Franchise Acquisition and Roll-Up Strategy Update

First off, thanks for the tags, ^redacted‌! Unfortunately, I couldn’t respond to them all, but I wanted to provide an update on our progress.

Backstory

I stepped away from corporate real estate lending a couple of years ago. While working on building a real estate consulting platform, I also took the opportunity to help my wife launch a venture—which, in a roundabout way, included a self funded search.

She had a strong interest in property management (PM) for single-family, townhomes, and condo investment properties. We had a couple of our own, and she had taken the lead on coordination for years. I, somewhat reluctantly, wore the maintenance hat, so I was skeptical at first. Nonetheless, she had supported me throughout various stages of my career, and I wanted to do the same for her. So, we bought a property management franchise.

Why a Franchise?

We could have started a PM company from scratch—probably for less than the franchise acquisition fee. We also could have searched for an existing PM company to acquire. However, we chose the franchise route for its tested procedures, integrated technology, and, most importantly, the network. Having access to 400+ other franchise owners was a huge advantage, especially since my wife had been out of the corporate environment for several years. For us, this support system made the franchise fee and royalties worth it—I see it as our operational partner.

To fund the startup phase, I used the ROBS program, which admittedly has some complexity. We structured a holding company as the parent entity, with an LLC holding the franchise. I avoided debt at the outset to remove the pressure of debt service, given that profitability timelines were uncertain.

Our game plan was to acquire small PM companies in our region and roll them into our platform. Many of these companies are inefficiently run, lack exit strategies, and trade at low multiples—often with seller financing available.

How It’s Going

After about six months, we finally got a bite. Last fall, we found a 35-property portfolio listed for sale on BizBuySell. We submitted an offer but got rejected.

Two months later, I saw the same listing—now down to 29 properties. I reached out to the broker and learned that the original deal had fallen apart. We submitted another bid, this time a cash offer. The seller accepted, as they needed to move fast—their portfolio was deteriorating due to a lack of local management.

After due diligence, we negotiated a 25% price reduction, which the seller agreed to. To fund the deal, I leveraged a stock portfolio. The terms: 7.5% interest-only, with cash flow from the acquisition covering the debt service.

Deal Metrics & Strategy • Acquisition Price: 0.75x the monthly management fee income (excluding additional revenue streams like tenant placement, maintenance, and sales). • Liabilities: Some contingent liabilities (maintenance and eviction guarantees), but we factored these into our pricing. • Flexibility: Existing agreements allow for restructuring with 30 days’ notice. However, we plan to keep everything as-is for the first six months.

Key Takeaways

Most importantly, we solved a problem: • The seller needed an exit. • Property owners were being poorly served by an out-of-state operator. • Tenants were caught in the middle with declining service.

By stepping in, we provided a much-needed solution.

Our next goal is to acquire one more portfolio of similar size in the near term and reassess our strategy from there.

Hopefully, this is helpful to others in their journey!