Acquisitions Anonymous - #1 for business buying, selling and operating - $430k Condo Property Manager in Florida / $692k Property Manager in Nevada - e38

Episode Date: July 28, 2021

Joined this week by special guest Peter Lohmann out of Columbus, OH, your fearless hosts discuss two deals: - $430k Condo Property Manager in Florida- $692k Property Manager in Nevada Enjoy!-----* Do you love Acquanon and want to see our smiling faces? Subscribe to our Youtube channel.* Do you enjoy our content? Rate our show!* Follow us on twitter @acquanon Learnings about small business acquisitions and operations.-----Past guests on Acquanon include Nick Huber, Brent Beshore, Aaron Rubin, Mike Botkin, Ari Ozick, Mitchell Baldridge, Xavier Helgelsen, Mike Loftus, Steve Divitkos, Dzmitry Miranovich, Morgan Tate and more.-----Additional episodes you might enjoy:#62 Two Landscaping Businesses for Sale - Mike Loftus CEO of Connor's Landscaping#66 Analyzing Software Businesses for Sale with Steve Divitkos, experienced industry CEO#42 $900k Moving and Storage Company / $500k Rural Mini-Storage#61 Two Manufacturing Businesses for Sale - Brent Beshore - Founder and CEO at Permanent Equity#24 $5mm pool services and lifeguard staffing co / $2mm septic services business -  featuring baller @WilsonCompanies as a special guest!#45 $800k/yr cleaning business in Midland, TX / a $565k/yr window cleaning business in San Antonio, TX #48 Two Landscaping Businesses for Sale - Mike Botkin of Benchmark Group--- Support this podcast: https://anchor.fm/dealtalk/supportSubscribe to weekly our Newsletter and get curated deals in your inboxAdvertise with us by clicking here Do you love Acquanon and want to see our smiling faces? Subscribe to our Youtube channel. Do you enjoy our content? Rate our show! Follow us on Twitter @acquanon Learnings about small business acquisitions and operations. For inquiries or suggestions, email us at [e-mail]

All right, everybody. It is Friday. It is time for another episode of Acquisitions Anonymous. We got the whole band together this week, so I'm super excited and an awesome guest. For those of you new to the podcast, this is the internet's number one podcast that has three or four people talking about small businesses for sale. Along the way, we learn a lot from each other and also about business and how things work. So this is a great podcast for people that are early in their career or searchers looking for a business to buy. or people that are just business nerds like us. So each week we look at two businesses for sale. We have two cool ones today,

and we have a special guest, Peter Lohman, who is joining us not from an island, unlike our guest last week. Peter is at the opposite of an island, which is the Midwest U.S. in Columbus, Ohio. So Peter, good morning to you. Hey, good morning, guys. Really excited to be here.

Cool. Well, you know, me, Millsnell, and Bill Delessandro, by the way, pronounced everybody's name correctly this week, Yay me. Are super excited to have you here. Everybody, you'll hear from my two co-hears here shortly. But Peter, we'd love to get started with just like a one minute from you. Give us your background.

I know you're very public on Twitter and doing a lot of cool stuff. Love to give you an opportunity to introduce yourself. Yeah, so a little bit of backstory started my career as an engineer. So I actually have a degree in electrical engineering. Worked in that world for about five years. And my partner and I started buying up single-family rental. kind of fell in love with real estate and decided we wanted to own our own business and saw an opportunity to start a property management company here in central Ohio.

So in 2013, I quit my job and started RL property management. My business partner came along a year later once he figured out I wasn't going broke and really nice of him to jump on an already sailing ship. So since then, we've grown. It's been going well. and today we manage just a hair over 500 units of residential rentals, which is like single families and small multifamily properties, for about 200 different clients.

