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Danielle Miner on Selling Your Property Management Company

Danielle Miner on Selling Your Property Management Company

Today I’m talking with Danielle Miner, the business development manager of Oak Trust Properties, which manages a portfolio of over 800 single-family homes in the Charleston, South Carolina region.

In our chat today, we’re going to go deep into Danielle’s experience of selling a property management business and integrating that within the new business.  

Everything from working with a business broker, to doing the negotiations, to actually merging.  We’re going to cover the whole shebang.

So if you’re thinking about possible exit strategies, this is the episode for you.

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Topics covered:

  • (01:08) – Background leading up to today
      • (01:17) – Danielle shares her journey into the property management industry.
      • (02:05) – Her vision when she first entered the arena.
      • (03:26) – Detailing the end state of her company before she sold it.
  • (04:22) – Selling the business
      • (04:42) – The determining factors influencing her decision to sell.
      • (06:13) – Danielle walks us through the first potential deal that wasn’t finalized.
        • (07:25) – What she didn’t like about the arrangement.
        • (07:37) – The time investment involved.
      • (09:09) – The role of a business broker in the deal that was eventually finalized.
        • (10:26) – Danielle shares advice and perspectives on working with business brokers.
      • (11:56) – How Danielle communicated with her staff during the negotiations.
      • (13:51) – Discussing the stressful aspects of the transition.
        • (14:19) – Non-competes and securing future options.
        • (15:22) – Other key terms Danielle felt needed attention.
          • (15:30) – Lump sum buyout versus an owner financed deal.
      • (16:17) – What Danielle would have done differently regarding due diligence of the potential buyer.
        • (16:53) – Paying closer attention to their management team.
  • (18:07) – The Merger
      • (18:07) – Issues with staying on in a management capacity to ensure a smooth transition.
        • (19:28) – Discussing the use of property management software.
        • (20:04) – How the two teams determined which processes to use during the transition.
      • (20:44) – Danielle’s motivation to stick with the transition.
        • (20:44) – Securing her payments.
        • (20:59) – Honoring connections with clients by ensuring continued quality service.
        • (21:14) – Managing the disparities between the merging companies.
            • (22:40) – Discussing fallout due to these differences.
      • (24:45) – How the motivation of the seller will affect the nature of the transition.
      • (26:00) – The differing rates of churn between the two merging companies.
        • (26:43) – Discussing the determining factors for the disparities.
  • (29:46) – The Negotiations
      • (30:36) – How Danielle educated herself on the process.
      • (31:11) – Determining the value of a property management company.
        • (31:52) – Intangibles like branding, logos, websites, fees.
      • (33:39) – Discussing contract continuity.
      • (36:12) – Clawbacks within the contract.
        • (36:19) – Clause that allows Danielle to take back the company if necessary.
      • (38:52) – Danielle shares if she has any regrets about selling.
        • (40:01) – What she would do differently if doing it again.
  • (40:31) – Going Forward
    • (41:06) – Danielle’s future plans and ambitions.
    • (41:50) – Visions and predictions for the future of the industry

Rapid-fire Questions:

(45:23) – Are entrepreneurs born or bred?

Resources mentioned:

Oak Trust Properties

Where to learn more:

If you want to learn more about Danielle or get in touch with her personally, head over to their company website, OakTrustProperties.com.


Jordan: 0:00:00.5 Welcome closers. Today we have another episode of The Profitable Property Management Podcast coming at you. This is Season Two on sales.

I’m your host Jordan Muela, and every week I interview world-class property management entrepreneurs and industry experts who share actionable insights to help you grow your property management empire.

0:00:17.3 Whether you manage 100 units or 1000, this broadcast is designed to help you see the big picture and give you the tools and tactics that you need to get to the next level.

0:00:27.9 Today I’m talking with Danielle Miner, the business development manger of Oak Trust Properties, which manages a portfolio of over 800 single-family homes in the Charleston, South Carolina region.

0:00:40.7 In our chat today, we’re going to go deep into Danielle’s experience of selling a property management business and integrating that within the new business.

Everything from working with a business broker, to doing the negotiations, to actually merging. We’re going to cover the whole shebang. 0:01:00.3 So if you’re thinking about possible exit strategies, this is the episode for you.

0:01:05.2 Welcome to the show Danielle.

Danielle: 0:01:07.4 Hey, good to be here.

Jordan: 0:01:08.8 So, Danielle, I want to start here. Give me a little bit of your background. How did you end up getting into property management in the first place?

Danielle: 0:01:17.1 So, I was actually a police officer in my previous life and I had to retire early due to some medical issues.

And so, I was kind of looking for something else to do. I was also a military reservist in the army and as I travelled around I had property managers for my own properties.

0:01:39.0 And at the time, I had a bad experience and so when I got out I decided that this was something that I should do, and I should try and do it better than the experience that I had experienced on my own.

0:01:50.5 And so, it just kind of – fell into it and it just turned out to be a really good fit for me and my personality.

Jordan: 0:01:55.8 So that still seems like a little bit of a leap. Had you started or run a business prior to starting Oak Trust?

Danielle: 0:02:02.5 No, not at all actually.

Jordan: 0:02:05.1 And when you were actually looking at getting into it, were you thinking that this was something that you wanted to grow and sell? Run long term? Like what was your vision?

As with any entrepreneur, it’s always so much different on the front side than what it’s like actually getting into it. 0:02:22.9 But what did you think you were getting into?

Danielle: 0:02:24.3 Right. Well, it’s hard, because my retirement from the police force was kind of sudden due to an injury. So I really needed a job.

And at the time, I couldn’t think of anything else I really liked to do besides getting in real estate. 0:02:39.7 And I could really see myself selling homes and I really loved managing my own rentals.

And so I just started doing it with a few other people that I knew that were in the military that were transitioning out.

0:02:52.6 And then I decided, hey I can do this, you know, as a career. 0:02:57.3 And so, it just kind of – I don’t know, I kind of just decided it was a good thing to try and do.

