Manage to Exit

Selling a Property Management Business: The Sellability Test and Seller Financing Explained

Could you leave your property management business for two weeks and have it keep running without you? If the answer is no, you may not have a business you can sell yet.

If you are a property management owner thinking about an exit, weighing a big cash offer, or wondering whether seller financing could pay you more, this episode is for you. Aaron McElhinney and Hunter Goodall of PMI's acquisitions team break down how to tell if your business is truly sellable, how to build it to be bought, and the tax mistakes that cost sellers real money.

In this episode:
- The "two-week vacation test" that shows whether your business can run without you, and what to fix if it can't
- Why building your business to be bought from day one changes what you charge and how you get paid
- A real seller financing deal in Florida, and why who you sell to matters more than the size of the offer
- Why a private equity offer is not a valuation, and why big earnout "hooks" often fall short
- The tax math of cash at closing vs. seller financing, and why taking it all upfront can cost you 40% or more

This episode is for you if:
- You own a property management company and wonder if it is actually sellable
- You have received an offer and are not sure how to evaluate it
- You want to know whether seller financing could work for you
- You want to build a business that is worth more when it is time to exit

Timestamps:
0:00 Cold open: the tax trap of taking all cash upfront
0:36 What happens to the C-suite when private equity buys a company
1:50 Why PMI's deals don't work that way: buying for the team
2:13 Conference takeaways from a weekend with a top dealmaker
3:27 The Castaway test: can your business run without you?
4:19 The stat: as many as 80% of businesses never sell
5:03 The two-week vacation test
6:41 Scaling the test to three and four weeks, and why it's worth it
7:40 One business isn't a retirement plan
9:10 Investor, not operator: building with the exit in mind
10:28 Case study: 90% SBA financing and a four-deal roll-up
12:11 The Elon Musk parallel: buy, build, exit, repeat
13:14 A real seller financing deal in Florida
14:05 Who you finance the sale to matters most
14:44 Why "get all cash at closing" is bad advice for the wrong buyer
15:48 The $15,000-a-month annuity story
17:20 Why private equity hooks and earnouts often disappoint
19:45 Why a private equity offer isn't a valuation
21:52 The tax math: cash upfront vs. seller financing
24:42 Weighing the risk, and why not to rule out seller financing

Wondering if your property management business is actually sellable? Get a free valuation from PMI's acquisitions team: https://pmiacquisitions.com/business-valuation-calculator/?utm_source=spotify&utm_medium=podcast_description&utm_campaign=manage_to_exit&utm_content=ep11_sellability_and_seller_financing

Manage to Exit is the property management business acquisitions podcast from PMI, hosted by Aaron McElhinney and Hunter Goodall. Each episode covers buying, selling, valuing, and growing a property management company.

#SellingYourBusiness #SellerFinancing #PropertyManagementBusiness #BusinessValuation #ExitStrategy #ManageToExitPodcast #PropertyManagement #MergersAndAcquisitions

What is Manage to Exit?

Manage to Exit is a PMI Acquisitions Team podcast sharing practical playbooks for buying, building, and preparing your property management businesses for successful exits.

I think a lot
of people just have that idea

of, hey, I'm going to get this,
check it close.

They maybe don't realize
how that could impact them,

not just their immediate

take home, but all the other tax
implications

they may have other businesses
that they should really be

considering
during that process too.

So if you're going
to sell your business

and you're like,

go get an SBA loan
because you're going to pay me

all this cash upfront,
I don't care if it's discounted

because you're paying me
everything. Now.

Well, you're going to lose like
40% of that, at least in taxes,

But what I was saying
before and mid story

like the first two rolls
and big deals, $100 million

deals or whatever
like my last company,

it was log me
in big tech company.

Am I allowed to even say this?
Am I?

This is recorded.

We'll just bleep it.

You know
just totally believe it. Yeah.

company, right.

And the a private equity
company, we're a public

a publicly traded company,

a PE firm bought us
and privatized it.

And the first thing
that they did was removed.

The CEO and the CFO.