So I spend my days kind of running the show over here. We've got about 15 people that work at the company, and I live and breathe property management. Super cool, super cool. We're so glad you're here, and you also get the A-plus award for being a great gout Not only are you bringing your knowledge and goodness, you also brought us two deals that are in your wheelhouse, which makes it super exciting because none of us know that much about property management, but the two companies we're looking at today are property management. So, super

awesome. Thanks again for being here. Mill's over to you with deal number one. Yeah. Peter, glad you're here. All right, this is a, actually, something jumps out about this one at me. and I don't know if you guys noticed the same thing, but this listing is on loop nut. I love when businesses are for sale on real estate platforms, but also you should, you know, buyer beware. You're not necessarily getting the best broker on the other side of it. But it always kind of, you know, makes me a little excited to dig in and see what exactly is going to happen. All right. So this business is a longstanding property management company for sale in Washoe County, Nevada. The asking price is $750,000.

The revenue is $692,000. They have about $10,000 of FF&E, furniture, fixture, and equipment for an annual cash flow amount of $257,000. They pay $450 a month in rent, pretty cheap rent. The company was established over 40 years ago. They're highly successful at property management. No better time than now to step into this line of business. Northern Nevada's rapid growth in the rental property sector is exploding. a new owner could take this business to the next level, helping the new property owners to succeed.

Owners have, they've never advertised. So this business doesn't do any advertising. It's mainly word of mouth. Cash flow is a three year average. Okay, that's helpful to know, which includes annualized projection for fiscal year 2020. So this, I guess, is maybe a little bit dated, but it looks like they had numbers, maybe they have a staggered fiscal year. not a calendar year, but 2020 revenue and cash flow is, uh, is annualized. And they're giving us a three year average. So we may not have a ton of detail. We don't, we don't really have a ton of detail on

this one, but we'd want to dig into that and see exactly. Are they disproportionately waiting? We talked about this a little bit on last week's episode, but are they just doing a straight three year average? Or are they waiting, you know, towards good years or bad years, etc.? The business is SBA pre-qualified for a 7-A loan. The buyer could purchase with as little as 10% down. The seller's prepared to finance a portion of the purchase. We can talk more about the specifics of that, but that's kind of a helpful nugget that they're, you know, previewing for you in the listing. Locally, the Reno, Sparks, and Carson City area has a small town feel with a big city attitude. The city offers excellent shopping and dining, robust nightlife, high-performance schools, a Tier 1 university.

from a business perspective, Northern Nevada is regarded as pro-business, low tax, just some kind of general information there. So they don't have any inventory, obviously. They lease their real estate. It's 800 square feet, $450 a month. They have six employees, which Peter can maybe tell us a little bit more about whether that's an efficient use of personnel given this amount of revenue and maybe wondering how many units they manage with this amount of revenue.

Let's see if there's anything else in this, this worth. The owners developed a stream, developed and streamlined a variety of processes such as billing and tracking. This has enabled them to operate efficiently, keeping expenses low and resulting in higher profit margins. I think we should circle back to that because that's saying something, but also not really saying anything. They could, in terms of growth and expansion, the broker is saying that you could bring some of the property maintenance in-house, which is currently, I guess, all outsourced. and that you could also advertise, the owner is going to stick around for two weeks, and they're leaving because of retirement.

What do we think? Two weeks, quite the commitment. I mean, are they delaying their Hawaii trip that long? I mean, what a sacrifice. That jumped out to me, too. Someone tells me they might not even make it two weeks. Well, let's see. So I took a couple of notes on this before the call today.

So I noticed a few things. So they're asking a 3x multiplier on earnings, or cash flow, I guess. Something I'm always wondering when I see cash flow is, you know, are the owner's salary included in that or not? Because that makes a big difference, right? So if that's cash flow after paying the owner a pretty nice W2, you know, that might be looking pretty good. But if that's supposed to include owner compensation, maybe not so great. They're asking essentially 1x gross revenue, which is actually very typical for property management companies. I see that quite a lot. Property management companies are often purchased as an asset sale instead of a stock sale.

We've actually done this twice before where we will just buy the book of business and bolt it on to our existing company. And when you do that, you're buying the property management contracts. So you're buying the agreement between the property owners and the property management a company, giving them the right to manage that property and collect a monthly fee. So that can be desirable because you're sort of leaving behind any liabilities or other issues that might exist with the owner's entity, and you're just taking over the goodwill. That goodwill is interesting from a tax perspective because you can, I think you, I think the emerge, I think you amortize that over 11 years, if I remember right, for goodwill.

