Acquisitions Anonymous - #1 for business buying, selling and operating - HOA Management Business for Sale – Sticky Revenue & Huge Potential!

Episode Date: February 14, 2025

You won’t believe how sticky this business model is—an HOA management company with nearly $2M in revenue and major expansion potential!Business Listing - https://vrcharlotte.com/listing/hoa-coa-association-management-company/Sponsored by:👉 Acquisition Lab - Get the best support and resources for buying a small business. https://www.acquisitionlab.com/👉 Check out what's going on at the HoldCo Conference: https://www.holdcoconference.com/In this episode, we dive into a fascinating HOA management company for sale in North Carolina, generating nearly $2M in revenue with 170 contracted associations. The team breaks down the difference between property management and HOA management, explores the sticky revenue model, and discusses potential opportunities for margin expansion through AI and outsourcing. Could this be the ultimate acquisition for an ETA buyer?Key Highlights:📌 What does an HOA management company actually do?💰 $2M revenue, $600K SDE—how profitable is it really?🔄 The recurring revenue model and why it’s hard to grow organically📈 How big players are scaling through acquisitions in this space🤖 Could AI and outsourcing double profitability?🏠 The headaches of HOA governance—why is this business so sticky?Subscribe 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]

It is the most dysfunctional government's structure I've ever witnessed up close. I think it is very hard to integrate them because of, you know, different systems, different teams, but I think at scale it can get pretty nice. It's such a double-edged sword, right? It's the thing that the stickiness makes this a great business, but it also makes it super hard to grow. Hello, an acquisition anonymous. Hello, another episode of Acquisitions Anonymous. We don't have 100% here.

Hello everyone and welcome back to another episode of Acquisitions Anonymous. I am one of your hosts, Bill Dallessandro, and this week I am with Heather and Mills, and we think we have found a needle in a haystack. This is an HOA and COA management association company. So this is a business that manages homeowners associations and condo owners associations on behalf of residents. Very, very sticky revenue. This category was a ETA roll-up darling.

a couple years ago. We looked across Biz Buy Sell. I don't know that we've ever seen one of these hit the public market before. So this is a fun one. It's also my hometown of Charlotte, North Carolina. So I hope you enjoy this episode of Acquisitions and Office. Are you ready to take a leap into business ownership, but you don't know where to start? Well, look no further than Acquisition Lab, the premier resource for entrepreneurs seeking to buy their dream business. Founded by Harvard MBA, and acquisition expert Walker Dibble, the lab is your fast-tracked success in the search diligence and acquisition process. With hands-on support, Will Cloud, resources and a community of like-minded entrepreneurs, Acquisition Lab gives you the tools and

confidence to navigate every step of the journey. And we're proud to call Walker and Chelsea, the lab's director, longtime friends of the podcast. They're passionate about helping entrepreneurs like you take the next big step. So don't wait to make your business ownership dream of reality. Visit AcquisitionLab.com today to learn more and schedule your free consultation. And when you do, be sure to tell them the Acquisitions Anonymous podcast sent you. Hey, everybody. All right. Another episode of Acquisitions Anonymous. And without Gurdley, are unsupervised again. Let's see where it takes us.

I was just telling the group before you record that I'm just over food poisoning. So I'm like, I had Chick-fil-A for lunch and I'm back to it. Chick-fil-A brought me back from the day. Which, you know, if you're going to choose something to come back to, chook-flay is a good one. That's right. That's right. If I just eaten chik-fil-a on Saturday night, I wouldn't have had this problem.

Yeah. It's that dirty lettuce that you had in your salad. I know. So Heather says she's got a deal we have to do and that it's from my neck of the woods. And I am excited to hear about it. Bill's ears perked up. Heather, you want to read it? I'm going to read it.

Yes. All right. So this is from my friend, listing from my friend Adam Petrokov of VR business brokers in Charlotte. There's not a lot to this listing, but I think it's an interesting one anyway. The price is two. the headline is H-O-A-C-O-A Association Management Company. Price is $2.05, Location North Carolina. Established and growing business.

