Christian Osgood explains how larger property-management firms buy smaller ones at lower multiples than they're worth to the buyer. He describes approaching competitors in Stephenville, Texas who underperform on rent and lease speed, then offering the owner a raise and seller financing so the business cash flow repays the purchase in 2.5 years.
Chapters
If you happen to start a business in parallel to your business or you buy other businesses, the fun thing is if you're a small business, you sell at a lower multiple of what's called EBITDA. In all business, I just happen to be more excited about real estate. Um, but when you have a certain amount of either a multiple of income if it's a really small business, or of your EBITDA, which is your earnings after tax, and basically everything else. Another way to say it is seller discretionary income, a multiple of the income that is left over after you've paid everything whatever is left to put in your business savings and/or pay ownership, a multiple of that. The smaller your business is, the lower that multiple is because you have less employees, less systems, it's less plug and play. Because I'm a larger PM than the PMs that I buy, I buy the same income at, say, like a, like a 1x multiple of income or 1.5 of their income. At my size in a PM company, it's worth like a 3x. So when I acquire them, their actual income is worth twice as much to me as it is to them. So they can actually get a great price for their company based on where they're at. But they're— it is actually literally worth more to me, which has been a really cool way to grow and absorb business. So if you do the business acquisition thing, it's negotiated exactly like real estate. This is a very adjacent thing. I really like competing. To me, real estate is as much my favorite sport as it is my career. I love real estate. PM is kind of the same thing. I love our operations. If we are better than other people, I want to compete there. Like, I really want to compete there. So with PM in Stephenville, Texas, we are hands down, bar none— we get the highest rents, we lease faster, we charge less. We are better on every metric than every other PM in Stephenville by a huge margin. Um, I pretty much go to everyone in town and say, hey, look, um, we're new, we're faster, we're bigger than you. I am definitely going to outcompete you. I don't really want to. If you want to join, I would love to absorb you and likely give you a higher salary. That's how I got Hannah. I pay her more than she paid herself in her company. So she got a raise. She doesn't have to worry about any of the business operations. She gets all of our marketing, she gets all of our scale, and I got her business. So she got paid for her business and she got a raise. Of course she said yes. It's a great way to win, absorb other people's business. And she seller financed her position. So I had, I set it so that the anticipated cash flow from her business exactly pays for her business over the course of 2.5 years. So free business.