So, yeah, what else jumped out at me here? So I tried to make a stab at guessing the number of units. Interesting that the number of units wasn't listed here. I think one of you guys pointed out something on a couple episodes ago that I thought was really great, which is look for what's not discussed in the SIM because that can be as interesting or as revealing as what is discussed. You would think you would include the number of units under management. I'm guessing three to 400.

And that's based on revenue and employees. For property management, you're going to talk. out around 100 units per employee, much more than that, it becomes very difficult. And some of that depends on how many of those employees are maintenance employees. When you look at these kind of property management businesses, just smell checking the cash flow as a percentage of revenue, is that pretty typical? So they have 250KK in cash flow over 700K in revenue with six employees. Is that high, low or about what you expect? High. So it's 37% I calculated it. I would be shocked if that was their true profit once you account for a reasonable owner compensation.

And how much does how much does the type of units you're managing effect, like how good a business this is? Like I imagine I would much rather personally, if you asked me to manage something, I'd much rather be managing a uniform set of 100 luxury apartments than a mismatch set of, you know, Section 8 housing. bunch to Section 8 people. But yeah, those seem like there's, there's a, you know, a double-click down on the type of units you're measuring as to whether this is fun or not so fun. Absolutely. Yeah, it makes a big difference. And that's a huge part of due diligence when you're looking at a portfolio of management contracts is what exactly are these properties? Are they single family? Are they multifamily? Where are they located? What's the rents for all these properties. And in fact, when we've done this before, we'll actually go and drive by a bunch of them,

see if they're being well maintained, see if it looks like, you know, their tenants are halfway to an eviction, because for sure it makes a difference. The other big thing you need to know is what's the customer concentration? So if half of these units are owned by some institutional investor, that's a huge risk, right? Because if that client leaves, now you've lost half your revenue. So then the average units per client is the metric. So our firm runs right around three units per client on average. And that's, I think that's a healthy, you know, you don't necessarily want one to one because now you've got too many clients relative to the number of units, but you also don't want like 50 to one because now you have a huge customer concentration.

And something tells me in a business as size, you know, if there is customer concentration, it's probably like the seller's brother, you know, who owns like 100 units out of the 300. And he's like, no, no, no, he's going to stick around. You'll be good. Yep, exactly. So I would expect to find it. I'd expect to find a lot of these little businesses like this would have graduated or be tied to actually owning real estate as well, right? As I watch a lot of you guys on Twitter who are in the property management business, you're also in the ownership business and vice versa. I guess that's another thing to look out for here. How much is this property management just managing this guy's own stuff, right? Yeah, definitely.

Peter, you brought up an interesting point earlier with asset purchase versus stock purchase on a deal like this when you've got, you know, the assignment of these representation agreements. It's not like a listing agreement, I guess, as much as it is just a, you know, property management agreement. You know, are most of those agreements typically written with an assignment provision? and because it's really, I'm just thinking any asset purchase where there's contracts involved, if you have to go and get consent, right, especially for, let's just say, let's just say there's

200 clients, right? If you have to get consent from 200 people, that's a ton of legwork and a ton of risk, right, because it's this dance of, I want to go and de-risk this as soon as possible before we get to the closing finish line. And the seller's going, no, no, no, I want us to get as close of the finish line as possible before I let on that I'm planning on leaving. How do you, what do you see on that? So you nailed it. It's super important. And someone who's positioning their company for sale, and if they're thinking long term,

one of the first things they're going to do is include an assignment clause in the property management agreement. And in fact, we have one that says, you know, this contract may be assigned with written notice to property owner or what have you. And that basically makes this whole thing a lot easier because if that assignment clause is not in the contract, you're exactly right. Now you have to go and get essentially permission

from each and every client to assign the contract to somebody else. You basically need them to agree to it or sign off on it. And as soon as you do that, you've kind of tipped your hand and now they might start shopping around. So what really happens here is you lose a certain percentage of the customers through the process. And you're going to lose a lot more of them if the contract isn't assignable. Because if they have to sign a new agreement anyway or essentially sign off on the assignment,

they're going to take that opportunity to shop around. Maybe it's time to sell this property and be done with it. So I don't have to get to know the new property manager. So yeah, it's definitely a big deal. Gotcha. I mean, is there a way to mitigate that where, say, like, after you buy this, you keep operating those contracts under their brand name? Like when you buy that asset, you also get sunflower management or that asset as well?