And I read a lot about it and I had a couple of friends who were also in the industry. 0:03:07.1 And they encouraged me to do it and they thought I would be really good at it. So, it just kind of happened that way.

0:03:12.8 So, my mother, at the time, was living in Colorado, which is where I’m from, and she was kind of looking for a change.

0:03:19.9 So, I told her to move out to South Carolina where I was and to help me start the company. And that’s what we did.

Jordan: 0:03:26.2 Alright. How’d it go? Take me – let’s fast-forward all the way to the end state. Prior to going through this sales journey, what was the, kind of the end state of what the company looked like prior to you selling it?

Danielle: 0:03:40.7 So I would say, I mean, we did pretty well. I mean, we were at about 350 properties when I decided to sell. We were doing really well. We were taking on 20 to 30 new properties per month.

0:03:53.0 And I think what happened to me is that at that time, I was growing so fast and it was really hard to scale.

0:04:01.0 Which is the same thing I hear from a lot of property management entrepreneurs. Is once you get to this certain point, it becomes very difficult to manage the growth with also managing the business itself.

0:04:11.6 And so, I kind of got to that point where I needed to either make a change to make it support the growth or that I needed to sell.

Jordan: 0:04:22.6 Got it. And so, when you actually made the decision to go one way or the other, what was kind of the determining factor?

Were you experiencing some burnout? Did the idea of running a 1000 door shop just not sound all that interesting? What was kind of – what pushed you one way or the other?

Danielle: 0:04:42.9 Well I was going pretty hard there for, you know, five years, so I was starting to experience some burnout.

Some of my key employees were starting to experience a little bit of burnout because we were going so fast.

0:04:54.7 And I had an unsolicited call for someone to buy the business. And I think that’s kind of what got it into my mind. It was never anything that I had thought about previously to that.

0:05:04.6 And so, a business broker had called me with a potential interested party that was just looking to buy a property management company in Charleston. 0:05:13.9 And that’s kind of what set the whole thing off.

0:05:15.3 So it kind of forced me to think about it and then after talking with him – and that actual – that sale did not go through. We were not a good fit.

0:05:25.4 And so, I think the first thing I would tell people is you don’t have to sell to the first person, you know, that makes you an offer. 0:05:32.3 And that’s something that I learned.

0:05:35.6 And after that kind of didn’t work out, I had contacted a business broker, just curious about the process because what happened to me was so short.

0:05:45.8 And the guy kind of offered me, you know, a lump sum. And it was kind of a whirlwind process. 0:05:52.0 And so I started getting curious about it.

And at the time there was a lot of property management conferences that I was going to where they talking about mergers and acquisitions, so I got curious.

0:06:01.3 And after talking to a business broker, it kind of set things off to where I decided that, you know, everything has a price and if someone was willing to pay the price that I was looking for, that I would sell it.

Jordan: 0:06:13.3 Got it. Ok, so let’s go – let’s rewind back to that initial event. Somebody called you unsolicited. Was it a broker that reached out? Was it a business owner? For that first deal that didn’t happen, who was the party that reached out?

Danielle: 0:06:28.3 So the business broker reached out to me with an interested party. And he talked to me about, kind of what they were looking for. And he thought it would be a good fit.

It was a guy who already had a profitable property management company elsewhere and he was looking to move into the Charleston market.

0:06:45.2 And so, the problem I would say with that is that they set all the expectations. 0:06:50.5 They knew exactly what they were willing to pay. They knew what they wanted per door. They weren’t interested in any of my sales processes or any of our operating procedures.

0:07:00.1 All that kind of stuff they had on their own, so that made it worth a little bit less to them because they were just going to kind of roll the doors into their portfolio and systems that they already had.

Jordan: 0:07:13.6 Got it. And it’s also just unpleasant to hear that the work and the infrastructure of what you’d built is basically going to get wiped away and the contracts will just basically get stripped out. I’m sure that’s not pleasant to hear.

Danielle: 0:07:25.6 Yeah. And that’s exactly how I felt about it. I didn’t want someone to just, you know, take my doors and then everything that I had built kind of went by the wayside. My name would disappear, you know, and everything we’d built would just kind of go away.

Jordan: 0:07:37.5 So what was the net time investment in that first deal that didn’t go anywhere? How deep did you get sucked into it?

Danielle: 0:07:45.9 Well the good thing about that deal is that it did force me to sit down and really put our numbers on paper.

0:07:51.8 You know, come up with our profit and loss, all the numbers that they were looking for, the numbers in the portfolio, you know, dollars for doors. All those kinds of things.

0:07:59.2 And so that time that I invested, that was probably a good two to four weeks of coming up with all those numbers and getting them all packaged together before he gave me the final numbers that he was looking to purchase for.

0:08:12.2 And that’s kind of when I just decided that, you know, there was – I was kind of rushing into this and there was no reason to sell to the first person that, you know, called me on the phone.

Jordan: 0:08:21.2 Totally makes sense. Did that due diligence process turn out being any more – turn out to be any more or less stringent than the due diligence process that you went through with the later buyer where you completed the transaction?

Danielle: 0:08:36.9 So, the buyer that I actually – ended up purchasing the company, it made it really easy. Because a lot of the things he asked for was the exact same information.

And so, our process with him was really fast. 0:08:49.0 I mean, we had come together on a plan within a week or two after, you know, our first conversation.

Jordan: 0:08:56.5 Got it. So, the second deal. I just want to be clear. There was two basic processes that you went through. The first deal that didn’t happen, and a second transaction that did go to completion. Is that correct? Or were there any other…

Danielle: 0:09:09.1 No that’s correct. And I didn’t have a business broker the first time around. I was kind of talking to that business broker.

0:09:16.9 And so, after that deal didn’t go through and that was off the table, I actually talked to that business broker again and told him that I would be interested in selling if he could find a buyer that wanted the, kind of the entire process that I had built. 0:09:29.4 The sales processes, the procedures, all those kind of things.