The company has been in business for over 18 years and has 170 contracted associations or customers in the residential and commercial markets. Predictable repeat and recurring revenue, customers are on auto-renewable contracts. Turnkey business with an existing customer base and well-trained and experienced staff, new owners can earn more income immediately. Professional and responsive service, the company focuses on high level of service,

which has led to referrals and contract renewals. Market expansion opportunities, excellent growth opportunities to make the company much larger, if desired. The SDE is $594,000. Gross revenue is $1,952,000 FF&E $10,000. What do you guys think? So, Mills, what does this company do? I think one delineation that we need to make about this is what's the difference between property management and HOA management?

I don't know what COA. Does anybody know what COA owner? I think this is just HOA management. I don't think it's really property management, even though it does say that's the industry there. Yeah. But so I think it's an important delineation to make because if you're doing property management, Bill, you could call me and say, I have one rental house and, you know, it's a duplex and I, you know, I just need help managing. I've been managing it by myself. I don't want to do it anymore. That's a very different customer relationship than HOA management.

I begrudgingly and like we'll never do it again. I own a piece of property, an Airbnb that's in an HOA. and I think people on Twitter like to, you know, rant about HOAs and this one is a small apartment complex, but it is the most dysfunctional governance structure I've ever witnessed up close. But I will say the HOA manager, which is a property management company that helps oversee the meetings, they pay the bills, they collect the, you know, the HOA fees from everybody. they're actually pretty good. And one of the weird things about our HOA is that not enough people show up so we never have a quorum. And so they can't ever vote to change things. And so I'm not even sure that they could change the HOA manager if they wanted to. So that's the only backdrop I have.

But seeing it up close and personal, I think it's way stickier revenue and stick your client relationships than just. Because Bill, you could be like, hey, you did a bad job. I want to change. But if you're changing the HOA manager, then all of a sudden you're changing how, you know, if it's 80 units, how 80 people remit payment, how all those bills get paid. Like the knowledge base is so valuable. Yeah, these were all the rage in ETA circles a couple of years ago. I think there, do you guys remember that? I think there was a couple of roll-ups focused just on.

I saw one of them. Yeah, definitely. Yeah. Was it a good business, Heather? Yes, I mean, especially at scale, it can be. I think it is very hard to integrate them because of, you know, different systems, different teams, but I think at scale it can get pretty nice. There are some components to the business that you might not think about at first, but they hold a lot of deposits. So normally we think about a small business and they're kind of a net borrower or they're a net depositor as a bank. That's how you think about them. And you rarely have an opportunity to lend to a business. business that also has a lot of deposits. This is one of those types of businesses because they're holding other people's money as deposits. It's not really based on their own sales. It's based on these, you know, customer deposits, basically. So one of the roll-ups I looked at was kind of working on

one of their revenue streams as they got bigger was to actually get some earnings off of all those deposits in a variety of kind of roundabout ways. It was a little bit challenging how to explain that, because they can't exactly just put it in interest-bearing accounts, but they could get some benefit from all those deposits. So there was that side of it. And then like Mills said, it's recurring revenue. It's very, very sticky. And what's interesting about really sticky, you know, difficult to switch services is perhaps the best way to grow is by acquisition, not by going out and organically trying to convince a new condo association, or homeowners association to leave their existing provider and come over to you.

It's just too hard to do it like you just described. So the better way to actually get scale and grow is acquisition. So in this listing, it says, oh, you can just geographically expand. Well, you know, if you're going to acquire maybe, but, you know, you're not probably going to be able to do it so well, so easily, organically. It's such a double-edged sword, right? It's the thing that the stickiness makes this a great business, but it also makes it super hard to grow. Correct. And so these guys are net net depositors because you pay your HOA fee at the

beginning of the year, right? They stick it all in a bank account and then pay for services to upkeep the condo or the medians or whatever throughout the year and then they bleed it down. So they have on average a positive cash balance, which they try to earn some yield on. That's correct. Exactly. And the same thing happens in just regular property management. You know, they have renters, deposits and things like that. So those are a couple of unique businesses that end up having a lot of funds to put in the bank. And there's ways that they can earn on that, too, which is interesting. Just like through Treasury services, is that way you're thinking other?