Or how do you think about that in terms of minimizing the post-purchase risk? Yeah, there's a couple things you can do. One of them is to continue operating those specific properties under the existing agreement. So, of course, every property management agreement is different and has different fees and different ways of doing things. but in order to make the process as smooth as possible, if you're acquiring a property management company, you basically tell the owners, listen, even though you're with us now,

we're going to go ahead and continue honoring your existing agreement as it was written. We're going to keep the fees the same. We're going to keep everything about how it's being done the same while you get comfortable with our business and the people who work here. And then maybe a year from now, we'll have you sign a new contract,

a new property management agreement with kind of our standard terms. In terms of like the brand name and everything, I think that would be more like the stock sale where you're taking, you're paying for that brand name, the Google listing, you know, all the images and maybe even some people from the office bringing them over. And I do know some of my peers and colleagues who will do that

and then continue operating that management company almost as an independent company for the first year or so. Again, while they get the customers, the clients familiar with, the new business essentially. I will say just to clarify is that you can, you can buy right in the asset purchase and in the purchase price allocation, you can buy their name, right? And you can buy, you know, any other intangible stuff, right?

Like they may say we have, you know, a proprietary 12-step process for onboarding that, you know, is trademarked or something like that. You can buy all that in the asset purchase. The thing that gets kind of sticky is that if you want to use their existing contracts, right? Their existing contracts, if they're not going to be assigned, that legal contractual agreement is between the individual client and that corporate entity. And that is what you would have to either migrate over, right, or you would assume and take

ownership of their corporate entity, i.e. a stock purchase. So there is price and flexibility there, and you're right. You have kind of a marketing and a tactical decision about, do I want them to be assimilated into my name and brand and culture, or is there some, you know, value in it remaining what it is? But technically from a legal perspective, you could do an asset purchase by their name, keep using their name. It's just the minutia of what specifically happens with the contracts. That's great to know. Yeah. One thing I'll add that kind of is a middle ground here, and I'm not a lawyer. So talk to your lawyer before you do this. But when we brought a few brands, occasionally they've had a contract that was not assignable, or either wasn't assignable or we didn't want to assign it for

whatever reason. You can make part of your agreement with seller that their kind of remaining shell entity that has sold you all their assets and gotten hollowed out will continue to perform that contract and basically pass through the cash flow to you. So you know, you'll do almost like a managed services agreement. Yeah. Very interesting. So that's that's the way we sometimes got around that where we don't want to tell the counterparty to the contract that, you know, the business has been sold right now or whatever. So we'll have the kind of remaining shell entity of seller keep doing the contract and passing us through all the profits and we're reimbursing them for all their costs. This only works for kind of so long. And you don't,

you wouldn't want to do this like on a massive scale because there's also, you know, what if you need to sue them under that contract, you need to be able to compel seller's entity to file that lawsuit and pay, you know, like, it just can get really complicated really fast. So you don't want to do this a lot, but that's one way around the problem. Yeah. So one way that buyers will mitigate the risk here of these non-assignable contracts, or even if they are assignable, very typical in property management transactions as a clawback. Typically around one year, you know, could be six months where if a client comes along but then sherns out within the first six months or a year,

you essentially get credited back for that and are not, obviously all negotiable, but aren't responsible for paying the purchase price for that. Since really the value is the long-term management, so if they churned out after three months, you actually probably lost money on that. You'd have been better off never having it in the first place.