0:09:31.8 So, he actually went out and solicited for me. Which I would highly recommend to anyone that’s looking to sell a business, is the business broker is there, to not just kind of put it out there. They’re going to shop it to people that they know would be interested in purchasing, you know, what you had to offer. 0:09:49.0 And that was a really big benefit of having a business broker.

Jordan: 0:09:51.1 Was just being able to get more than one bid basically? More than one potential acquirer?

Danielle: 0:09:58.6 Yeah. So what he did is he put together a packet of all the information I’d already gathered and then he was kind of shopping it to other big competitors in the area. Because at the time, we were growing so fast that a lot of the big competitors in the area, you know, would love to purchase the company to kind of take us out of the market. 0:10:15.5 And that was his plan.

Jordan: 0:10:17.7 Sure. Got it. Of course that velocity is going to be attractive. Adding 20 to 30 doors per month. I mean, that’s some pretty solid inertia that you had going on at that point.

0:10:26.8 So, the experience of working with a business broker. Give me some more context on what that was like.

In the same way that you said that, you know, you shouldn’t necessarily sell to the first person that made an offer, did you talk to any other business brokers?

What advice or perspective do you have on working with business brokers in general?

Danielle: 0:10:47.4 So, I talked to several people. I really liked the one business broker that I ended up working with. He did a great job and he kind of fit my personality. We worked together well.

0:10:57.7 I also talked to a lot of friends who were entrepreneurs in other industries. People that worked in other industries. And they gave me a lot of advice.

0:11:07.7 And I think the biggest thing that I got from the business broker was what I was actually selling.

0:11:11.9 So a lot of people, the first thing they ask is, you know, “How many doors do you have?” And that’s kind of this benchmark that everybody wants to know about your company. 0:11:21.0 But really, it’s profitability. 0:11:23.7

0:11:25.5 You know, how profitable are you with those doors. You know, and what else do you have? Is it sales processes, is it procedures, is it a great team?

There’s all sorts of other things within the business. 0:11:33.9 Your branding, your name, you know, your website. All these other things that can be sold and not just the doors.

0:11:40.3 And so that’s what he really got me to realize is that I had a great product outside just the 350 doors that we were managing. With our growth processes and all those things. 0:11:49.5 And that made it worth more than just, you know, dollars per doors.

Jordan: 0:11:56.4 Totally makes sense. So as you’re squirrelled away, going through this process, having these conversations, what’s the rest of your staff doing or thinking?

Did you include this in the – at what point did you include them in the conversation and the process? Was it post signing the final documents? Did they get any whiff of what was happening ahead of time? And if so, how did that go?

Danielle: 0:12:20.0 No, you know, I didn’t tell my staff anything. But part of the stipulations to me selling to anybody was that they had to keep my staff.

So I didn’t want to sell to someone that was just going to let everybody go, because I really liked my staff and I just didn’t want to do that to them at the time.

0:12:36.8 We all became kind of a family and so I just – I wanted to make sure that whoever purchased the company would at least attempt to, you know, bring them in as well.

0:12:48.5 So, I ended up with a really great situation where the guy who purchased me already had a property management company and he was kind of looking to grow.

0:12:56.6 So he kept all my staff and they didn’t know until the paperwork was signed and we were kind of moving offices – that this whole thing had happened.

Jordan: 0:13:05.6 Wow. So were you nervous going through the process? That maybe they would find out and be concerned about job security, etc.?

Danielle: 0:13:16.9 Yes. I was really worried about that actually. 0:13:17.3 So I had – you know, with any business you kind of have your key players, and I was kind of concerned about how they would feel with me selling it.

0:13:28.0 And if they would even want to stay, but I didn’t want to, you know, tell them early in case that they quit, kind of in this process.

0:13:36.3 Because if it didn’t go through and then your key players are not around any more, you know, it kind of does a lot of damage to the business.

So, I wanted to make sure that they didn’t really know what was going on but they had every opportunity to stay with the company, you know, as it transitioned into a new owner.

Jordan: 0:13:51.5 Got it. So, you get into this second transaction, you’re moving through it with the help of a business broker, what was – what were some of the more stressful aspects of working through it?

Was it the – I guess it wasn’t the due diligence because you already had a lot of that documentation. Was it the negotiation?

I mean, for you, what felt like kind of the make or break moments in going through that process before getting to the finish line?

Danielle: 0:14:19.8 So I think part of the hard thing, and something that I would definitely recommend to people going through this, is at the time, when you’re going through this burnout phase, you think that you’re never going to want to do property management again, or you just need a break, or you don’t care how long your non-competes are.

0:14:34.2 But really, those things are the most important because, you know, a year down the road after you sell your business, do you really want to be locked out of your current market for a specific amount of time?

0:14:43.2 You know, two to five years. Do you want to not be able to work for somebody else? Do you, you know, what do you want to do?

0:14:49.4 So I think that was the hardest part for me, was really making sure that in the contract, it was in my best interest for the future as far as what my plan was.

0:14:59.6 And that was the hardest part for me because at the time, you know, what I really wanted and what my business broker and all my friends were telling me were very different at the time.

0:15:10.2 And I’m glad I took a lot of their advice to make sure that my non-compete didn’t lock me out if I ever want to do property management again.

Or if I want to go into another market or how long I had to wait. You know, all those things were very important to me.

Jordan: 0:15:22.8 Yeah, absolutely. Sounds critical. What else? What were some of the other key terms that you felt like were worth paying extra attention to?

Danielle: 0:15:30.7 Well, obviously the terms of the sale. So, you know, there’s two ways to do it, and one is to get a lump sum from someone. Which is usually you typically are going to get a lot less, but there’s a lot less transition involved.

0:15:43.3 So if something happens in the future, you know, you’ve already been paid out, and so it’s not going to matter if something happens with the company or the transition.

