Smart idea to purchase an existing property mgmt company?

Has anyone every looked into the idea of acquiring an existing prop mgmt business? I am looking to start buying apartment buildings on my own (with an equity partner), and I thought perhaps by purchasing an existing reputable management firm, I could have the manpower to purchase buildings and keep the mgmt "in house", while at the same time having existing income from the existing mgmt contracts they have in-place. My understanding is that banks would not be too eager to lend on such a purchase because prop mgmt contracts are not long term and that is the income they are lending against, so it would be risky for them. Just curious how I should be valuing a property mgmt firm.
In Buying Property - Asked by Eric G. - Apr 10, 2012
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Stephen M.
Quincy, MA

Management companies are notoriously low profit margin businesses. Have a person working in your interest review the books carefully.

Apr 10, 2012
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Dumfries, VA

Dear Eric,
Great idea but you need to remember that most property management companies that are doing well with no lis-pendis will prefer to keep their business. You might be lucky to find an owner who is retiring but you must do due diligence to make sure you are not taking over possible problems. Also, the laws are different in DC, VA, and MD so you should have an expert guide you for a little fee. A solution to consider will be to start your own company with experienced staff.

Apr 11, 2012
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James E.
Beverly Hills, CA

Instead of buying the company, buy the client book and have the contracts transferred one by one and get indemnified. As you do not want any current or future lawsuits or problems surfacing under the other management companies name you are trying to acquire. Buying another company or its client book is a great way of growing, but make sure you get your own contracts signed and executed with all clients you are taking over, this will give you a chance to get to know the new clients and you may not want to take on some of them. Good luck in growing your company

Apr 12, 2012
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Stephen S.
Birmingham, AL

I agree with all of this but definitely with James, much better to buy the book. It separates you from the company you are buying from and lowers your risks. When you sell something you are on a date but when you lease something, you are getting married. Make sure you want to take each group before you sign an agreement with them. Good luck!

Apr 17, 2012
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Ian C.
Minneapolis, MN

If you only have limited capital you may not want to tie it up in a management business. You'll probably get much better returns by buying a few more investment properties with the money that you would have spent on the management company... even after factoring in fees that you will be paying to an outside management company. If you do decide that you want to own the management part of the business, once you have a few properties of your own you can just hire experienced property management people (for much less money than buying a whole company) and start the management company yourself.

Apr 25, 2012
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Art L.
Property/Asset Manager
Atlanta, GA

I just started up a management company 2 years ago. Contact me if you'd like to discuss pros/cons.

May 18, 2012
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Chris R.
Denton, TX

CAN be a great way to go. Be thorough in your review of what you are buying. Having been in real estate management for 40 years - there are lots of variances to consider. Often times - management contracts are no longer than 1 year so there is a short period of time left in most cases. Also - management is - to a great extent - a relationship business in that part of the reason the management company was hired to begin with - in many cases - would be the owner / property manager. If you buy the contracts from them and they are no longer involved - the relationship no longer exists. If you are seeking to keep some of the personnel from the former operation - could be different. Generally - the value of a management company is based on a few months income from the management contracts as they are susceptible to expiring or being canceled. Some contracts contain clauses whereby any sale of the management business from one principal to another could call the contract under review by the property for not agreeing to go forward with the new owner/operator/manager. Certainly - you would have to look at the qualifications of the existing company and personnel - relative to yours. IE: if the company you are buying is staffed with seasoned / credentialed professional property managers (like a CPM and other credentials) and you do not possess those or have folks that do and are not retaining those that do - then again - concern would exist for the owners of the properties being managed that the new owners will not be able to take as good care of their property as did the former owners. You would need to meet with the owners of the properties and get a good feel for your ownership being a good fit on a going forward basis.

May 23, 2012
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Lou A.
Corporate Investor
Northlake, IL

Why not hire in-house by yourself. Hire people that have experience and certification.

Oct 14, 2012
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