Valuation Multiples for a Property Management Firm
Property management firms oversee residential and non-residential real estate for property owners. Often, this includes maintenance, rent collection, trash removal, security, etc… IBIS World notes that there are over 296,000 property management firms in the United States. Over the past several years, these businesses have generated about $114.9 billion dollars in revenue. Moving forward, revenue growth will likely continue as a result of growing rental rates and other factors. This is ideal if you are looking to buy, grow, or sell a property management firm. Whether you are buying or selling, it is important to learn about valuation multiples for a property management firm. A business appraiser often uses these when valuing a property management firm.
Valuing a Property Management Firm
If you plan on buying or selling a property management firm, knowing the value of a property management firm comes with many benefits. To understand the value of a property management firm, receive a business valuation. If you are buying a property management firm, a business appraisal can help you decide on a fair purchase price. You may also learn about negotiation strategies for purchasing a property management firm. If you are selling a property management firm, a business appraisal can help you determine an appropriate listing price. In addition, you will learn how to increase the value of a property management firm.
There are a variety of valuation methods for valuing a property management firm. A common method that uses valuation multiples is the market approach. This article highlights valuation multiples for a property management firm. However, this is only a guide. To learn what methods and multiples are best for your property management firm, obtain a business valuation. Peak Business Valuation, business appraiser, is here to assist! We can provide you with a business valuation for a property management firm. In addition, Peak can answer any questions you have about the value of a property management firm. Get started today by scheduling a free consultation with Peak Business Valuation, business appraiser!
Valuation Multiples for Property Management Firms
The diagram below shows average market multiples for a property management firm. Peak often uses market multiples when valuing a property management firm. Keep in mind, the multiples in this image are only averages. As such, they may not be suitable for your property management firm. To know what multiples and methods are best for your property management firm, obtain a business valuation. Schedule a free consultation with Peak today!
Disclaimer: These multiples are for educational purposes only. As such, the information provided does not constitute valuation advice. These multiples do not represent the valuation opinion of Peak Business Valuation or its valuation professionals. Instead, seek the guidance and advice of a qualified business valuation professional about any matter in this article.
What is a Valuation Multiple?
A valuation multiple is a ratio. It compares a business’s value to a financial metric such as cash flow, earnings, and revenue. For example, the SDE multiple is a popular ratio that business appraisers use when valuing a property management firm. This multiple compares the value of the business to the seller’s discretionary earnings. Business appraisers determine the fair market value of a property management firm by reviewing the multiples of similar firms that have recently sold. They then determine appropriate multiples for your property management firm and determine a range of value.
For example, a property management firm has $260,000 in seller’s discretionary earnings. The business appraiser determines a 2.56x SDE multiple is applicable. In this case, the firm has an implied value of $665,600 ($260,000 times 2.56x). Contrarily, a 2.97x multiple suggests the value of the firm would be $772,200 ($260,000 times 2.97x).
Peak Business Valuation is a professional business appraiser. Peak works with many individuals looking to buy or sell a property management firm. We can help you understand the value of a property management firm. In the following sections, we highlight basic valuation multiples for a property management firm. These multiples represent the range of values that property management firms commonly transact at. Since each firm is unique, the range of value may vary. In this article, we discuss SDE, EBITDA, and REV multiples for property management businesses. To learn more, schedule a free consultation with Peak Business Valuation, business appraiser.
SDE Multiples for a Property Management Firm
Average SDE Multiple range: 2.53x – 3.03x
Property management firms transact at an average SDE multiple of 2.53x – 3.03x. Business appraisers calculate an implied value of a property management firm by applying the multiple by the seller’s discretionary earnings. The equation is as follows.
SDE X Multiple = Value of the Business
Suppose that a property management firm generates $423,000 in seller’s discretionary earnings and transacts at a 2.82x multiple. This implies that the business’s value is about $1,192,860.
$423,000 X 2.82x = $1,192,860
A business appraiser often uses the SDE multiple to determine the value of a property management firm. To calculate the seller’s discretionary earnings, business appraisers add back any expenses the new owner may not incur to the firm’s value. Some common add-backs to a business valuation include personal expenses, non-recurring or non-related business expenses, and a fair owner’s compensation. Doing this helps the valuation expert determine the cash flow potential of the property management firm. Knowing the cash flow potential is crucial when valuing a property management firm.
EBITDA Multiples for a Property Management Firm
Average EBITDA Multiple range: 3.79x – 4.19x
On average, property management firms transact at an EBITDA multiple range of 3.79x – 4.19x. An expert will apply this multiple to EBITDA to derive an implied value of the business. Refer to the following calculation.
EBITDA X Multiple = Value of the Business
For instance, a property management firm has an EBITDA of $337,000. It can be bought and sold at an EBITDA multiple of 3.96x. Using these metrics, the property management firm is worth approximately $1,334,520.
$337,000 X 3.96x = $1,334,520
An EBITDA multiple measures a property management firm’s return on investment (ROI). Business appraisers may prefer EBITDA multiples for property management firms because they help normalize differences. This allows the business appraiser to compare your property management firm to similar businesses. Normalized ratios provide a more accurate projection of the future earnings a buyer can expect from a property management firm.
REV Multiples for a Property Management Firm
Average REV Multiple range: 0.51x – 0.94x
According to Peak’s data, the revenue multiples for a property management firm range from 0.51x – 0.94x. A business appraiser can determine the implied value of a property management firm by multiplying its revenue by the valuation multiple. See the equation below for valuing a property management firm using a revenue multiple.
Revenue X Multiple = Value of the Business
For example, a property management firm makes $1,500,000 in revenue. It then transacts at a 0.74x multiple. In this case, the business is worth approximately $1,110,000.
$1,500,000 X 0.74x = $1,110,000
REV multiples measure the total revenue generated by the property management firm. This multiple is less common when valuing property management firms. Business appraisers typically rely on the cash flow multiples – SDE and EBITDA. However, appraisers will use their expertise to determine the best methods and multiples for your property management firm.
Summary
When using the market approach, valuation multiples for property management firms are key to determining a fair market value of a property management firm. To learn what methods and multiples are applicable to your property management firm, receive a business valuation. Doing so can help you understand the strengths and weaknesses of a property management firm. In addition, you will learn how to maximize the value of a property management business. This is crucial whether you are buying, growing, or selling a property management firm.
Peak Business Valuation, business appraiser, is happy to help. At Peak, we value property management businesses across the country. We can provide you with a business valuation for a property management firm. In addition, we can answer any questions you may have about valuing a property management firm and valuation multiples for a property management firm. Start now by scheduling a free consultation with Peak Business Valuation below!
See also How to Value a Property Management Firm, Value Drivers for Property Management, and Valuing a Property Management Firm.
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