Valuing a property management company isn't as easy as putting up a banner on the front yard of a property and receiving calls from interested buyers.
Instead, it is a detailed process in which you'll need all the help you can get to evaluate your business and apply valuation methods successfully.
In this guide, we explore the steps to take to value your property management company as you set your sights on a successful sale down the road.
Let's get to it!
Here’s how to value a property management business:
1. Review the company's financial statements
2. Assess the revenue streams
3. Evaluate the client base
4. Evaluate the market position
5. Assess the company’s assets
6. Determine the net profit
7. Determine the liabilities
8. Apply valuation methods
9. Evaluate growth potential
10. Get professional valuation help.
We’ll discuss the above steps in detail in the coming sections.
Since a property management company's valuation is complex, consider hiring an M&A team to help you. The M&A team will bring unique industry-specific insights, value your firm accurately, and help you sell faster for more money.
At Exitwise, we can help you find, recruit, and manage top M&A experts in the property management industry. All you have to do is contact us, and we’ll streamline your exit strategy and maximize your exit value.
Knowing your business’s true value is more than just a financial exercise — it’s a strategic advantage. A clear valuation ensures you’re not leaving money on the table when planning your next big move.
Here are 5 more reasons why valuation matters:
Valuations are crucial in establishing trust with your clients, investors, and business partners. They provide transparency in your financial health.
With accurate valuations, you can gain a clear and precise understanding of your business's actual value, including its shares and intangible assets.
You can use the information to make informed decisions about expanding your business, mergers, or exits.
The current valuation of your business can help you set a realistic price based on its market value.
You can use it when negotiating with buyers or potential investors to ensure you receive fair compensation.
Accurate valuations help reveal aspects such as client retention, client size, and operational efficiency that contribute to a high company value.
You can use insights from the valuation to leverage technology and advanced tools that can help streamline your operations and reduce costs.
An up-to-date valuation that demonstrates your company's profitability can also highlight your business's growth potential and help attract investors.
You can present the valuation report when looking for funding opportunities to appear well-prepared and professional to potential investors or buyers.
When considering the sale of your company, the property management business valuation becomes crucial to understanding its true worth.
Let’s explore when to consider timing your sale for maximum profit:
Selling your property management business can be challenging. That’s why you should partner with M&A experts who can help you understand the nuances and value it accurately for a strong, competitive sale.
The worth of a property management company depends on various factors. Each company has its own worth because it's a unique entity with defining characteristics that set it apart in the market.
The worth can range from as low as a few hundred dollars to several millions or billions.
Management fees are the primary source of income for property management companies. Monthly management fees are the cost of the company managing your property.
In addition, these companies may get extra income from investor-centric ancillary services, such as property maintenance.
Depending on the location and the services provided, a property management company can charge between 8% and 12% of a property's monthly revenue.
Consider a 100-unit rental property that charges $1,500 per unit. Using the percentages above, the management company will earn between $12,000 and $18,000 in monthly fees.
Property management companies are profitable since they typically operate at 10-15% profit rates.
While this is a general industry standard, you'll want to ensure the company’s profit margin doesn't go below 10%, even if a lower value doesn't mean the company is financially unhealthy.
Given profit margins of 10-15%, property management companies are worth their weight in gold.
You can't go wrong with running such a business, especially if your management team has the right industry experience and influence.
The valuation of a property management company depends on the following factors:
The figures below show the average valuation multiples for property management businesses, as reported by most M&A and business brokerage companies:
While these are just averages, the actual multiples differ based on factors like the company's size and financial status. For example, EBITDA multiples can be as high as 6.0 or 7.0.
You can follow the steps below to determine the value of a property management company.
Financial statements, such as balance sheets, income statements, and statements of cash flows, can tell you if a company is in good financial condition.
A company with diverse revenue streams is worth much more. Check if the company relies solely on a single service or client or if it has multiple clients paying for various services.
You can assess the value of a firm by checking its customer base to see how it can acquire new clients and retain existing ones.
Check also how much a client spends and the frequency with which they pay.
If the company has a considerable market share, its valuation rises.
You can compare the company against its competitors to see how it's differentiated. For example, it could serve a specialized target market or offer specialized property management services.
Both intangible and tangible assets count when valuing a property management business. Check the quality and value of assets such as office equipment, cash, technology, and real estate.
Goodwill and brand reputation are vital intangible assets that factor into the valuation.
The net profit is the total revenue minus the total expenses. If a company has a higher net profit, it is worth more.