I was like,
it's really interesting.

The company
I was working at before,

that private equity

company bought them,
and actually they left the CEO.

They left the CEO in place.

But I think the CFO.

and then I learned about it
in my MBA program,

because I did my MBA in finance
and they,

they retained my my professor,
he was like a senior VP

at Nasdaq.

And he's like, no, no, no,

I'm big deals
when private equity

like when the big mergers
and acquisitions happen.

First
two positions to always go.

Our CEO and CFO.

I thought it was interesting.

yep. They've already
got those seats.

Someone in line for them
or someone existing.

That's
they can fold right. Than.

I think we're lucky

that we don't need to do that
with our deals.

Right?

Like we value the team so much.

You know, those aren't changes

that we really have
to worry about.

And I don't think the seller

would even need
to worry about that, too.

Like we're buying it
for the team.

Well, that's the biggest part,
the transferability

of the business, right?

Like, so I just spent this whole
the last four days

or whatever in Dallas at the,
dealmaker.

Well, society,
am I allowed to give them a Ken

did give him a shout out
or whatever.

Why not? Caro Allen
with dealmaker.

Well society
they put on a great event.

And so I was there
for the whole weekend

just listening
like learning from them

because he's he's done $1.2
billion of small business

transactions,
small business acquisitions.

So it's like okay,

he's done this a couple
That's him or his network.

I can't remember what you're
saying.

Community. I guess.

talked to him in the hallway
for a little bit.

He said he's bought 38 companies
for himself

and it's, well,

his portfolio as well into the,
nine figures at this point.

he's doing quite well
with his portfolio.

But anyways,
one of the big things

that they were talking about

was transferability
of the company.

And if the institutional
knowledge lies

with the owner of the business,
that's not a sellable business.

Like when you're having
discovery conversations.

You are trying to drill down
and understand the seller,

who they are, the motivations,
what they want out of this deal

and what what it's going to take
to make a deal possible.

But you're also
trying to understand, okay,

how is this business running
without you?

Like,
they even put up a slide from,

the movie castaway using
castaway. Right. Yeah. Yeah.

of Tom Hanks with this big,

huge, gnarly beard on the
sitting on a beach with a spear.

And they're like, okay, imagine

you the owner, you,
you're on a plane,

your plane crashes,

and you're sitting on that beach
next to, Tom Hanks here.

And Wilson's on your other side.
Yeah.

And you're just.

You're stuck on a beach
somewhere.

What happens to your business

if you're if you're gone for
a week, two weeks, and month?

Three months?

Who's running chop, right?
What happens to your business?

And if the if the seller's like,
oh, that's going to be in

rough shape.

It's like then
your business is not sellable.

Like the team has to be able
to take over.

Otherwise it's
not a transferable business.

can't remember the, like,
most recent statistic on it, but

isn't it something around, like,
80% of businesses never sell?

I think might be more than that.

Yeah.

Yeah,
I think about that all the time.

Obviously,
we looked at a lot of businesses

and think of all of the.

And it's
got to be in the hundreds

now that you know,

over the years that even
you've been on the team with us,

you know, for years now,
which is wild to think about.

But you know, many of them
are thinking about it

for the first time.

It's not sellable.

Like, it's

not something

that they can exit in 5
or 6 months

or even in a year, like
they need to clean things up.

So now how do we get more people
thinking about exit planning?

Succession planning?

it takes
time. Can't do it overnight.

that's the test.

And we've talked about this
before.

Like take a two week vacation
where you don't

bring your phone, don't bring
your computer, see what happens.

Oh, yeah.

you know, your plane tickets
are going to be on there, right?

But, can you leave
for two straight weeks?

What would happen if you
if you left for two weeks?

What's going to break?

Okay, get ahead of that.

Figure out what would break

if you were gone
for two weeks now.

How can you get someone else
to make

sure that that doesn't
break? Right.

And that's that's like the test,
the two week challenge.

It's like, can you leave?

And if you can't, why not?

Okay, that's what you need
to be working on fixing.