Yeah, and I'm not an expert on that side of the bank. I'm a lender, not a deposit professional, but there are rules around it. Like, they can't just put trust funds into a interest-bearing account, but there are other ways that they can get benefit. And they kind of figured out how to do that. So it's a nice business from that perspective. And, of course, it's a very liquid business. So that's always nice, too.

There's no working capital, you know, headaches. And there's no CAPEX here. It's really just a services business. You've got a team. Yeah. Yeah, you need a good team because to Mills's other point, people get pretty upset at their homeowners association. And I think that the staff of these organizations probably gets a lot of angry phone calls.

It's probably a tough job. I was going to say, is this just hurting cats on loop forever? You know, like, Susie left her trash can on the curb for an extra day. And our bylaws say you can't do that. And she should be fine, $50. You know, that type of stuff. Yeah. I'm sure.

I'm sure they're dealing with that day in and day out. And the occasional bigger blow up than that. But yeah, it's got to be a special person that can answer the phone on one of these businesses, I think. Mm-hmm. There are definitely some like, I don't even know if there are economies of scale, but just as you scale, you have this kind of accruing competitive advantage because you got to imagine if you're managing, and I don't know, I don't know at this level of revenue. I'll scroll back down. But at, you know, at two, let's just say two million in revenue. I don't know how many units, you know, that they're managing or how many different HOAs. Well, they said 170. Oh, okay. Okay. That's right. And so, you know, but each, each one of those associations, it could be like, you know, a 12 unit apartment complex or it could be a 250 unit apartment complex. And like the economics for them as a business in terms of attribution margin would probably vary widely.

But if your total number of units is growing, you have a lot more pull in the market. Like when you need a plumber to show up in the middle of the night, if I'm making that phone call as a guy who just manages one duplex, it's hard because I don't have, I don't have that kind of relationship. But if I'm calling the plumber and I, you know, I'm responsible for 2,000 or, you know, 2,500 units, that's a very different. So I think there is a, there is some kind of competitive advantage that accrues to the big fish in a certain pond. So speaking of economies of scale mills, I mean, they laid out right here in the listing. They've got $2 million of revenue and they've got 170 customers. So when I do the math, that's $11,750 per year. per customer. So the average HOA is paying these guys $1,000 a month, right? Because I had to assume that's

through, right? If they're calling the plumber, they're not paying the plumber. They just are helping administer the funds out of the HOA's account. It's not out of their property management account. That's right. So I would assume they are probably paid and whether it's this explicit or not, who knows, but like they figure out what the HOA budget needs to be. you know, everybody contributes $250 a month. And then these guys charge a 20% Vig to run the HOA, and they just plus it up by 20%, which is actually kind of great because they're benefiting from this like principal agent misalignment. Yeah. Where the person who makes the decision is not paying them, right? They're getting paid with other people's money by the person who makes the decision

a little bit. So as long as they're not like egregiously screwing up, it's pretty hard to get fire. Hey, Michael here, I want to let you know that I'm hosting a conference, first time I've ever done it, and it's called Holdco Conference 2025. If you want to learn how to manage multiple businesses at once, how to incubate new companies, or how other Holdco owners and operators run their fleet of companies, then should come to Utah next spring. We've got a ton of great speakers, including Walker Diable, who wrote Buy Then Build and founded Acquisition Lab. Plus, we're hosting it at an all-inclusive mountain resort so you can hit the slopes at the end of the day. So please go to holdcoconference.com for your tickets and get 10% off with your discount AAPod. That's holdcoconference.

com and use code aAPod for 10% off. Now, back to the show. My run-ins with HOAs, though, just makes me want to stab my eyes out. Like, we just did a re-roofing project on one, and there's so many, you know, chiefs in the room, and everybody feels like they have a say because it's usually like an elected board. And, I mean, things get so contentious, contentious. There is insurance for the board members of HOA's so that. they don't get sued by the other HOA members.

