For new property management businesses, 100 clients is the point where finding team members and ensuring cash flow begins to get tricky.
Property management can be a rewarding career and one which offers a reasonable amount of flexibility, in that you are not confined to an office from 9 to 5 each day.
What I have noticed, however, is many new property management businesses hit the exact same point in their growth and progress before becoming stuck.
Once you have 100 properties on your books, you will find yourself at a crossroads. Add more than fifty new clients and your customer service promises will begin to slip. However, bringing on a new property manager may mean you find yourself going backwards in terms of cash flow. As well as the cost of a new PM you will be spending money on HR and back-end systems, which can be a financial drain.
You can’t have a business without cash flow. Here is a solution I came up with for two of my property management business clients who were facing the chicken/egg problem of wanting to grow but feeling nervous about losing money.
Here’s how it worked:
After some initial discussions, both clients bought into an existing business which had 600 properties under management. Each property management business purchased 25 percent of the PUMs, a manageable 150 investment properties.
The businesses put 20 percent equity in, with the vendor financing them for a three year period, giving them a realistic timeline to pay for the rent roll. The vendor company was a well-recognised brand, with a 40-year history in the area.
Why this works
This solution was the ideal middle ground for two property management businesses seeking to grow but looking to do so sustainably and without having to borrow an excessive amount of money.
The benefits of this agreement includes receiving a wage from day one. There’s no cold-calling, door-knocking or onboarding as the PUMs are ready and waiting to be managed.
What’s more, by buying a share in a rent roll instead of building one independently, the owners had instant backup. They were able to provide support for each other on days off or during holidays, smashing the stereotype of the property manager who can never switch their phone off.
In addition, the vendor principal looks after sales, accounting and HR. There is a small cost involved, but no set-up headaches.
There is also no need to worry about marketing, branding, website or back-end systems. By buying into an existing rent roll, my clients instantly accessed all the perks of a well-established business.
Bridge the business growth gap
Buying a share of an existing rent roll made so much sense to help ambitious property managers expand their business in a less risky and more sustainable fashion.
My clients were able to enter a full-service business with compliance and sales completely taken care of. The instant addition of properties meant fee collection and cash flow from day one.
The most positive outcome for the property management businesses was being able to confidently pay off the loan finance while also generating enough income to make a profit. They are now on their way to a secure future and more growth. And this is all any business owner wants at the end of the day!
All parties involved, including myself, were really pleased with the outcome of this deal. The existing business was able to begin to distribute its assets and receive a lump sum payments and the new property management companies were able to instantly double their client-base, hassle-free.
BDH Solutions have been buying and selling rent rolls for over 30 years. Keep up with our latest listings here.