Yeah.

It's it's funny to you
because you know

I was thinking about this
the other day

with just different automations
that are available now too.

And maybe the initial response

that we get
from a lot of people is,

oh hey, they need to hire
someone.

They've been delaying that,
that next hire.

It's I think that's important
for the right role.

But in some cases

there's automation that can be
done to help supplement too.

It's not always about adding
the team member.

So, I think if you had
if you heard that question

and if you took
that two week break

and your stomach
just fell to the floor

because that stresses you out.

It may be simpler than you
think.

And also just you need some time
to thinking process that like,

you know, obviously
someone engaged with us,

we could probably provide
more and more ideas to simplify.

But man,

if yeah, if they can't exit for

they can't be gone
for two weeks.

Yeah.

There's so much

that that is just the business
relies on that person

way too much. Yeah.

And so if if you could
solve for that

so that you could leave
for two weeks,

then the next is
can you leave for three weeks?

Can you leave for four weeks?
Right.

I don't think
you need to go past four weeks,

because if you can leave
for four straight weeks, sweet.

Your businesses Yeah, exactly.

in a good position.

And then the sellers flip
that conversation to, well, why

would I sell at all?

And at
that point it's like, well,

you sell, so you can go
roll the dice again, right?

Like Yeah. business
with nothing.

But now let's
say you sell this business

if you could,

if you can build a team
and build a business

that you can leave for
four straight weeks, you can.

That's a good
that's a very sound business.

You can make you know, you

I don't know,

you could make a good, good

amount of money
on the exit from that.

Then use that money
for your next business venture,

like on the plane home,
like I was reviewing my notes

from all the stuff that I,
you know, learned and,

and, and listened to
at that conference.

I was like, One business,

someone who starts business
from scratch,

probably not going to be
the kind of business

that you can retire and sell off
into the sunset, right?

If you're if you're running this
business and you're like, hey,

I started this business
when I was 30

and I'm going to just run
this business until I retire at,

you know, 65 or I guess nowadays
people are just going to hang

on to their business
till they're 80.

I don't know,
it's like that business.

I think you might be surprised.

It's you're probably not going
to be getting $30 million

for your business,
you know, like,

but imagine if you had sold it,
taken that money,

maybe paid off your house
or something, and then

now you have cash
that you can infuse

into your next investment
strategy, your next business

that you didn't have
on that first one.

Imagine the runway that
you would have with that, like,

okay, now we let's let's roll
the dice again

and see how much bigger
we can get this time.

Like, don't wait until you're 65
to sell your business. Yeah.

And like what a chance
to diversify too. Right.

You might take that exit and put
that into multiple businesses.

Maybe some real estate,

maybe some other funds like
I think it brings.

I mean I think you and

I talked about this
the other day though too.

But even from that conference
you went to,

I'm sure they talked.

I think you mentioned
they talked about

having having multiple exits.

You know, obviously

you mentioned
the guy who founded that

and how many businesses
he's bought.

Like, did he talk at all about
some of the businesses he sold?

I don't think he said anything
about the ones that he sold,

but and this is something
that nobody thinks about.

They did say this
at the conference,

and we've talked about this,
the idea of like,

if you're going to be in
business, you are meant to be.

They did say this a lot.

You're supposed to be a business

investor,
not a business operator.

Right.

And with that mindset, it's
I'm not here to operate

in the business. I'm
building a business, a system,

and this is my investment.

It's you got to build it

with the exit in mind
from the beginning.

Right.

You got to know

who are my potential candidates

that are going to buy
this from me.

I need to build it
for what they want.

Right?

And when you look
at your business from that stand

standpoint,
like that frame of mind, it's

totally different
than the business.

The owner operator
who's like, yeah,

I'm going to get
in the weeds. I'm going to be

versus somebody that's like, no,

I'm going to build this system,

and I'm going to have
the right people on the bus

who are going to take care
of this and and move it forward.

While
I think at the big picture,

the big strategy,
and how am I going

to exit this someday
and then do my next deal.

Right.