0:15:52.4 But if you do any kind of owner financing, you know, you have to make sure, one, were the buyers able to make good on the load payments. And two, how was their company running?

0:16:03.1 Is it something where they’re going to be ok with the growth and scaling, you know, to a giant company.

0:16:08.6 So now we’re at 850, you know, how are they going to handle that transition? How are they going to be successful managing, you know, a larger portfolio?

Jordan: 0:16:17.6 Ah, so let’s dive in. The reverse due diligence. The reverse due diligence matters here if you’re getting paid out over time. You’re getting a one-time cash payout then, hey, good luck figure it out. But if you’re getting paid out over time, then obviously, it is a huge factor.

0:16:35.1 So what – how would you have done things differently had you leaned into that reverse due diligence process more so?

0:16:44.2 Because it obviously does tend to be pretty one-sided. I mean, what do you think are the critical things to know and how would your recommend kind of navigating through that process?

Danielle: 0:16:53.2 So, I think what I would have done differently is – I didn’t look at their management team.

So obviously, I met the owners and they had a company that has been around for a long time but I didn’t anticipate the differences in our company culture.

0:17:07.2 That was a big, that was a big thing that didn’t quite go as planned. 0:17:13.8 Who’s going to manage this new, larger company and how – are they capable of doing it?

And that was part of the issue that we had, is that I had this transition plan for six months where I was only going to work, you know, for the first month full time and then go down to part time and then, you know, by month three to six, I was only supposed to be working five to ten hours a week.

0:17:33.2 So, it didn’t work out that way because what we found out is that it’s very difficult to manage a company twice the size.

0:17:41.7 There’s a lot of other things to consider, a lot of other factors that come into play in that size range. You know, you don’t have direct contact with every single employee every day because the staff is so much bigger.

0:17:50.4 So there were a lot of growing pains for sure, when we did the merge together. 0:17:56.7 So much so that they asked me to stay on for longer and actually work there and to help with the transition, because it’s been very difficult managing, you know, the larger company for sure.

Jordan: 0:18:07.4 And you were at a place post sale that you were comfortable staying around? Or was that stressful to have that pressure? How did you relate to that – the need for that additional manpower?

Danielle: 0:18:19.2 Well, I think it’s hard because in the end, you know, because of the burnout I really wanted a break. You know, I wanted to be able to go off, take a year off, do some different things and then come back later.

0:18:31.9 But because of, you know, this growth, this uncontrolled growth that I have, and now I’m passing the torch to someone else who’s trying to manage this growth that’s extremely difficult to manage.

0:18:43.0 And they’re trying to find staff and they have all the same issues that I have. And the other problem that we had was kind of a generational difference.

0:18:49.9 So this company had been around for a long time, for 20 years. And here they’re buying me who’s this young, technologically proficient company. We do a lot of things differently. You know, we do a lot of technology driven things that they weren’t doing.

And so that was very difficult for them to learn in that short amount of time. How to do all those things.

0:19:08.4 So, I didn’t expect it because their management team had been around for a long time and they had been in the industry longer that they weren’t prepared to deal with all these technology issues that we had already had in place.

0:19:22.9 So that was – it was a very difficult transition. And it’s been about six months now and it’s still kind of difficult.

Jordan: 0:19:28.5 What – did you switch property management softwares in the process?

Danielle: 0:19:33.1 We did not. But that was a headache. So we used that AppFolio and at the time they were using AppFolio.

So it was just easier to kind of merge the two together. Which was a process and it was difficult but I think that was easier than trying to switch property management softwares at the time.

0:19:54.3 Because trying to manage or merge two different property management softwares into a brand new one and then have all the staff learn all that would have been even more difficult.

Jordan: 0:20:04.1 Sure, yeah. That makes sense. So, when you talk about the technology and a little bit of friction in terms of your process versus their process, how was it determined whose process won?

Because there’s no reason that a better process needs to win. Right? And many situations, disfunction wins.

Were you motivated to stick around to make sure that when possible, the superior processes were the ones that won and were adopted as opposed to allowing the disfunction undo the systems and the structures that you had built in the process of that integration?

Danielle: 0:20:44.3 Well I think I definitely had a motivation to stick around. Because one, I want to make sure that, you know, they’re able to continue at least to maintain the same sized portfolio so they can pay me, you know, my monthly payments kind of thing throughout this process because I owner financed.

0:20:59.8 But I think the other thing on top of that is that, you know, I have a lot of friends and family and people that I’m close to that I’ve, you know, grown connections with and I want to make sure that their properties are being managed right. 0:21:12.3 And they’re getting good customer service, all those things.

0:21:14.8 And it was very obvious when we sat down, probably the first month or so and, you know, all the one employees from one company are sitting on one side of the office and all the other employees, you know, are kind of in the new offices across.

0:21:27.2 And you could just feel the difference in the atmosphere and the different ways people did things.

0:21:32.0 You know, some people like to use virtual assistants, they don’t like to answer the phone, they don’t like to have people in the office, you know.

0:21:37.9 And then there’s other people that like to be, you know, they’re very phone heavy. They have a lot more staff, they do things in house. You know, there’s just a lot of different ways to do things.

0:21:46.6 And so we – our process is, even though we ran this in the same company, we’re just so different. So, we used a lot of things, you know, we’re using Fourandhalf, LeadSimple, all these marketing things that they weren’t using and they didn’t know how to use.

0:22:01.1 You know, a lot of self showings, all these other things that, you know, companies do differently. And it was very hard to merge them together.

0:22:07.6 We were also growing at a rate where, you know, the employees on my side were kind of working extremely hard, you know, at night they’d be doing calls at night, they’re going to sales calls on weekends. They’re just kind of doing whatever they can.

0:22:20.7 And we had a very growth-minded atmosphere and where they were kind of in, I don’t know, posting mode.