So that's something we always look to negotiate pretty hard with when we're in acquisition mode. Yeah, because you paid a year's worth of revenue, but you only collected three months worth of it. Exactly. The devil's in the details on those kind of things, right? Because if you're a year down the road, and let's just say you wrote in this case a $750,000 check and you say, hey, it's time for the true-up, you owe a $75,000 and it's not in escrow, and it's not in a seller's note, you know, then collecting your money, right, at that point is, it can be somewhat contentious.

Well, you definitely want to hold back, you know, at least as much as you think could ever reasonably churn out. for that exact reason. Peter, how should I, or how should we think about, you know, a big focus of this teaser is Northern Nevada, Reno, tailwinds, and you're in a tailwind market too, I would say, like Columbus is very attractive, lots of people moving there. I mean, how should we think about that? How important is being in the right, you know,

overall growth market to this being an attractive business to be in long term? Or is it just totally independent of that? I don't, I wouldn't say it should factor that much into the value of the business. I mean, properties need to be managed, kind of regardless of where the community's at in terms of growth or sort of, I don't know, like attractiveness. So unless there's like hundreds and hundreds and thousands and thousands of rental units being built, which could theoretically add to like your total addressable market for that specific geography. I don't think it would matter that much. It would kind of like buying a lifestyle or you guys are always joking. If you're going to move to this location, live there and operate the business,

you know, that might be important to you. If you have to convince, you know, your spouse to come along. But I don't really like, if anything in a weird way, property management can be kind of countercyclical because in a super hot market, your clients end up selling off the properties to homeowners and to other real estate investors who may or may not continue to use you for management. So, like, our company experiences about 15% shern every year just from clients selling their properties. And there's nothing we can do about that. So we have to kind of continually backfill that loss with new business. And I've heard

a lot of the old timers in property management say it's actually much easier to grow a business in a down market because you don't have that, like, loss naturally occurring. And you've got more and more owners who are sort of turning to renting out their home because they can't sell it and get what they want. Super cool. Super cool. All right, you guys are ready to move on to deal? One question on this one really quick is, you know, are there things that you see, you

know, when looking at property management businesses where they are maybe inclined to under monetize certain things or maybe try and over monetize certain things in the short term? Like, what are those different levers, so to speak? Yeah. So when you're looking at a property management business for sale, I actually think the gross revenue of that particular operator is almost irrelevant because, at least for me, I know I can come in and regardless of how the current owner is monetizing those contracts, I can come in and monetize them at a rate that I know what the value is going to be. So I know what the value to me is of a single family home in a nice suburban neighborhood.

I know what the value to me is of a duplex in the city. So there absolutely are levers you can pull there. You can attach a lot of revenue to every individual unit you manage. In fact, if you look at just the straight up property management fees, let's just call it $100 a month per unit, just for round numbers. Our company revenue, if you look at our overall revenue for our whole business, that $100 a month per unit is like less. than a third of our overall revenue.

And the overall revenue comes from a lot of different places. It comes from maintenance revenue from servicing the properties. It comes from ancillary fees and services that we attach to those units that come from the tenants and the owners. So you really need to be familiar with kind of your own book in terms of what is the value to you of 300 units in Reno Nevada, not necessarily how the current owner is monetizing that. Yeah.

When you mentioned property maintenance. being a substantial amount of your revenue. Is that because you guys self-perform? Or is it because when somebody calls you and says, hey, we need a plumber, you call the plumber and you assess a fee or a levy on top of theirs? Both. Yeah.

So we've got six in-house maintenance guys. They're W-2 employees. So they go out. We do a lot of the handyman type work and we bill them out at a hourly rate that we make a profit. It's not a huge spread, but it is something. And then we also do a 10% markup on any third-party work that we oversee and coordinate.

We call it like a project management fee. Gotcha. Gotcha. Okay. Great. Well, with no further ado, are you guys ready for deal two? Bill, who's going to be our tour guide through that one? Get pull it up here.

