Buying Property Management

The Essential Guide to Buying Property Management

There is an “art” to buying. Buying property management accounts and/or a business is a great way to build your company, but you want to make sure you are paying fairly.  Many times transactions take place with just a handshake and everyone “flying by the seat of their pants.” This is not a healthy approach.

It takes thought and work to achieve the right agreement and create a successful transition on both sides of the transaction, as well as the proper documentation. Therefore, you need to be prepared and aware of the pitfalls that can happen.

This product includes:

  • The Guide to Buying Property Management
  • 27 customizable forms in Microsoft Word®
  • 2 spreadsheets in Microsoft Excel®
  • Product Instructions

PM Made Easy products are copyrighted and non-transferable. Only the buyer or buyer’s representatives are authorized to modify and use the purchased content.

Manual Format: The Essential Guide to Buying Property Management is a PDF guidebook to walk you through how to prepare for and purchase accounts or a company. The Guidebook is not a customizable document.

What is the purpose of this product?

There is an art to buying. Many times, transactions take place with everyone flying by the seat of their pants. This is not an intelligent way to approach buying. It takes thought and work to achieve the right agreement and create a successful transition on both sides of the transaction. As the Buyer, you need to be prepared to guide this process and be aware of the possible pitfalls.

When reading this publication, remember that it covers different types of transactions. You could be negotiating for the first time. I believe that this manual will answer many questions and possibly save you some missteps. The forms can be invaluable – at least you do not have to reinvent the wheel. It also could be that you have experience in this area already and know much of what is included in this product. I believe you can still benefit from the material included. With every transaction, there is something more to learn.

What is NOT the intention of this product?

This product is NOT intended to replace your team of professionals that would be involved in buying a business. We advise you to seek the advice of an attorney, tax professional and any other professional pertinent to your situation to best advise you and to protect your interests.

Product Instructions: All PM Made Easy products include the 25+ pages of Product Instructions in a PDF Format. It is important to read the Product Instructions designed to save hours of time and frustration. Make sure to save an original copy and place in a secure location.

Forms: With this product, there are currently 27 customizable forms, 2 spreadsheets