Where they were comfortable with their portfolio size, they weren’t bringing on a lot of new properties. 0:22:30.8 You know, they were having that slow attrition rate, but they weren’t really growing. 0:22:36.5 And so, it was just very difficult to kind of merge those two together.

Jordan: 0:22:40.0 Got it. You know, that really, in some ways, kind of sounds like a recipe for disaster. So, what was the fallout? I mean, did everything just nicely – were you able to put a bow on it and to figure it all out? Or was there some friction? Was there some attrition? How did it all shake out?

Danielle: 0:22:58.4 Well, I think what they realized is that they weren’t growing not because they’re not a great property management company.

They weren’t growing because their staff had kind of – just kind of grown accustomed to doing what they were doing. 0:23:09.2 And they got a little bit lazy.

0:23:11.4 And so, we did have a big attrition. We ended up letting go most of the people that were from their side of the company and hiring new people that would learn the new processes and new systems that these – that the new owners had purchased.

0:23:24.5 So a lot of the old employees, they were kind of set in their ways and they were not open to change. 0:23:28.6 It was very difficult.

And as I’ve learned now from friends and people in other industries, that anytime you have a merger it’s very common to lose whatever side of the equation kind of wasn’t doing things the way that new structure wants to happen – the new business wants them to happen.

0:23:45.5 So, we lost a lot of employees. We ended up having to rehire most of the staff from the company that purchased us. And so that was a very difficult process.

0:23:53.8 But I think it’s been about seven months now and we’re finally getting to the point where things are starting to iron out.

0:24:02.2 So, I’m hopeful that over the next year or so I will be able to step out because we’ll kind of get everything under control.

Jordan: 0:24:07.6 So it makes sense to me that there would be some attrition during this process, but typically the attrition happens on the side of the company that was acquired, not on the side of the acquirer.

It sounds like you were in somewhat of a unique scenario in terms of there being sufficient levels of ego being kept in check for the acquirer to be willing to allow this new company to kind of dictate some processes and even to cannibalize some of their own employees. 0:24:42.3 That sounds like a little bit of a unique circumstance.

Danielle: 0:24:45.3 Well, I think it kind of depends on the motivation for the seller. You know, a lot of sellers will sell when they’re either at that point where they have an emergency, they have a health problem. Something bad is going on where they need to sell.

0:24:56.9 But for me, I was still at a point where I didn’t need to sell. We were doing very well. 0:25:02.1 I just wasn’t sure that I was prepared to take that next step in where the company was going.

0:25:05.4 And that, I think, is what part of the great value – and the difference is when you’re looking to sell is that sometimes it’s not always best to sell when you have to sell. It’s best to sell when the business is at its best. 0:25:15.7

And that’s kind of what I decided to do differently. Is that I sold it at the high instead of the low. And it just kind of worked out that way.

And so it made a lot of our systems and a lot of things were happening in our company – I wouldn’t say better, but just different to where they were working better than what was going on at their company.

0:25:35.3 So at their company, the reason they wanted to buy and do something different is that, you know, right now a lot of people are selling their homes, the market is doing better in our area, and so they were losing a lot of properties and they weren’t gaining any.

0:25:47.7 So when they saw me gaining all these properties, that’s kind of what really initiated them wanting to buy the business because they wanted to know, you know, what were we doing that we were gaining 20 to 30 a month and they were losing properties every month.

Jordan: 0:26:00.4 I love that. Churn is such a critical determining factor. Whether or not you’ve got your marketing figured out or not, if you have a hair-on-fire churn problem, it’s going to gut your business eventually. Whether that looks like you’re going straight down because you have no lead gen coming in.

0:26:21.8 Or whether or not – even if you have a strong lead gen program, there still is really a hard cap that churn represents in terms of how much you can actually grow.

0:26:31.7 So you guys were in the same market but one of you was experiencing significant growth and the other was more or less just treading water because of churn. Am I understanding that correctly?

Danielle: 0:26:41.8 Yep, that’s correct.

Jordan: 0:26:43.1 Well that’s a really interesting example of having two different perspectives depending on where you’re at.

Because – so for the company that wasn’t growing, basically the acquirer, what were they attributing that to?

0:26:54.5 Were they aware of the sales and marketing function being broken? And what did that look like before hand? Did they have a dedicated person in the sales function? Were the property managers handling that? Was the owner handling sales? What did it look like before hand?

Danielle: 0:27:13.4 So I think that’s the probably the most interesting part of all this whole thing. Is that the owner did not know. He did not know why things were going the way they were going.

0:27:23.3 They really did not believe our growth rate. I mean, it was very – I had to prove it on paper to even show them that this was happening because they were losing properties.

0:27:31.0 And I think where it came down to is that their employees were not growth minded. 0:27:36.2 You know, they had no incentives to go out and sell new owners.

They didn’t have a dedicated sales person. They didn’t have a business development manager. They didn’t have a lead platform system. They didn’t have any of these other things going on.

0:27:49.4 The marketing that they were doing, because they were an older company, was still older style marketing.

0:27:54.6 And we were doing a lot of the newer things. So I think that, you know, that was a big part of it. I also think that their staff had been around so long that they just didn’t – I don’t know, they didn’t have – they weren’t personally invested in a lot of the processes and systems, so they didn’t go out and sell.

0:28:13.5 They didn’t return phone calls the same day. They didn’t do a lot of these things. With the lead process, it was kind of a more old school lead process where, when you kind of get a lead you assign it to somebody.

You know, they follow up maybe in a day or two and it was very – you know, they tried to set appointments, they try and get people’s information before they give them prices. 0:28:32.8 You know, kind of the old school sales model.

And everything is kind of different these days. 0:28:38.1 And so we were incorporating all the new school information. You know, all the things we learned at all these conferences we go to.

0:28:44.4 And so, we were just doing it differently. And I think that’s – the biggest thing is that what they were doing wasn’t wrong, we were just doing it differently and more modern than they were and that made all the difference.