Like it is it is rife with issues, not just, you know, here and there. It's a systemic kind of problem, mainly because so many of these HOAs become chronically underfunded. They don't set up enough funds. Whenever the developer puts together the property, you know,

especially if they're newer, even like within the last 10 years, they seed them with enough money, but then there's all this deferred maintenance that adds up. There's all these problems. And so a lot of these HOA's become, I think it's good for this business, this particular business, but it just, I would not want to be involved in the day to day of this business. That's the crux of it for me.

It's super interesting. And I think it's very sticky and good for the reasons that we're saying. I just like, I just get anxious thinking about, have you guys ever sat in an HOA meeting like this? I would not buy a house that had an HR. I won't either. Yeah, I never would. Exactly. I think I owned a house in one once, and it was a short period of time, and I vowed never to do it again.

Yeah. My, I can't remember if I told you the guy, you guys' story, but my friend bought a home in this kind of little development, and they had like a median and a retaining pond, which is the retaining pond is always how you end up with an HOA, like some sort of shared infrastructure like that. But he bought a house in this neighborhood, and it pretty quickly was clear that it had become one of these HOAs that is like way out over its sea. skis was telling him when to take his trash can in and out.

Like, he wasn't allowed to leave his car in his driveway. He had, like, parking in the garage. And he got so fed up with it that he ran for president of the HOA. He, one, became president of the HOA, basically under false pretences. And then systematically dismantled the HOA from the inside. Like, rewrote all the bylaws to, like, structurally prohibit anything except maintaining the median and the retaining pond. and then resigned at the end of his one-year term.

He was like Doja for HOA's. That's great. Yes, the Department of HOA efficiency. I love it. I love it. Well, I mean, what's interesting about what Mills was saying is reserves, right? So they're supposed to have enough reserves. You're supposed to be collecting enough fees to set up reserves,

to pay for whatever the infrastructure is that they've got to maintain. And there are laws being passed after that one condo sadly collapsed and killed people. that because what happens is the the board of the HOA they they want to keep the fees low they don't want to you know they don't want to collect the proper amount for the reserve so they have this incentive to keep fees low and then they find out later that they are underfunded they do not have enough and they have to do special assessments so I think there's definitely a lot of liability for the board members and I but I wonder for these HOA management companies if they have any legal responsibilities about around those reserves, making sure that the reserves are adequate and or being the bad guy to

tell them, sorry, but you do have to raise the monthly dues or, you know, you're going to be underfunded. So that's one thing. I think it probably varies state by state, especially after that collapse occurred. And then I also think anywhere, if this is where new homes are being built and are they being built in Charlotte, Bill? I think they are. Yes, a few.

A lot of condos as well. Yes. Okay. So everywhere where they're building new homes, those are new opportunities to become the management company for those new communities. And I think just about every new community, at least around me that I see, is always set up with a HOA. I think if you're buying a new house, it's impossible unless it's custom to not live in an HOA anymore. I think that's generally true. It's hard.

There's more and more because of just the shared infrastructure, the medians, the drainage ponds, et cetera. Yeah, and even a step up from there, if you have a pool, you know, if you have a security guard or a gate, you know, I mean, then, yeah, all bets are off. Right. Yeah. There's also, I'm sure, a lot of regulation to your point, Heather, not just around the deposits, but around, you know, how you have to keep records of your maintenance and be inspected and be insured and all that stuff. Yeah. Which is moat, right, for this business. You know, if you, the more regulatoryly complex it is, the better, because that means people eventually won't.