Introduction. 11

Basic Manual Layout. 11

Examples in manual 12

Documentation included. 12

Checklists, letters, and agreements. 12

Spreadsheets. 12

Special note on manual wording. 13

Important notes. 13

Why Buy?. 14

Reasons to buy. 14

To increase the property management portfolio. 14

To take advantage of an unexpected opportunity. 14

To start a property management company. 14

Buyers and Sellers Shared Responsibilities. 14

Maintain Confidentiality. 14

Rule #1 – Keep the transaction confidential from the start 15

Rule #2 – Have a written agreement with employees. 15

Rule #3 – THE Golden Confidentiality Rule. 15

Rule #4 – Include a Non-Disclosure Agreement (NDA) or confidentiality clause. 16

Adopt a Realistic Attitude. 16

Provide full disclosures. 17

Know and abide by your state laws. 17

Be ethical 17

Exercise due diligence. 17

Have a “Gentleman’s Agreement”. 18

Be prepared. 18

Accept responsibility during the transition. 18

Buying Accounts and/or Businesses. 18

Step 1 – Review YOUR reasons for buying. 18

Step 2 – Review your business for acquisition. 18

Review your business plan. 19

Review your current budget 19

Consult key contacts. 20

Determine your buying power. 20

Review your current company. 21

Investigate financial resources. 21

Step 3 – Deciding what to purchase. 22

Do you want to buy accounts and/or the business?. 22

Are you adding same-type properties?. 22

Are you willing to add ANY dissimilar properties?. 23

Do you want to add a separate division?. 23

Do you want to start management in another area?. 23

Step 4 – Determining the worth of accounts/business. 23

Soliciting for agent referrals. 23

Paying for referrals from other contacts. 24

Researching the value of PM accounts/businesses. 24

Common formulas used for buying PM accounts/businesses. 25

What to do if there are no sales/comps in your area. 26

Factors that affect price and terms. 26

Paying top dollar for the accounts/business. 30

Paying for distressed situations. 31

Step 5 – Buyer documentation for the Seller. 32

Prepare documentation in advance. 32

Supply Buyer documentation to Seller. 32

Step 6 – Marketing for accounts and/or business. 32

Make verbal contacts. 32

Join associations/organizations. 33

Network with other business contacts. 33

Use written solicitations. 33

Use professional business brokers. 34

Step 7 – Potential pitfalls or red flags. 35

Why are the accounts or business for sale?. 35

Who is minding the store?. 35

Is the seller in compliance with the state real estate agency?. 36

Are the trust account and/or books in order?. 36

Are there any legal issues?. 37

What is the condition of the properties?. 37

Are there current written management agreements with ALL owners?. 38

Are there written rental agreements with ALL tenants?. 38

Are there written agreements with ALL Employees?. 38

Step 8 – Common mistakes for Buyers to avoid. 38

Do not ignore doing your research. 38

Do not neglect preparing company documentation in advance. 39

Do not neglect setting up written documentation in advance with employees. 39

Do not be too anxious, pushy or laid-back. 39

Do not take offense too easily. 39

Do not be offensive. 39

Do NOT just accept things at face value. 39

Do not fail to give respect 39

Step 9 – Deciding to make an offer to the Seller. 40

Meet with the prospective Seller. 40

Analyze the value of the prospective portfolio/assets. 41

Step 10 – Make the offer to the Seller. 42

Prepare the Purchase Agreement 42

Handling counter offers. 43

Coming to an agreement 43

Discontinuing negotiations. 44

Completing the Purchase Agreement. 45

Open escrow.. 45

Make the down payment. 45

Provide collateral equity. 45

Supply all required documents. 45

Complete the review of all documents, properties, and physical inventory. 46

Remove contingencies. 46

Finalize the purchase/sale agreement. 46

Plan and execute the transition. 46

Handling a cancelled Purchase Agreement. 46

Obtaining agreement to cancel 46

Maintaining confidentiality after cancellation. 47

Settling any funds. 47

The Transition of Accounts/Business from Seller to Buyer. 47

Setting up the transition. 47

Establish the roles between you and the Seller. 47

Maintain confidentiality and control 47

Establish “great service”. 48

Establish a calendar of events for the transition and after. 48

Set up a meeting with employees. 48

Continually assess employee’s behavior. 49

Transfer of necessary information and funds. 49

Sending transfer notifications to all parties. 50

Have employees ready to respond. 50

Send notifications to owners first 50

Send notification to tenants second. 51

Send notification to vendors last 52

Monitoring of the transition. 52

Provide mutual support 52

Track the assignments of management 53

Monitor the new tenant’s payments. 53

Monitor the new owner payments. 53

Monitor ACH.. 53

Supervise the trust accounts. 54

Monitor the new owner vacancies. 54

Monitor property maintenance. 54

Provide reports of assignments or losses. 54

Make monthly payments as scheduled. 54

Handling transition difficulties. 55

Schedule periodic meetings to problem solve. 55

Keep communications open. 55

Address negative property owner reactions quickly. 55

Handle new tenant problems quickly. 55

Solve trust fund discrepancies immediately. 55

Seek solutions for seemingly unresolved issues. 56

Finalizing the Sales Price. 56

Retaining the accounts. 56

Alternative Options to Buying Property Management. 57

Joining the team.. 57

Buy an existing company. 57

Included Forms and Descriptions. 59

Buyer Forms. 59

B1 – Marketing Letter to PM Companies. 59

B2 – Marketing Ltr to Real Estate Agents. 59

B3 – Buyer Preliminary Questionnaire. 59

B4 – Buyer Financial Checklist 59

B5 – Buyer Proposal Letter. 59

B6 – Purchase Agreement 59

B7 – Buyer Transition Checklist 59

B8 – Buyer Letter to Owners – FILL IN.. 59

B9 – Buyer Letter to Owners MERGE. 59

B10 – Buyer Assignment of Mgmt. FILL IN.. 59

B11 – Buyer Assignment of Mgmt.  MERGE. 60

B12 – Buyer Letter to Tenants FILL IN.. 60

B13 – Buyer Letter to Tenants MERGE. 60

B14 – Tenant Response Form MERGE. 60

B15 – Buyer Letter to Current Vendors. 60

B16- Buyer Letter to Prospective Vendors. 60

B17 – Buyer Monthly Report to Seller. 60

B18 – Buyer Final Account to Seller. 60

B19 – Buyer Owner Problem FILL IN.. 60

B20 – Buyer Tenant Problem FILL IN.. 60

B21 – Buyer Owner Follow-up MERGE. 61

B22 – Buyer Owner Survey MERGE. 61

B23 – Buyer Tenant Follow-up MERGE. 61

B24 – Buyer Tenant Satisfaction  Survey MERGE. 61

F1 – Non-competition Agreement 61

F2 – Confidentiality Agreement 61

F3 – Counter Offer. 61

Spreadsheets. 61

W1 – Buyer Owner Spreadsheet 61

W2 – Buyer Tenant Spreadsheet 61

Why Buy?