Jordan: 0:28:56.1 Totally agree. It’s not about right wrong, it’s just about what is in alignment with the outcomes that you are pursuing.

0:29:00.8 What I would say, is that recurring revenue is both the blessing and the curse of this industry. It is responsible for a ton of wealth creation, but it’s also responsible for a large amount of complacency.

And the truth is, once you ramp up that recurring revenue, over time, it’s possible to trade margin for ease. 0:29:20.3 Meaning, you can choose to be less profitable, but to do less work and to have that culture of excellence kind of erode and slip.

0:29:29.7 And naturally over time, once you’ve put in the grind, you’ve put in the hustle, as an owner that temptation happens.

And what the owner does, the rest of the team eventually just kind of falls in sync with. Whether or not it is verbally stated or not.

0:29:46.8 I do want to transition to talk a little bit about, kind of the showpiece, which is the negotiations.

0:29:52.7 Now, we’re not going to put you on the spot and we’re not going to talk about, you know, numbers and sale price, etc.

But I do want to talk about the logic and the approach that you took for determining what a door is worth.

0:30:07.2 In my opinion, in my estimation, the conversations that I have had, the industry is still pretty early in terms of having any kind of a real functioning heuristic for determining the value of a door.

0:30:22.2 Because we all know that a revenue multiple is a pretty simplistic framework. Right? It doesn’t take into account whether or not that door is a high-end luxury property or whether or not it’s a dumpster fire.

0:30:36.6 So, where did you kind of get your education and who did you network with to kind of work through how you came up with that overall valuation framework?

Danielle: 0:30:48.6 So, what I initially did, is obviously I tried to research. I reached out to a lot of the industry experts that I knew and I didn’t really get an answer. No one could tell me what the multiples were.

0:31:01.7 So, I really kind of leaned on my business broker heavily for that.

0:31:11.7 So part of the – the really challenging part about pricing a growing property management company – it’s really hard to go back and say, “Ok, well, let’s look at how many, you know, your income over the last two or three years.”

Well we were only around for six years so if you were to look at my income three years ago, I don’t think it’s appropriate to price it, you know, using that year because we were so much smaller then.

0:31:29.8 So, you know, how far back do you go? Do you go back the last six months? The last three months? You know? Do you go, you know, today forward to look at the growth curve of, you know, incorporating future income?

0:31:39.3 So what we ended up kind of settling on was kind of a hybrid version of, you know, the last three months of income — the last three months of our, kind of how many properties we gained, how many we lost.

0:31:52.3 And then we incorporated things like, you know, the branding, the logos, the website, all those things in there.

With also, you know, me being around to transition for six months. To be available for consulting in any kind of capacity they needed.

0:32:07.7 So there was a lot of things that went into that to make it, kind of a better package deal for them. But also to make sure they were getting the maximum value out of me.

0:32:17.9 So, I think that if we would have done the multiples – and the other thing with the multiples, is do you include auxiliary fees?

0:32:24.9 So do you include things, you know, where you’re making money on, you know, late fees, application fees, all these other fees. Admin fees, pet fees, all that stuff. 0:32:31.6 Do you include those in your multiple evaluations?

0:32:36.7 So, that was kind of part of the negotiations where, of course, I’m trying to include everything in there.

You know, and they’re talking about just management dollars. 0:32:44.8 So, that was kind of the big part of the negotiations. What has value when you’re selling a property management company.

Jordan: 0:32:51.9 Now, why would they be excluding that? Did they not charge any of those ancillary fees? Did they not believe that they could pull that revenue over?

Danielle: 0:33:02.2 I think they were trying to get with industry standards. So, it’s hard because it kind of depends on who you ask.

You know, do you include that stuff or do you not include that stuff. 0:33:10.1 Because a new company, are they going to charge the fees the same? You know, they’re kind of going off of what they know they can get dollars for door-wise.

0:33:18.2 Because no matter what I’m doing with my portfolio, they may or may not want to charge the same fees. And they already know, based on, you know, how many doors I had, kind of what their percentage of auxiliary fees they were getting.

0:33:28.1 So do you base it on the auxiliary fees I’m getting now? Or do you base it on the auxiliary fees they know they’re going to get in the future?

0:33:35.7 So that was kind of a lot of the negotiation was around those kind of items.

Jordan: 0:33:39.0 What about contract continuity? Did the purchaser try and immediately put people on to new contracts? Or let those expire? How was that? The contract transition happened?

Danielle: 0:33:52.5 So one of the great things about them purchasing the entire name and everything is that a lot of new contracts weren’t really needed. 0:34:00.1 Because we still have the same name.

0:34:01.9 So, it was more kind of how long – so what they wanted to make sure was that I didn’t have a bunch of old management contracts that were out of date and these weren’t properties I’d purchased from somebody else.

0:34:13.1 That was kind of their major concern. That the growth that we were experiencing was real.

0:34:18.3 Because a lot of people could – you know, I could of gone out and bought 100 properties from someone else and said, “Oh we gained 100 properties this year.”

0:34:23.3 So I think that was where they were concerned because they just didn’t believe the growth was there. So they wanted to make sure, you know, one, that we had people that were still on active management agreements.

You know, so agreements of – there still was time left on the contracts so people couldn’t, you know, get out if they wanted to.

0:34:39.6 And to also make sure that it was very transparent as far as what the properties were. You know, what – were they A properties, B properties, C properties.

You know, what were the price ranges, rent ranges, all this kind of thing. 0:34:52.2 So those were a lot of the negotiation process was, you know, figuring out what the fees were, you know, how many of them were properties that they wanted to manage.

How many contracts were still within their first period without being in the renewal period. 0:35:07.7 So all those things kind of came into play.

Jordan: 0:35:09.8 You mentioned the renewal period. Were your contracts structured to go month to month or to auto-renew on an annual basis?

Danielle: 0:35:18.0 So ours go month to month after that.