They're they're very big in that
community of like, yeah, buy

a business 5 to 10 years
and you should be out,

you know,

like you have a 5 to 10 year
runway

before it's

time to sell that
and move on to the next one,

even if you're doing a roll up
strategy.

He talked about
I shared this story with you.

You talked about the one guy
that he bought a business for.

I'd have to

look back at my at my notes,
but it was like 1 or $2 million.

And I think he did it on
90% SBA, 5% seller finance.

And then he had an investor
come in for the other 5%,

and he gave that investor
some equity. Right.

That's
how he did the first deal.

And then they went and bought
a second company

under the same structure.

And then a third company

where the seller
actually rolled over

some of their equity
as part of the deal.

And then a fourth deal.

So it was like they bought a $2
million company.

Then another 3 or $4
million company,

then a $10 million company
and a $12 million company

NASA we're all up.

Amazing.

yes, I'm here in business.

I'm building a system.

I'm not the operator, I'm
the investor.

I'm the owner of this business.

This is a machine.

I'm building this into a machine
because in 5 to 10 years,

I will exit
this and I will turn that money

into my next investment,
my next business strategy.

Right.

It's it's a constant movement.

Yeah. So I built this out of it.

currency, right? Yeah. Yeah.

Build it to sell it. Right.

And you know, the intent is hey,
have a great exit.

Or in the scenario
that you hold on to it

or it's an action plan
and there's,

you know,
maybe there's a key individual

there that is going to take over
at some point.

Maybe it's a family member.
Either way. Build it to sell it.

Get a big payday
if that's an option for you and,

you know, put it into the next
or multiple opportunities.

Yeah. That's that's the game.

That's the game of business
like Elon Musk is.

He's still focusing on
to earn Tesla.

No he bought test.

First off
he did not start Tesla.

He bought Tesla. Involved Tesla
that's at.

$6 million
and he built it up into

this crazy awesome car company,
this giant machine.

And then he said, see,

I'm going to focus on this thing
called space X,

because I'm
going to put people on Mars.

And I'm also going to put a car
on Mars just because I can.

Right.

And then he's like
building SpaceX

and then he's like, all right,

so there's this really
cool thing called Twitter.

That.

Yeah.

the Giants are doing this.

So should the little guys.

Like even if we're

not playing at $1 billion level,
we can still follow

the the patterns that they do,
like the the blueprints.

He's still applied
to small companies too.

It's a little bit different
blueprint, but it still works.

Yeah.

The you out.
Florida in particular.

Like one thing
I think that you shared with me

earlier too was some of these
seller financing strategies.

And, you know,

we had a Florida situation
on a deal that closed last year.

But the original offer
did have a pretty

significantly higher option
on a seller financed model.

Ultimately, it came down
and ended up closing with,

you know, a majority of SBA
backed funds.

But, you know,

I think there's some

real opportunities out there

for some of these people
that are building

their businesses to sell it.

And, you

know, even for tax advantages
or for whatever other reasons

would be up
into financing the deal.

Like, I think we should talk

a little bit
more about seller financing.

And there's so many creative
ways to put it together.

And so one
example might be, hey,

if you're selling your business,
you know who's the buyer?

Is the buyer

someone that's brand new to
the industry is the buyer

someone that's equally
your size in the industry?

Maybe they're bigger than you
are, like your confidence level.

Financing a deal for a buyer
is probably going to vary

based
on the experience of that buyer.

But,

I think there's some great ways
to get,

I would say, much higher
exit prices for the sellers

if they are open
to just financing 25,

even 50% of the deal,
like there's a huge opportunity

for them. There.

Yeah.

Like
as you were saying that I was

I was thinking back to my head,

people
who have sold a business before,

they tell others, get everything
you can at closing

because you won't see
the rest of it.

You won't get it.

And then I'm stopping

and rewinding
those conversations

and I'm like, okay, who
did you sell your business to?

And the people who are saying
that are the ones who sold it to

someone who's not an experienced
operator in that space,

or to a private equity group,

private equity groups
or finance pros.

