Acquiring Property Management Companies: Financing Deals, Finding Deals, and Integrating Processes

Mike Kalis is the CEO and president of Marketplace Homes. He joined us on the Property Management Show podcast to talk about growth plans and discuss the challenges of acquiring property management companies. Marketplace Homes – 19 Markets and 3,100 Doors Marketplace Homes was born 11 years ago, in metro Detroit, during the collapse of the housing market. The idea was to help people get out of their existing homes and into a new home. At that point, the only way to do it successfully was to rent out the existing property. The company grew quickly, and they appeared on the Inc. 500 list four years in a row as one of the fastest growing companies to watch. Marketplace Homes grew in 19 markets, and they presently manage 3,100 doors. They’re adding 150 to 200 doors per month. The goal of Marketplace Homes is to give the property management industry the multiples it deserves. They want to have 30,000 homes under management and be the first public property management company on earth. As a company, Marketplace Homes has done a lot of acquisitions, and they want to do more. Some people become accidental property managers, just like others become accidental landlords. The market is pretty hot right now, and brokers who were making money selling homes full time are not so enamored with the property management business anymore. They’re burning out with this business, so Marketplace Homes is pursuing the portfolios of people who are ready to retire or pursue other opportunities.   Marketplace Homes plans to get to that 30,000 homes in five years. They currently employ 85 people, so they are ready and staffed up to handle that growth. The Reverse of Growth and Castle Property Management With the previous podcast focused on the lessons that could be learned from the closing of Castle Property Management and Mike’s presence in the Detroit market, it was hard not to talk about what went wrong with Castle. Like Alex, Mike believes they ran out of money. He also believes that people need to come first and tech needs to come second.   Great people will fix lousy processes and ineffective technology. However, great technology will not fix lousy people. The team at Castle was great. But, in a service-first industry, it’s very hard to focus on the tech and succeed. The Challenges of Acquiring Property Management Companies Acquiring property management companies comes with a number of challenges. Three of them are pretty obvious and difficult to overcome. They are: Financing the purchase. Finding companies that want to be bought. Integrating the companies into your own operations. How Do Companies Like Marketplace Homes Finance Their Acquisitions? It’s a lot like buying real estate. You pay with cash or you settle for terms. Cash can come in through investor money, operations money, or other types of income. If you’re trying to put together several deals and you have the cash flow to support it, you might explore an SBA loan. Otherwise, you can rely on outside investors, bank loans, and your own capital. The other option is to buy a company with terms. You know that each door you acquire will generate a certain number of dollars every month. With an acquisition, you’ll take a percentage of that income and give the rest back to the owner. It depends on what the sellers want and the buyers agree to. Some want a large check so they can go off and explore different opportunities. Others like getting a monthly payment coming in from those properties. The key is a good partnership.