All right. Here we go. Deal number two. This is a well-established real estate and property management company. They are doing $150,000 of cash flow on $420,000 of revenue. and they're asking $410,000. So a little over two times cash flow, which is pretty interesting. It says they are a division of an older, well-established real estate and property management

company. The company's property management accounting and maintenance decisions are all offered for sale. This is separate from the rest of the company, which is providing commercial management, sales and construction, and requires special license. Business model being offered has recurring profitable monthly revenues from existing property management contracts. These contracts are from condo associations, homeowners associations, as well as accounting and maintenance contracts. This says they got a great reputation, great margins. It's recession proof, crisis proof, an essential business. It says they've been providing

condominium property management services in South Florida for over 40 years. It is 1,500 residential units. I assume probably managed there's substantially smaller number of HOAs or condo associations, but in total is 1,500 units. It's as many have been with the company for over 20 years. They're established in Central Palm Deach County, has a high-quality office staff. The owner is going to stay on for an extended transition period, unlike our last guy who's going to Hawaii.

It says the owner, since acquisition has used this base company as a springboard to build and sell numerous office buildings, residential homes, and commercial centers, and now he is retiring. It's been around since 1976, and it seems like the current owner bought it in 1992, and he is retiring. There's not a ton else in here.

So it sounds like, you know, Palm Beach, Florida, condo management, property manager, 1,500 units. What do we think about this one? How does this one compare to the other one, Peter? Okay, so this is condo and homeowners association management, which is a completely different beast. And I think it's kind of like buyer beware.

At first glance, you're like, oh, another property management company. No, this is like completely different. A couple of things jumped out of me. Again, they're asking 1X on gross revenue. Fairly typical. It looks like a 2.7 multiplier on earnings. So I did a little bit of math here. They said 1,500 units.

If you divide it out, that runs, it calculates out to about $23 a month per unit. And as you mentioned, this is a collection of homeowner and condo associations. So the way it works in homeowners and condo association property management, your client is the board, right? So this elected board who represents all the owners who live in a particular association. So you might be thinking, oh, well, you know, maybe that's like B to B. That could be better. You're dealing kind of

with like more of a professional. No, wrong. These are like essentially the Cairns who live there and are going to be breathing down your neck at every tiny little, they're going to call. They're going to call you and say, you know, the landscaper was here. And I was telling you guys about that when we brought you in. They did that thing again where they bumped up against my trash can and it fell over. And so now I had to go out there. Can you please speak to them about that? So if that sounds enjoyable to you, you should definitely manage associations. It's totally... Anyone who's ever dealt with an HOA knows exactly what Peter's talking about. Yeah, it's just a totally different game. The thing I don't like about managing associations besides just that factor is you like I really like to know who I'm in

business with and I like to get a feel for that person before I sign on for a multi-year agreement with them. But with an association, your client is the board and the board is always changing. Right. So the guy who you got, you build a relationship with, he got comfortable with you, you sold him on hiring your property management company. He's reasonable and easy to deal with. Well, guess what? Three months later, he moves and someone else comes in and runs and now's the president. And this guy's coming in, he's a corporate lawyer. He's going to come in and clean the place up. And he really wants to know what's going on with this property management company.

Where are these fees actually going? I'd like to have a meeting with you. Right. He's coming in at like a hot shot. So it's just, oh my gosh, it's really, I know it can be done well and it can be very profitable if your systems are set up to deal with all this. I mean, as a property management company, you're like running the board meetings,

you are doing all the accounting, you're collecting all the condo and homeowners, you know, the dues that are, you're trying to collect those every month from every homeowner. So it's a very, it's almost as much work as traditional property management, but the fees are way lower,

you know, $23 a month per unit. My revenue per door on the units that I manage is an order of magnitude higher than that for what, in my opinion, is a little bit more work. So, you know, we have a little bit of experience managing a condo association. Not a lot, but my guess is someone who had a great system for doing this could probably come in and do fairly well with acquiring this business.