even be able to self-manage their HOAs, right? Because it's just not, because you're a volunteer, right? You know, whoever the H-O-A president is isn't a lawyer, right? So that's the more complex it gets, I think, the better for this business. What I would want to understand, though, is the flip side of that, which is, is this business scaled enough to compete? Or are there bigger H-O-A management companies that are going to crowd these guys out because they're managing, you know, thousands and thousands of communities, have a ton of in-house resources, have custom software,

you know, and just are going to be better at this than you are. You know, is this the type, is this more of a, is an approach, a winner-takes-all market as it gets more and more

regulatory complex or not? And can AI help with that? Maybe. Interject that. Yeah, you would think. Maybe you don't have to talk to Susie about the trash can. Maybe the AI can talk to Susie about the trash can.

The AI agent didn't listen to them all night long. Yeah. that would be interesting. And that's what the big, you know, multi-asset owners like BlackRock and others have figured out is, you know, you're not calling to put in, you know, a leaky faucet request. You're, you know, you have an app. That's where you pay your rent. That's where you put in maintenance requests.

That's where they, you know, push notifications and news and things like that to all the members. What's interesting is, you know, looking, if you just look for, you know, HOA management, for companies for sale and like biz by sell, you can't search that specifically. But if you search for anything property manager related, there's a lot of those. But just from scrolling several pages, I don't see any that are HOA management specific. It's vacation rental, short-term rental, and just kind of typical, you know, residential property management. So it makes me wonder, I mean, this business is, you know, it's 600, let's just say 600,000

SDE and they're asking basically four times, give or take. What makes me wonder, like, what do these actually trade for? And I would think because of the nature of the stickiness of revenue that they would trade up, you know, versus just something that's project based or kind of one-time revenue. Yeah. So I wonder, like, if this is, if this is not priced that aggressively, like, what's wrong with it? That's where my mind goes. Yeah.

I think they've trade higher than this typically. Sorry, Bill. They want four times, right? Four and a half times? Yeah. It's pretty reasonable. Yes. I think so.

Yeah. Either something's wrong. So, I mean, right, either something's wrong with it. Or, and this still, it happens less in 2025, but it used to happen more, but it still does happen. Sometimes broker doesn't know what he's got. I wouldn't say that about Adam. He usually does know what he's got.

He's pretty good. So just my guess is he probably does. But I do think, and maybe it's, just the size of this one. You know, I, I look at it as 500 EBITDA, rather than 600 SDE. I'm going to take 100 off of SDE at least 100 for somebody to have a salary, you know. So I say it's 500. So what is that five times then? It's five times. And that, okay, then I'll. Maybe that's not crazy. That's not too bad. Yeah. And it's a small HOA. So I think that's actually probably a fair price. But still a good deal because it's sticky, good, recurring, consistent revenue.

Why do we think the margins aren't better? I mean, what is this company spending one and a half million dollars a year on? People. The people? You think it's just an army of agents, basically, customer service agents? Did they say how many employees? No, I don't think it does say. No.

Like, do you have to have an employee on site or at least? No. No. No. I mean, usually, usually like if it's, If it's a condo, let's just say it's a condominium scheme. If it's a condo, then the condo is paying, you know, for their front desk person, you know, or their security guard or whatever. This is just the management company for all the condo associations or the homeowners associations.

So I don't think they have any, you know, field staff, maybe they have like a repair person or something that allows them to go and not have to send like the people in the office. office out there to like say hey is like is it actually that the faucet is leaking outside the building or did it just not get turned off am i starting to like this more is there a major margin expansion opportunity here i mean right sure you think there i mean this is 18 years old right i'm willing to bet more excited by the minute all of these people live in charlotte north Carolina, right, drawn up higher and higher cost of living in our city and a full W-2 American salary, what fraction of this can be done first overseas and then with AI? AI, exactly.

I mean, maybe not all, like, people want to talk to people. Like, I get that. But those people can be not in the United States as long as they have, you know, nice American accents that are well-trained, right? I mean, you could cut your payroll. If this is $1.5 million of payroll, you cut your payroll in half. I'm not saying you got to get rid of all your people at all. but you cut your payroll in half.