Reasons to buy

There are various reasons why companies or individuals want to buy or sell. It is important to examine your own motivations, but also consider those of the other party entering into the transaction.

To increase the property management portfolio

This is probably the most common reason among property management companies. They want to grow and grow quickly. Therefore, they begin to look for property management accounts and/or businesses that want to sell.

To take advantage of an unexpected opportunity

This is another common scenario. You are just going along with your daily routine without a thought to buying or selling property management accounts and/or business. Then someone contacts you unexpectedly and offers to sell you their inventory and/or business. You realize you are interested in buying or selling and you start to investigate the offer. While contemplating this opportunity, you may also realize that you are not sure where to start this process or have the necessary tools.

To start a property management company

Once upon a time, particularly those in real estate sales considered it a little crazy to want to have a property management company. Now, people realize that it is a very lucrative business, especially if handled efficiently. It is a viable commodity and accounts have value, which is why you have to pay for them.

Buyers and Sellers Shared Responsibilities

There are areas both parties need to share equal responsibility during the transaction. Supporting each other is a key to success. It is advisable that both parties seek individual legal and accounting advice to avoid legal mishaps and to ensure that there are no tax surprises. This is especially necessary if this is your first transaction. Your advisers are looking out for your best interest so that you are confident in the process and negotiations that ultimately creates a win/win outcome.

Maintain Confidentiality        

Confidentiality of the transaction is truly critical and at the top of the list. Immediately address this issue when buying and selling any type of business. This should always remain a top issue. Indiscreet or even innocent actions have wrecked many sales transactions. This manual addresses confidentiality many times.

This should be the first discussion and agreement between a Buyer and Seller. Decide how you are going to conduct calls. Arrange meetings and discuss what everyone should know on both sides. There are different stages to this, so revisit this issue as necessary as you work through the sale.

Rule #1 – Keep the transaction confidential from the start

In the majority of PM buying of accounts/business, it is critical that the information be kept confidential until it is time to announce the transition to property owners, tenants, staff, and other crucial parties. This means that during the negotiating process, share this information with only the necessary parties during each stage. Letting information leak can cause losses to the Seller and/or Buyer.

Rule #2 – Have a written agreement with employees

Have both a contract and confidentiality agreement in writing with ALL employees – this is just good business policy. If you have not already initiated a signed agreement with them, do it immediately and preferably before any negotiations begin. If you do not have this in place, use F2 – Confidentiality Agreement, in the Forms Folder of this product.

It could be that key employees should be involved immediately. However, be very discreet with employees; the best rule is to have a need-to-know policy. You do not want them to feel left out or uneasy but protecting the negotiations and transition is of the utmost importance.

It may be that you can confide in only key employees until it is time for the transition to take place. This depends on the type of transaction, the size of the business, and the roles of those working for you. If you do feel that you can trust your employees, then review the next rule.

There are times when everyone must be involved immediately, such as if it is a sudden and quick arrangement between a Buyer and Seller. Again, just be sure you have a confidentiality agreement with your employees in writing.

Rule #3 – THE Golden Confidentiality Rule

This rule is “don’t gossip and keep all related documentation confidential.” People talk – you are among them. In particular, employees talk – to the mail person, delivery people, families, friends, hairdresser, vendors, tenants, current owners, and anyone else that might cross their path. Then these people can pass on the information. You just do not know on what information highway this will travel. You also cannot anticipate how it could affect the buying and selling process. Family members may not realize the impact on business and innocently tell someone who tells someone else. If you do share information, convey the importance of absolute confidentiality. Keep information limited – and definitely do not gossip or joke about the buying or selling parties involved with anyone.

Keep phone calls confidential. If you are suddenly receiving many calls from another Broker, employees are going to be curious. If you have an open-door policy in your office and you are suddenly conducting business behind a closed one, this will spark interest and gossip.