Can I say one thing? Maybe not contrary, but just one positive aspect I see to HOA management. I totally agree with everything you're saying, Peter. I think most people hate their HOA, whether they have, you know, interacted with them directly, or indirectly. They're like the bane of everyone's existence who interacts with them. I used to own a property that was part of an HOA and I couldn't get out of there fast enough. But it was an interesting dynamic because they, property management company that was managing the HOA, you're right. They managed the meetings. They handle all the different like servicing the boiler

for this building, all kinds of just stuff that is outside of a normal scope because it was a large. It was like 80 units in this complex. And what was interesting, is that they could never get a quorum at the annual meetings. So they would send mailers. They would call people. They could never get a quorum. So they could never raise the HOA fees more than what was stipulated in the HOA documents, which was like 10% a year.

And the HOA was chronically underfunded. They also couldn't really change the board composition or any of the governance about how the board was able to make decisions. but they also could not fire, I don't think, without a quorum. They couldn't fire the H.OA, the property manager who was managing it. So for all the headaches, I will say, I think it's much stickier, right? Because even if you have that turnover and that churn, one guy, he can make a fuss, right? And he can't make your life difficult, but he can't just unilaterally say,

hey, I have a buddy who does this and I think you're charging too much. You're out. I like the stickiness of it, but man, you are right. You've got to have your stuff in a pile to make sure from a process standpoint that it's just a lot of paperware, right? 1,500 units. You're talking about a lot of volume for a fifth of the revenue per door. No thanks for me. And to your point, it says, you know, many have been with a company for over 20 years.

So that is attractive. I'll grant you that. Yeah, that's nice. Peter, what, if anything, does what's happened with that, the tragedy with the building falling down in this area? What do you think that does to both the personal liability as well as kind of the dynamics of this business and H.O.A.'s going forward. I don't know if we mentioned it, but this is in Florida right near, right near that terrible thing that happened. So curious how we should, how that would impact something like this business. Well, I think there's definitely going to be a lot more scrutiny put on associations, particularly of, you know, multi-story buildings.

And therefore, that will probably extend to the property manager as well. I'm guessing there's going to be fights over liability and how it's shared between the management company and the board itself. So I don't know. I think, you know, the chronically underfunded thing that you mentioned, Mills, is just classic, right? And that's what happened in that situation in Miami, I think, is that the board was unable to reach agreement on how to spend money to improve the building. A lot of people are like, I don't even know where this money's going. And everyone else is like, well, if you come to the meeting, we've been talking about it for two years. Like, it's right there in black and white.

So, yeah, tough. It's tough to say, but I can't necessarily see it being a good thing. It's a very constrained market in the sense that there's only so many homeowners and condos. associations in existence. It's not like they're making the new ones every day. So you're really just fighting for market space with your competitors. Whereas in the rental property management space, you actually do, there is an opportunity to take on management of a home or an apartment that was being self-managed by the owner directly. And there's actually more and more of that happening. You're seeing a shift in the market toward more and more professional

management versus self-management. So there are some condo and homeowner associations, small ones that are self-managed by the board, but it's fairly rare. I think this also is an illustration of, as you know, as you said, Peter, you want to know who you're in business with. The quality of your counterparty is also very important in any business. And when you think it kind of, you know, in private business typically, if you're doing business with another business, that business typically has to meet kind of a minimum level of competency just to kind of in order to continue surviving in a free market, right? Like if they're really terribly managed, they're probably going to go out of business or,

you know, get out competed. But in HOA, like, can't fail. You know, like it's essentially like an amateur governance organization that has to exist and has adverse selection for the people who run it. And it leads to scenarios like Mills was describing where you can't get a quorum, you can't actually govern, nobody actually knows how to fix it because they're all amateur at corporate governance, which is not an easy topic, corporate governance generally, and they've got a captive audience, you have to be part of the HOA, you can't just vote with your feet and stop paying, you know, you have to actually move out to leave the HOA. So you've got essentially what is a really low quality counterparty in this, which is pretty

tough. Yeah. I know of a couple of guys that run a firm that basically does an MSP that runs your HOA for you and they are doing incredibly well. The other group I think that does incredibly well on the inefficiencies of HOAs are HOA specialist lawyers because it's the same deal. It's like, you know, the people... They do. Yeah, there's one group in Columbus that they're basically the HOA and condo association lawyers that everyone uses. They actually, it's genius. This list attorney group, they have like a recurring revenue model for associations where the associations pay like some

