’re buying, and you come to an agreement on the letter of intent. Once you agree, you put the contract into place. The contract has to have some structure, because you’re buying the contract. This is where it gets complicated. Every company is different in how they set up their property management contracts. Some have month to month contracts, some have leasing fees, some are long term contracts. You have to look at all those when you’re structuring your purchase contract. The goal here is to keep as many properties under the management of the new company as possible. The more you keep as a buyer, the more you’re going to make. The seller will make more too. There has to be a clawback clause, meaning if any properties are lost over time; that loss comes off the top. That’s sometimes over a six to 12 month period. Remember that when you’re buying contracts, that individual owner didn’t choose you. They chose the other company and you’re buying them. You need to make sure you can do everything to keep them under your management and prove how you’re the right manager to keep in place. There will also be a contingency phase so you can do your due diligence. I bring in an auditor to look at the company’s books and software. Really dive into their accounting. Set a deposit on the company and find a company that can escrow it. A title company is usually a good company to use. Then, set up a pay structure where you can pay over time. Some people finance these deals for years. I don’t like to do that, but even if you’re paying in cash, you want to structure it so you pay over time. You want to make sure the company you’re buying will help you through the process. It’s so important to work together as a team. The clients will see any kind of friction, and it can all fall apart. So make one payment in the beginning, then a larger payment in three months and then a larger payment in six months. Then, you can make the full payment after eight or nine months depending on how it’s ultimately structured. Q: So even when you’re paying in cash, you want to make structured payments instead of one bulk sum? Yes. I like to have that. Lately, you have multiple offers on these things and you may need to come up with the money in 30 or 60 days. You’re still going to close on the transaction. It’s just necessary to have that clawback so you have money in escrow, where you can take the money back for any properties you don’t keep. There may be times where sellers give you 30 days, and you just have to do that because of the competition. In a perfect world, you don’t have to overpay, but even when you do, it may be worth it. If a company wants a 30 to 45 day close and then be done, it may be the only way to do it. Q: What about when things don’t go so well? Without naming names, can you share some things that can potentially go wrong? What should people watch out for? If I tell specific stories, someone listening may know who we’re talking about. Just look for large one-off sales and inconsistencies in numbers over time. You don’t want to buy a company that had one good year of sales but then business dropped off. Getting the contract nailed down can also be difficult. Everyone has different ideas, and a lot of people want to involve their attorneys. That’s okay, but if you’re going to use an attorney, find one that has been involved in the purchase of a property management company before. It’s a different type of transaction. A lot of entities are involved and the companies have to work well together. You can’t let your contract get overly wordy and start tripping over itself. When it comes down to everything, the most important thing is that the two companies work together. People selling their companies care about their clients. We have built these relationships over years. We want to make sure we take good care of them. If I’m selling, I want to make sure they are in good hands. I’d be in touch with the buyer all the way through to make sure my clients are happy. Q: Let’s take a quick shift and talk about integrating the new company into your own company. Let’s say you bought a portfolio of properties, and you didn’t necessarily acquire a brand. What are some steps you take to integrate those properties into your business to make a smooth transition for your clients and your team? The first thing you want to do as an owner of the company buying the contracts is to personally contact each and every client. I don’t care if there are a thousand of them. This is such an important touch, and they need to speak with the owners who are taking their properties over. This is a huge asset for them, and they want to be sure they are working with the right person. So, reach out to every single client. Give them a call, and introduce yourself. There will be letters and information that get sent out to them, but the personal touch is important. So call them and tell them who you are and how you handle things. Don’t bring a lot of change. Don’t send out new contracts for the clients, and if you do want a new contract in place, don’t change anything. You don’t want to introduce new fees or anything that would scare them off. That’s important as well. Set up a meet and greet at the office. If you’re purchasing a lot of clients, you’ll need to have multiple meet and greets. Let them come in to your office, while you provide refreshments or something, and let them ask you any questions they may have. Let them know you’re a real office and talk about how long you’ve been in the industry. This will help you transition smoothly, and you’ll be able to keep those contracts that you’re purchasing. Q: With the actual integration of the process, after you have introduced yourself and things are going well, how do you make sure your existing processes match the clients’ expectations? Getting 200 new clients all of a sudden would put a strain on our team. So, how do you deal with that? It’s very important to have these things set up before the process even starts. Make sure you have everything ready to go, and when you say “go,” you’re the management company for these clients. Sometimes, when you buy a company you bring over employees. You can’t keep everyone, unfortunately, but if you are keeping some of them, you have a familiar face for your clients. All of the administrative things like computers and desks are set up, and you bring them over and everyone is in place. Once you’re ready to start, you just have to manage. If you’re absorbing, you have to figure out what you need. Real Estate Connections is a portfolio management company. So if I bought 100 units and brought over only one employee from the company who manages 50 units, then I’ll have 50 units to disperse to my own company. So each individual manager already