Jordan: 0:35:21.6 Got it. And did they want to value the percentage of contracts that were on a month to month as opposed to in that early stage differently?

Danielle: 0:35:31.9 Yes. So that was kind of their big concern. They wanted to make sure that if I left, that, you know, a lot of these people wouldn’t change companies or follow me wherever I went.

0:35:41.0 And so part of how we got around that, because we couldn’t come to terms on that – because I understood their concerns is that we just went with a longer non-compete.

0:35:54.0 So, in my non-compete, not only could I not start another company within, you know, our Charleston market, but I also could not go work for a competitor.

0:36:01.9 And so that way it was not possible for the contracts or anybody who was even on month to month and leave to go be wherever I went.

0:36:09.5 So that’s how they kind of captured that to make sure that didn’t happen.

Jordan: 0:36:12.7 Got it. And were there any clawbacks? Structured account for potential future attrition?

Danielle: 0:36:19.3 So there is. And that was more to protect me, because my big thing was that I wanted to make sure that they would be able to deliver on the payment schedule. Because they’re paying me out over a period of time.

0:36:30.7 It’s owner financed for a big percentage of the sale and so, if they drop below a certain amount within the portfolio, then I can come back in to the business as a manger and run it to make sure that – and I can actually take it back.

Jordan: 0:36:48.5 Take it back?

Danielle: 0:36:49.8 Kind of get the company back.

Jordan: 0:36:50.6 What does that nuclear option look like? Flesh that out for me.

Danielle: 0:36:54.3 Right. So if I were to hand it all over and, you know, for some reason they wouldn’t do so hot and it kind of started going down hill, at some point I would be able to pull it back and, you know, manage the company and make sure that it’s still able to provide me with the payout.

0:37:10.6 And if it that – I don’t know. I don’t even know how it’s structured exactly, but basically how it is, is if it drops below a certain number of properties or doors in the portfolio, I can just step back in as manager.

0:37:24.8 If after a certain amount of time, they’re not capable of managing the portfolio and learning and growing again, then we can terminate the contract and I get the company back basically 0:37:37.4 You know, minus anything they’ve already paid me.

Jordan: 0:37:40.7 Wow. Interesting. Ok. I mean, obviously – obviously that would be a really bad situation right?

So it’s not like it’s – even if you get to that point, you’re still out quite a bit of time and emotional heartache, etc.

But it’s good to know that you actually had it structured that way.

0:37:58.5 So you did have a backstop. Even though you didn’t do as much due diligence on them as you could have, you did have a backstop in place in the event that the situation were to devolve.

Danielle: 0:38:10.3 We did. And kind of how my lawyer explained it to me is that you don’t actually want it back.

What you want to be able to do though, is be able to come in and figure out what it is that they’re doing that is not working. And to help them by managing them to teach them whatever it is they’re doing wrong, or whatever they need help in to make it better.

0:38:28.6 And that’s kind of what that whole thing is for.

0:38:30.6 They said, “You know, it’s not meant to take it back, it’s just more to threaten that you’re going to take it back. But really want you to do is be able to go in and you manage the processes, you manage what they’re doing and go back in to tell, you know, to tell them how to do it right.”

0:38:43.6 You know, so that’s kind of their just in case. So, if they ever struggle within this, you know, four year period, this transition period, I can go back in and help them.

Jordan: 0:38:52.4 Got it. Yep. That totally makes sense. 0:38:55.1 So, what about regrets? During the process? Or afterwards, did you ever have that moment of like, “What did I just do?” How did you manage your mental game during and after the process?

Danielle: 0:39:09.0 So, I think what’s hard about this whole thing is I am young. You know, I have a lot of working, you know, entrepreneurial years left and, you know, I sold it at the height of where my company was in that moment.

0:39:20.6 And so, I, you know, wonder, you know, should I have kept it? Should I not have done this? You know, the transition has been a lot different than I anticipated.

0:39:28.7 So, you know, sometimes I wonder was it better just to keep it on my own. 0:39:32.6 But, you know, one of the great things about doing this is it is nice to have someone else responsible for the business.

0:39:38.7 So this new owner, you know, they’re on the hook just as much as I am. And so it’s really nice to have two people, you know, it’s more of a partnership now. Where we’re both responsible.

0:39:47.8 So, there’s someone else there – you know, before I couldn’t take a vacation. I felt like I couldn’t step out. But now I can because I have these other people here that have just as much interest in the business succeeding as I do.

0:40:01.1 So, if I could do it all over again? You know, I might look to some kind of a partnership opportunity. But I don’t really have many regrets, except for just maybe kind of knowing more about mergers and acquisitions at the time.

0:40:14.7 And to that’s kind of what motivates me to tell people about it. Is just to make sure, you know, you kind of do your research so you don’t get into something.

You know, kind of know what your goals are, know what your future plans are. Because everyone thinks they can, you know, stop working for the rest of their life, but it’s really not, you know, it’s not realistic.

Jordan: 0:40:31.6 Yeah, sure. Unless you’re selling several thousand doors. That makes sense to me. So, in terms of future plans, you mentioned that one of the motivations was a little bit of burnout. You’re still hoping to be able to phase down.

0:40:45.9 In the future, could you see yourself starting a completely different kind of business in a completely different industry?

Or are you still captivated by property management and do you think that something within the real estate realm is likely what any – kind of the surface area of what any future entrepreneurial endeavours may take you?

Danielle: 0:41:06.0 Well, I realistically think I’ll probably still be in real estate. You know, I love property management, I own a lot of rentals now on my own.

0:41:14.3 I think that development and maybe some commercial real estate is some of the things that are in my future.

0:41:19.8 You know, some day I would like to have a brokerage that’s property management yet it also does sales, it does development and all these other things.

0:41:25.5 So, I think that I’ll still stay in the industry and whether that’s relocating to start a new property management company, I think that growth is where I personally excel.