Using cellphones can assist with confidentiality. Then people cannot monitor the calls through the business’s voicemail. You can make calls while in your car, at lunch, at home, or even in your office. Just be aware of who might be listening when you do. Text messaging can also be very useful when you do not want to be overheard.

It is also very easy to leave paperwork where prying eyes can read the information. Figure out a secure place to store papers related to any transaction. The same rule goes for anything in your computer; develop a password protected file that only you or those designated to know the information can access.

Human nature is to be nosy (you included) – just do not give people the opportunity to follow this very common trait with unsecured discussions, calls, paperwork, or computer records.

Rule #4 – Include a Non-Disclosure Agreement (NDA) or confidentiality clause

It does not matter who introduces this subject, but it is going to give the Seller a more favorable view of the Buyer since information leaks can be very damaging to the process. If you are nervous about the party you are talking to, have a simple confidentiality agreement signed. You can easily adapt the confidentiality agreement in the Forms folder. If this is not necessary, then be sure there is a confidentiality agreement in the offer or Purchase Agreement.

B6 – Purchase Agreement
F2 – Confidentiality Agreement

Adopt a Realistic Attitude

Be realistic. It is important to realize from the start that there are going to be problems, no matter how well thought out the transaction or how many agreements and forms are signed. There can be upset owners, grumpy tenants, disgruntled employees, and unhappy vendors. Approach any negotiations with the knowledge that there will be hurdles to overcome. With careful planning and execution of the transaction, you can minimize the problems. Remember that this is business and do your best to remove the emotional reactions from the transaction whenever possible. Emotions are there simply because there are humans and money involved. It can be especially emotional for the Seller who has given their life to the business and cares deeply for their owners, employees, and vendors. Even if the Seller rationally knows it is time to sell, has had a plan and is taking care of business, it does not minimize their emotions as the deal comes to a close. Many deals have dissolved at the last minute because the Seller just could not pull the trigger. For many Sellers their identity is the business and without it, they feel lost.

Often you know the other party who is selling. In the real estate/property management business, you can form many friendships through various associations such as NARPM® or NAR. The prospective transaction can appear to be extremely lucrative. It can be easy not to exercise due diligence with common sense steps. No matter what the relationship or temptation, it is important establish a “strictly business” policy for your transaction. Do not make assumptions during any part of this process.

Provide full disclosures

What you hide usually catches up with you. This does not mean you have to expose every detail of your life, but it is important to disclose information that affects the accounts and the selling party.

Know and abide by your state laws

All 50 states have variations on the laws regarding real estate and/or property management. There are, of course, certain federal statutes that always apply. It is very important that both Buyer and Seller know the requirements of their state real estate agency and avoid any costly legal problems. The internet is a great source for researching state laws. If you are unsure of your information, consult an attorney who specializes in real estate law.

Be ethical

Conducting an honest and ethical transaction is, of course, important. You have probably agreed to a code of ethics with organizations you have joined, such as NARPM® or NAR. If you suspect that the party you are negotiating with is not ethical or honest, consider that it may be the best thing to back away from a transaction with them. You do not want to inherit unknown problems that could harm your business.

Your reputation in the business community is at stake – if people know you for honest dealings, they will seek you out when they want to buy or sell. You do not want to jeopardize this. Remember – What you do not want others to do to you, do not do to others – Confucius

Exercise due diligence

If a purchase/sale agreement is negotiated, it is going to be very important for both parties to show due diligence in completing certain terms of the agreements. Normally the contract between a Buyer and Seller will have specific dates for performance. Failure to comply can make or break a deal, so the Buyer and Seller need to be cognizant of the time involved and communicate if they are having difficulties. Communication generally leads to solutions.

Have a “Gentleman’s Agreement”

This is not a sexist remark; it is just an old saying that has a good meaning. It simply means that when negotiating, act in a civil manner at all times and if the sale is not going well, agree to disagree. You may agree to end all negotiations but remain professional. Part amicably, go your own way, and keep negotiations confidential even if there is not going to be a transaction.

Be prepared

Much of this manual covers being prepared when the opportunities arise or when you actively seek to buy. Preparation will help you when you are negotiating a contract or things get crazy during the transition.

Accept responsibility during the transition

This is a critical time – you can make all the agreements you want but if handled poorly, the transition can become difficult or fail. There is a whole section of this manual devoted to the transition period. This is included here because it is a shared responsibility of both the Buyer and Seller.

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