Assess the company's liabilities to ensure it doesn't have excessive debts and pending payables. Too many liabilities lead to a lower value.
The four valuation methods that commonly apply to property management company valuations include the market, revenue, SDE, and EBITDA approaches.
Comparing the sale prices of similar businesses can show you how much your company is worth. The comparison will show you the multiples other businesses sell at.
While it's the least common valuation method for property management firms, it's still reliable if a firm is growing rapidly.
For a property management company, you'll want to consider the total revenue from management services. You can exclude brokerage, maintenance, and other minor revenues, as they may be few and far between for a firm mainly offering management services.
Revenue multiple = Enterprise value/Annual revenue, where the enterprise value is the total equity plus total debt minus total cash.
For example, for a company with an enterprise value of $1,395,000 and $1,500,000 in gross annual revenue, the revenue multiple = 1395000/1500000 = 0.93.
Here's a sample valuation:
Assuming a total revenue of $745,000 from management services only and a revenue multiple of 0.93x,
Company value = $745,000 x 0.93 = $692,850
In a seller's discretionary earnings (SDE) valuation, we consider how much the business owner pays themselves.
The SDE-based approach determines how each employee efficiently generates revenue and indicates the company's earning capacity.
Applying the SDE multiple method is best if your company makes below $5M in annual recurring revenue.
Company value = SDE x Multiple
Using this approach and assuming an SDE multiple of 3.01x, a property management company making $250,000 in annual seller's discretionary earnings would be worth $752,500.
An EBITDA-based valuation considers the general financial health of a company.
The method is usually used for larger companies making $5M or more. The EBITDA method usually applies to firms managing over 500 units in the property management industry.
The number of times the EBITDA of a property management company is worth averages between 3.76 and 4.17.
Company value = EBITDA x Multiple
Based on a 4.17 EBITDA multiple and an EBITDA of $6M, a property management business would be worth $25,020,000.
Determining the accurate value of a property management firm can be tricky. Our online valuation calculator can help you arrive at a real-time value.
You can determine the growth potential of a property management firm using various aspects:
To maximize the value of your business, find the right financial experts for a professional valuation.
At Exitwise, we help you find the best tax accountants, M&A lawyers, and investment bankers to help you with business valuations and sales. You can speak to an M&A expert today.
The process of valuing and selling your property management business is complex, and it requires professional skills and careful planning. Valuation experts are among the best professionals to hire to help sell your business.
Let’s discuss why you should partner with valuation experts:
It’s essential to choose a business valuation professional with industry expertise and experience.
At Exitwise, we can help you hire experienced M&A experts (including valuation professionals) who understand both the nuances of property management and the sales process.
Connect with us today to partner with top M&A specialists who understand how you should prepare, value, and position your businesses to attract the right buyers and secure the best deal possible.
Since property management company valuations are complex, you’ll want to avoid mistakes such as:
Your selling strategies include decisions, goals, and actions that inform how you'll position your company to recruit the right buyer.
The strategy you use will depend on several factors, including the size of your company.
Try the following approaches:
While these methods can yield results, you would be better off working with established M&A experts to smoothen the valuation and sale.
Exitwise exists to help you recruit and manage the best M&A professionals. You can talk to us today for more information on our process.
Below are answers to common questions about property management company valuations.
A revenue multiple is applied to the total annual revenue from management fees your property management company accrues.
The company's value will be the annual total revenue times the multiple.
Client contracts can raise or lower the value of a property management firm. Transferable long-term contracts with automatic renewals fetch a higher value because they translate into a predictable revenue stream.
The general state of the economy and real estate sector can cause high or low company valuations. If the industry is in bloom, it can be an excellent time to sell as the valuation will be higher.
At Exitwise, we leverage a global network of industry-specific M&A experts who can evaluate the prevailing market conditions and let you know if it’s the right time to sell your company.
A good client retention rate indicates efficient operations, excellent customer service, and customer satisfaction, which can raise your company's value.
You can invest in property management technology and software such as Yardi and Appfolio (for example) to increase your company’s value.
Such technologies can help streamline operations, leading to efficiency and better financial performance.
Now that you know how to value a property management company, you can make a successful sale once you market it to the right buyers.
Valuing your company can be overwhelming. Contact us today to help you recruit and manage the best M&A team in the industry. Besides valuing your company accurately, we’ll also help manage your team for the best results.
Let Exitwise introduce, hire and manage the best, industry specialized, investment bankers, M&A attorneys, tax accountants and other M&A advisors to help you maximize the sale of your business.