0:41:36.9 So either helping other people grow through consulting and going in and helping struggling property management companies grow or just, you know, doing it again. 0:41:44.2 Building it up and selling another one. I mean, I really think that it’s just kind of what I’m good at so I’ll probably do it again.

Jordan: 0:41:50.8 What does the future of the industry look like? What do you think are the trends that people should be paying attention to? What do you think is different about starting a company now versus five years ago versus five years in the future?

Danielle: 0:42:06.0 So I think when I started I didn’t really have a true audience. I kind of, you know, I’d manage property for anybody.

Whether it was investors or, you know, single family homeowners. You know, all these different clients that you can have.

0:42:19.1 And I think in the future you’re going to see a lot more specialization. Kind of going into one areas. Having a property management company that only works with investors. Or having a property management company that does – has a lot of auxiliary services.

0:42:34.3 I think you’re going to see everything go to online. I think you’re going to have a lot more people in home offices.

0:42:38.9 I think the one great thing about property management is that it is very hard to scale to a very large – to a large capacity.

And so that leaves the small business owner open for a lot of opportunities to have, you know, boutique firms that really cater to a specific market.

0:42:56.8 So, I think in the future being able to have those smaller companies that maybe focus on a, you know, very target market is kind of where the future is headed.

0:43:08.4 I’m not sure that the, you know, the – these are the things that I see come and go. Kind of the big franchises coming in and out. 0:43:18.6 You know, the set dollar prices per door. A lot of those, you know, kind of come and go.

0:43:22.2 But I really think that the small property management company because it will always be a heavy 0:43:27.1 [Inaudible] will do really well in the future. 0:43:28.6 And I think everything will be online.

Jordan: 0:43:32.5 Wow. Alright. I more or less agree with the premise. I do think that, in terms of scaling, somebody is going to crack that nut. I think like, we’re in the early phase of a number of businesses trying to crack the nut on scale.

0:43:44.9 Meaning they may have doors but they’re experiencing churn issues. Or they’re still kind of working out the bugs of having both high growth past 1000 doors and still remaining profitable.

0:43:56.1 But I don’t structurally see any reason that it’s not possible.

0:44:01.0 Are you fundamentally skeptical of the ability of somebody to run a profitable property management business at 2, 3000 doors? Or do you think it’s just something – do you think we just aren’t there yet and it’s only a matter of time?

Danielle: 0:44:16.0 So I think part of the unique thing about property management is it’s very hard to write an operating procedure manual, if you will, that can encompass every kind of situation you’re going to run into when you talk about management.

0:44:27.8 And I think that’s the hard part, is, you know, a lot of times when companies get really big it’s really difficult to manage those small decision-based things that happen on a daily basis.

0:44:39.1 And to put those in a play where you can offer the same experience across a multitude of states. A multitude of laws and different ways that people do things in different communities. 0:44:50.0 You know, different cities.

0:44:51.8 And so, I mean, I think it’s possible, and I think it’s especially possible in a lot of the basic functionality of a property management company.

0:45:00.0 And I think when you get down to the nitty gritty of actually running a property management company and trying to manage the day to day processes that make it the same across the board, you know, across all these different geographical areas is very difficult.

Jordan: 0:45:14.7 Fair enough. Yep. There’s definitely some significant challenges with it. Well, I want to close our interview by asking you a question I ask every single guest.

0:45:23.2 Danielle, in your opinion, are entrepreneurs born or bred?

Danielle: 0:45:28.7 I don’t know, I think it’s a little bit of both. I think where I got a lot of my entrepreneurial spirit is, you know, when I was young, 14, you know, I started working right away.

0:45:37.5 And I think that for me, being someone who’s always kind of been a hard worker, I think that it’s kind of a natural progression to be an entrepreneur, because you kind of want to do things your own way.

0:45:50.6 But I do think it can be taught. But I think it has to be, you know, kind of something you grow up with.

0:45:54.5 If you’re someone who, you know, I don’t think it’s an education thing. I don’t think you can learn it in school.

0:46:00.2 I think that you kind of just have to have that attitude, kind of already there. And be a hard worker. And I think anybody can do it, they just have to want to do it.

So I definitely think that they’re kind of born. I do think it would be hard to be a good entrepreneur.

Jordan: 0:46:14.8 Wow, one of the few in the born category. Ok. I’m hearing what you’re laying down.

To me, when you talk about working hard, just relating a lot of it down to the willingness to embrace the suck or embrace long-term suffering, delayed gratification. Those things in particular are very challenging to instil.

Entrepreneurial thinking, I think anybody can pick up a book and kind of grasp some of those concepts. But the willingness to embrace the grind, for what ultimately is an uncertain outcome it’s not like, it’s not like it’s a clearly defined proposition, you know, if you embrace the grind for x period of time you have certain payout.

0:46:53.3 You’re really just kind of walking into faith and that, in my mind, is the argument in favour of the born side of things. But, there is no right or wrong answer. Everybody has a different opinion.

Danielle, I appreciate you coming on the show today, talking to us about your experience. 0:47:08.5 If folks want to get in touch with you or learn a little bit more about the company, what’s the best way for them to do that?

Danielle: 0:47:15.3 So, you can always check out our company. It’s Oak Trust Properties, and we’re at OakTrustProperties.com.

If you’d like to get ahold of me or have any more questions for me, I mean, I’d encourage people to give me a call or email me.

And I’m sure you can put somewhere, you know, in the show notes somewhere. But, you know, I’m always – I love property management. I always go to all the conferences. You know, I’m always at PMGrow and all those kind of things. So, you know, feel free to, you know, come talk to me.

Jordan: Well thanks for being willing to share your experience. Any time we talk about mergers and acquisitions, some people kind of clam up.

So, I appreciate you kind of opening up and letting us in some of the back room dealings and outcomes.

We will definitely put that contact information in the show notes. We’ll stay in touch, thanks again for coming on.

Danielle: Alright, thanks Jordan.