knows what they’re getting. Basically, it can be a smooth transition and the important part is that if calls from tenants and owners come in on those new properties, you need to be super-attentive. You probably would be anyway, but it’s a good idea to coddle those new clients at the beginning to make sure they know you’re there for them. Q: It sounds like being pre-emptive is necessary. Build the capacity and put the plan in place before anyone new comes in, and everything falls into place. Yes, and it’s different every time. Sometimes, you’re buying a small company with only 30 units. Sometimes, you’re getting 300, so employees are coming over. Q: Here’s a question I haven’t asked anyone yet, but I’m sure people would be interested in knowing the answer. Would you personally consider buying a company outside of your service area or outside of your state, even? Yes. For us, we look for companies anywhere in California because that’s where we’re licensed. Outside of California, it gets a little different, but property management can be figured out in any state. You just have to make sure your licensing is in place and you can legally do this. I have not purchased a company outside of California, but I know companies that have and I have talked to people who have done it. This can work. You’ll be flying back and forth, and you have to be very involved in setting up shop for a while, but because of the property management software and technology in place, almost everything is done online. We are open to acquiring businesses anywhere in California and I will look outside of the state as long as it’s a perfect situation. Q: One last question, which may help other business owners start building their value early. What can companies do now to come up with the highest valuation, best price and best exit strategy for the future? The simple answer is to grow your business as large as possible. In general, you want to have all your policies and procedures in place. You want your office to be running so smoothly that you don’t have to do any day to day work and the systems are running well. Have your books in order and get a CPA to do an audit of your company. If you want to sell eventually, you want to make sure your business is being run correctly. You have your clients’ books and your company books where you’re doing your payroll and tracking your revenue and running your forecasts. Your balance sheets and cash flow statements need to be perfectly in line. Have a CPA audit and evaluate your company so you know your books are in place. That’s where the real details are necessary. The company buying you will look at that very carefully. Q: So grow your business consistently and be able to prove that you are growing so you can price that into your sales price, and also grow the number of units you have. Your portfolio is your biggest asset. Also, have all your books organized and in order. As a business owner, it’s probably also a good idea to invest money in someone really good to help you set up your systems and put your accounting systems in place. Make sure everything is tracked and recorded. In the long run, this will help you get the highest price for your business. This is important because with a lot of the new companies, the owners are doing much of the day to day stuff. They’re doing the management, the leasing and the marketing. There’s nothing wrong with that, but it can be hard to keep your company books in line when you’re that busy. That’s two or three jobs you’re doing when you’re smaller, and it takes time to get to the point when you can let go. But once you do get to that point, you’ll be able to grow your company more quickly, because that’s what you’ll be focused on. It’s very important that you are organized when you’re ready to sell. Everything should run like a machine. One more thing we should talk about is – what’s the best way to approach selling your company? I have seen some interesting ways that people have done it. The most effective thing I’ve ever seen is an email blast a company did to the local chapter of NARPM. They had all their books together and a little bit of a financial snapshot before giving the details. They talked about the price and what they hoped to do and set a date to accept offers. That brought them 15 offers, which is really interesting. You can also use word of mouth. If I was going to sell my company, I would do a blast like that to NARPM and I would probably contact the brokers I know who can find a good fit. Q: So it’s a good idea to contact competitors and give them an opportunity? Yes. Early in my career, I kept everything close to the vest, and I didn’t want to tell anyone anything. But now that we’re established and working so closely with NARPM, we do have competitors who we talk to a few times a year and those relationships are positive. If I ever wanted to sell, I can think of three or four companies I would want to contact. Q: If you’re not part of it, the National Association of Residential Property Managers, NARPM, is the best organization for networking and information. It’s hard to imagine how competitors come together to share ideas and benefit each other and their clients at the end of the day. Because of NARPM, everyone is able to talk about new strategies and techniques and technologies. Part of the reason property management is finally getting the technology it deserves is because of NARPM. Vendors like AppFolio, Buildium and even us – Fourandhalf – we can come in and actually have a closely knit associated group of people who are interested in our products. There’s a good demand for us to improve and innovate, and NARPM is part of that. The property management industry went from obscurity to a great business to be in. That’s true. The collision of technology and property management has been beneficial. The property management industry was historically pretty stubborn when it came to technology, but that’s changing. Technology alone and marketing has a huge impact on companies. If I was going to buy a property management company and I saw that they were using AppFolio or Fourandhalf and all this technology was working; that would make the property management business a more sought-after company to purchase. This has been a great discussion and we’ll leave it with this: If anyone has questions or needs advice, contact Mike Catalano at Real Estate Connections. It’s hard to talk about how to evaluate a company and what makes sense to each individual when there are so many variables. It’s definitely helpful to talk it through on a more personal level. Thank you for joining us for this conversation. The post How to Buy or Sell a Property Management Company appeared first on Fourandhalf Marketing Agency for Property Managers.