Suddenly you're a million of SDE? Mm-hmm. That's a different story. Recurring revenue, SDE, yep. Mm-hmm. I like that a lot more. I like that a lot. I think this one has a great potential.

I don't know how long the listing's been out there, but this is a good one. It is potentially a good one. Unless there's something wrong with it, not knowing this space, right, that we don't understand. I think if I had to guess, the thing that's wrong with it is it's low average revenue per customer. Yeah, 11,000 per year. Association is pretty tiny. That's right. And so you just, it's probably just a lot of complexity and a lot of pain in the butt. Now, of course, that's also diversification. Yeah. Right. It's sticky and diversified. It's pretty hard to take a dive here.

You know, talk about a business you're okay, borrowing money to buy. Yeah. Yeah. The SBA loan is already approved, by the way. I've approved. Pre-approved. Well, that's what I was going to ask, Heather. I mean, this is financeable, right? I think the bank would look at it and say recurring revenue. We're in. Yeah. And this is one of those industries where you don't have to have industry experience, direct industry experience, where you can kind of picture a lot of people with different types of skill sets to be able to come into something like this. They've got to be able to manage people and systems, obviously, but they don't have to have direct industry experience. So I think this is a nice one for a lender, not too hard to finance. Now, at a five multiple, you need more than 10% equity to make this work because, you know, you can't borrow four and a half times the debt coverage is. going to be too low, too skinny there. So you probably have to have, you know, 15, maybe 20%

equity. And it is a good listing. So I don't know if, you know, we'd usually like to see a seller note, but in something like this, I think a lender would be okay without one. You know, you've got really sticky revenue and it's not that hard to transfer. And that might be the thing you need to do to make your offer be the one that gets accepted is not how to seller. So you probably come in with half a million bucks of equity. You pay two and a half. You borrow two million bucks. Let's say you got 10%, you got $200,000 a year of debt service, more or less, on 500 of SDE. Yeah. That you're going to grow to a million dollars. Yeah.

Yeah. Potentially very interesting. Are you getting the book on this one? I might call our friend Adam here after this. Yeah. I think you should. You got a 704 number, so he's in my backyard. Yeah, he is.

When his phone rings and it's a 704 area code, you still have a 704 bill or no? Oh, yeah. Oh, yeah. All right. Absolutely. I know Adam personally, so you can say Heather sent me. I'll drop your name. I will.

Yeah, please. Whoever calls them, drop my name. All right. So I think are all three hosts a thumbs up on this one? Yeah. Yeah. We like it. Bill, like I know we talk about culture index a lot.

You would need to like figure out who is the person who gets really excited about like making the list of there's 80 units and like we have to have a key on file for every unit. and here's the eight people that we don't have the most up-to-date keys for. And like, I'm going to go track those people down. And like, it's just going to like really excite me and like complete my day whenever I get like that level of detail and like micromanagement of like seemingly unimportant things. You have to find that person to really be at the helmet. So you're telling me I'm going to love running this business. What you're telling me.

Yeah. But yeah, it's in culture and it's what you call that high D. High structure, right? somebody who just loves detail and checklists and when everything is just so. Yeah. Yeah. All right. If, all right.

So I haven't asked for the Twitterverse. There are people listening to us, especially in the ETA community, who know about this industry, because this was such a big roll up ETA, darling. If you are on search funder or you are listening to this pod, come tweet us at ACQU and on and tell us what we missed about this listing and tell us what was probably wrong with this or what's probably right about it. We would love to learn more about this. So hit us up on Twitter or X, whatever you're calling it these days. Also, if you like this deal, go to ACQUanon.com. You can listen to all nearly 400 now back episodes of Acquisitions Anonymous

tagged by industry, and you can go as deep as your heart desires on e-commerce or construction or restaurants or HOA management, whatever it might be. So I hope you guys enjoyed this episode. Thanks for coming. See you on the next one. Thank you.