They are not operators, right.

So it's like in both of those
cases.

Yeah.

you had money on the tail end
and it's like

they weren't the operators.

So they couldn't operate your
business as well as you did.

And that's why you didn't
get the money on the back end.

Right.

But if you're selling
to a strategic buyer

who already operates a business
in that space.

Much better chance of success

if you're going to sell
or finance, that's the one

who you should sell
or finance to.

And it's like, yeah,
when we look at it, we're like,

we'll offer you a lot more money

if you can sell or finance this
for us.

And, you know,

they actually gave an example
of that at that conference where

they were like, well,
we were talking to this lady

and she wanted
to sell her company,

and we were like, okay, well,

let's say,
let's say we do a deal together.

What are you going to do
with the money?

And she was like, well, I'm
going to

I'm going to,

you know, after taxes, I'm

going to give it
to my wealth manager.

My wealth manager is going to go
put it in the market

and find an annuity deal for me,
because I need to get

at least $15,000
a month off of that annuity.

And he was like.
Why go through all that?

I'll pay you $15,000
a month for the next ten years

if you let me.

We can do this deal today.

Yeah.

Yes, yes.

Sure.

Awesome.

like, the only way that works
is if you're selling to somebody

who has experience and knows
what they're doing with the

with your business.

If you're trying to do that
with somebody

who doesn't have a background
in your business, don't do it.

Don't don't sell or finance

for someone who doesn't
already have experience

running this kind of a business.

But for someone
who's already in the space.

Yeah, like you tell me
what it is that you need.

Like what you're hoping to get
with this money.

Okay, like,
I could go to the bank and get,

like, a really high
interest rate, and that's great.

It's going
to take us a while. Or

you could sell or finance this.

I can meet all of your criteria

and we can just
get this done now.

And my success rate,
we're going to be really high

because we already know
what we're doing.

We know how to operate
this business.

Yeah.

And I think just

even some of those expectations
that some of the other buyers,

including some of the groups
that are out there,

maybe they went through

a diligence phase
with the seller

and it fell out for whatever
reason.

Now, that seller, you know,
might be talking to like,

say, one of our buyers and say,
oh, well, hey, the other group

that offered X for my business,
they wanted me to stay

for two years.
I didn't want to do that. Right.

And so there's all these other
little hooks into those deals.

And I'll bring up
a great example,

because it was this morning,

we had a call
with one of our offices,

that's looking
at a potential sale,

and they had a pretty high
offer from.

And I'll just

I mentioned the state
of the California office.

They had a pretty high offer
from a PR group,

and they ultimately
turned it down because of that

two year hook.

All types of performance
based pay out elements to that.

The seller pretty much said,
why would I do that?

I'll just stay in it and grow it
like I don't need to sell.

I don't need a big check
at the end of the day.

And like,
that's a perfect scenario

for this person
to finance the deal.

Like they were very open to

financing it up into a five year
plus payout.

Already have this lifestyle
bill was,

I think, a little bit
more concerned

about the tax implications
regarding, hey,

what are the next
couple of years look like?

They have other businesses.

but yeah, I think that

that expectation

that some of the big groups
out there

that are buyers have created
with some of the sellers

is a little different.

No, you don't need to stay in it
for two years.

You can finance it

and still not have to stay in it
for that long.

So, yeah, don't feel like
you need to to accept

one of those higher payouts
from a PE group.

And have those two year hooks

because it might not be a higher
payout.

It really may not be.

And I think a lot of people

that have had that
bad experience,

you've probably heard of that
bond where,

hey, at the end of 24 months
on, that third payment was due

and the revenue metric
didn't hit,

and all the other things
that didn't hit,

you know, you were working in
the business for those two years

getting paid something,
but that that ten of

golden target
that was out there fell short.

And I think you and I have heard

more than a few stories
about that.

I'm not going to name names.

I won't name names,
but there are some

names to name out there. I.

I, I, I think people also

need to be cautious about that
when you're getting those big,

you know,
five X offers from the P Group.