monthly fee to essentially have this group on retainer. And it gives them access to like a bunch of standard forms and probably some other stuff. But great, great business. I have a little tie-in with associations kind of in a back door way because we just purchased a small engineering company here in Columbus a few weeks ago, actually. And one of the things they do is association reserve studies. So every five years in Ohio by law, associations have to perform a reserve study or have one performed, that basically you look at all the long-lived items like the windows and the roofs and the concrete sidewalks and the gutters and everything, and you figure out how much money is going to be needed in the future to replace those items as they wear out. And the monthly dues

then have to be adjusted to make sure there's enough money in reserve to pay for those things as they wear out and break. So an engineering company is usually one to come in and prepare that study and that's something that that this company does. So I'm trying to run away from these guys and I'm actually getting dragged toward them because we need to start to get to know associations so that we can get some of that business. But yeah, I mean, last thing that jumped out of me here, reason for sale or retirement, but they also say they're just selling off a division. So what's happening with the rest of the company? That's because the kids are keeping the good stuff and selling you this crap. That's what's going on. Yeah.

Corporate divestitures of something like this are very, I mean, corporate divestitures of $5 million ebidab businesses are very tricky. You've got to really tease apart the income statement and figure out, oh, you know what? We were sharing, you know, in-house counsel and we were getting all these benefits that now we're going to have to carve out. It's very complicated on a large scale. I promise you it's complicated on this scale, too. Isn't this really just proof that this is the worst part of this business? Like, he's trying to wind down, right? He's trying to wind down and retire, and he's like, all right, I got to scale out of part of my business.

What part am I going to sell? The worst, most pain of the ass part. What's the first thing I want to get rid of? Yeah, first thing the chopping block. It's definitely this part. Peter, are both of these non-starters for your business just because of geography? Is that basically, is that one way to think about it? Like, you would much more likely be going to Cincinnati or Cleveland before you would do something like this

just because of the geographical. challenge? Correct. And the other factor is licensing. So property management is a fairly regulated activity. I don't know for sure about Nevada and Florida, but in Ohio, you need a broker's license to manage property. So if I wanted to buy one of these companies, I would have to either confirm that that state didn't require licensing or find a broker in that state willing to essentially partner with me or be on payroll as overseeing the business. And that, ladies and gentlemen, is why they trade it two and a half times free cash flow. That's great.

It's a bargain. Yeah, no, I hear you. Well, look, man, compare that to SaaS multiples. It's a different world. Yeah. Cool. Any other insights on this or questions from other folks on our side? No.

All right. Well, if it's all right with you, I think that's a good place to leave it. Great job today, Peter. In closing, love to hear from you, maybe how our, listeners or the people that are, you know, on this journey on the podcast with us, could support you, follow along in what you're doing, help you in any way. What would be best? Yeah, so you can always follow me on Twitter at P.S. Lohman, very active on there, talking property management, real estate, small business. I've got a podcast owner occupied.

We talk about similar things there. The audience here would probably like some of the discussions we have there. We're on a break. We just wrapped up season one, but we'll be starting back up in the fall again. There's 18 episodes you can go listen to. Michael, you didn't tell me it was possible for us to take breaks with acquisitions anonymous. I thought this was the break. Just calling a season. It makes everything easy. Michael said that's not allowed, basically.

We're me and Bill. We just are slaves to the man. We're on something. That's right. We get a six day break. Six days of break and then back to it every week. What am I going to tweet about if we don't do this? Awesome. Well, hey, and for everybody listening, we upped our game this week on YouTube.

I tweeted about this a few moments ago during the podcast. I know Bill saw it because I saw him laugh when he saw it. And, you know, check us out on YouTube because you get to see the teasers. That's a long-standing request we've had from folks. So we'll get this one edited and up next week. So thank you guys. Awesome job. Thanks, Peter.