Michael Catalano and Jock McNeill are both experienced players in the acquisition market. Their talk will cover the tips/tricks and do’s/don’ts of growing through acquisition. While it is not something that should be implemented as your only growth strategy but it can definitely help augment your success.
Why consider acquisitions?
Important: When looking at the cost of an acquisition, it is a lot more expensive that growing slowly.
Don’t do this if:
What makes an ideal acquisition?
You want to make sure both parties are benefiting by how you are putting it together.
Portfolio + Portfolio = easier to combine
You need to be detail oriented and analyze what the condition of your acquisition is in
If you haven’t moved on to some of the technologies that are out there, this could provide that opportunity
Keep in mind, the things that make an ideal acquisition also make it more expensive.
The things that make an ideal acquisition also makes it more expensive because there are less opportunity to add value.
Watch out for Red Flags:
Is it a function of the property management not doing what they were supposed to or a function of the culture established? Culture is tougher to fix.
Unhappy employees is an easy fix – you don’t have to take them on after the transition.
Unhappy clients can represent a threat and an opportunity at the same time
Often symptoms of larger problems
All of these can present opportunities for you but you need to get in there and do your due diligence.
Why an owner is selling:
Knowing why they are selling is going to give you important incite as to what is important to them during the transaction.
When is it not the right fit?
It’s all about teamwork to get this done right. Make sure you are working well together.
it’s worth what you’re willing to pay. You have to run your numbers and if you can’t agree on price it may not be worth it.
Purchasing power by size:
Owners are very hands on. If you are buying a 200 acquisition, that’s going to be difficult to scale.
You’ll need to onboard employees, which can cut in to cash flow.
Possibility to keep employees
Ability to absorb some units
Owners are in charge of some operations.
Ability to absorb all units
They are familiar with growth – most have done acquisitions before
Less personal touch: who are their employees, can you trust them?
Contracts and Clauses
Is each party responsible for their own fees?
How will disputes be settled.
You can be more flexible with your terms and becomes a write off.
SBA loans love property management companies because of residual income.
One of the most popular loans. Seller and buyer work close together to finance.
This is best for larger scale acquisitions. You have to have your business plan set up and be strategic about what you are trying to do. They will also want a piece of the pie if they are giving you money.
Where do you find someone interested in selling? (and vis versa)
By the end of the 6 months, they had lost 7 units and gained 10. Ended up with a profit in the end after reduced purchase price.
About Michael Catalano:
Mike is a second generation real estate entrepreneur. His company REC Rentals currently manages over 1,000 rental properties in the heart of the Silicon Valley in California. Mike has deep experience in driving growth through acquisitions and knows how to evaluate and strucure portfolio purchases / sales. He’s a past board member of CALNARPM and has spoken at a number of NARPM events.
About Jock McNeill:
Jock is responsible for overseeing the daily operations of Alliance Property Management and Rent Napa Valley, as well as sales, business development and acquisitions. He is an adjunct instructor in property management at Santa Rosa Junior College, holds the NARPM MPM® designation and is three time past president of the Marin-Sonoma chapter of NARPM.