You know,

an offer is non-binding
just because you got the offer

and they're jumping into due
diligence does not mean

they fully intend to close.
Right.

Like their their model is, hey,
we're going to contact

a thousand companies to have 200
conversations with owners

to jump into preliminary
diligence on 40 of those.

And then we're going
to put offers on ten of them,

and we're going to end up
buying one of them.

So even if you got an offer

from one of these p groups,
you're like, man,

that number looks great.
Like I can deal

with the two year
time frame or whatever. Like

that does not

mean, you
know, if you have one of those,

they also offer that to nine
other companies and they and to

they're going to buy
one of them,

you know, like Yeah,
an offer is not a valuation.

You know, like
we're going to pick that one.

Yeah.

Yeah, I think we've seen
that too, where

the seller was using
that offer as the valuation.

And now,

you know,

we might take that to the bank
and the bank has, you know,

they'll confirm
with our valuation

and it's going to, you know, in
some cases might be lower

than some other group that offer
that wasn't able to close.

So we have saved a few deals
that way too, right?

I mean, I can think of a

handful of them, including one
that's hopefully closing

at the end of this month

where, hey,

they went through and had
probably some false expectations

put on them from from a buyer,
that deal falls out

and they hey,
they come back to us

because our offer was actually
right where it's supposed to be

and right where
the bank's going to finance it.

But we've

we cleaned up a few situations
and we're able to help sellers

that initially turned us down.

And five months,
six months later,

this one, a year later,

they come back to us and
they've got a great business.

But their expectations
were just on a different planet,

because one of those groups
came in and offered above market

and ultimately above what
the bank would even finance,

And another thing to that

they brought up
that I learned that I was like

never thought of it that way.

The tax implications

if you're going to do it,
if you're

going to sell your business
and you're like, I want to get

go get an SBA loan
because you're going to pay me

all this cash upfront,
I don't care if it's discounted

because you're
paying me everything. Now.

Well, you're going to

lose like 40% of that,
at least in taxes, right?

But if you sell or finance that,

you know, just like, hey,
you know what?

What I actually want out of
this is like,

I just want to pay off the last
$200,000 of my mortgage,

and then I want cash flow.
That's what I really want.

It's like, great.

So instead of taking $1 million
in cash flow or

cash that close, you know,
maybe you take 250,000,

pay off your house and then
get payments over the next

5 to 10 years

from that business

because you sold to a seller
who knows,

or a buyer who knows
how to operate this business.

So it's, you know,

they're not the chances of them
failing are lower.

But by doing so now, you're

taxed at long term
capital gains tax

rather than, you know, short
term, like you're going to get

hosed right out the gate
if you try to take as much cash

as possible.

So, I mean, it's
definitely something

to talk to your CPA about.

But when I heard that like,
oh, it's a shift if you're

if you're caring for longer
than I think it was three years

or something like that,

then it's like now
it's long term capital gains.

And I wonder what the
the long term rate is on that.

So probably better
than getting it all right now.

Yeah.

And I think that's
something too,

that we always talk with sellers
about just

hey consult with your,
your CPA, with your accounts,

with your attorneys

when you,

when team
are really looking at our offers

because you know
if anyone's ever listening

since you know listening to
this is seen one of ours we do

typically offer like hey here's
a cash and close scenario

and here is a seller
finance option.

And they can weigh that out.

They can take that
to their CPAs, to their accounts

attorneys and really walk
through all those implications.

I think a lot of people
just have that idea

of, hey, I'm going to get this,
check it close.

They maybe don't realize
how that could impact them,

not just their immediate

take home, but all the other tax
implications

they may have other businesses
that they should really be

considering
during that process too.

So when when people are looking
at those offers.

Yeah,
take that to your team. Right.

Really let them walk you through
what that,

you know, your next few years
are going to look like.

See if seller financing
is a good idea.

In some scenarios
it may not be and that's okay.

But just so you have
the knowledge

to, to make that decision,
you are signing an offer, right?

Be comfortable
with those terms. Yeah.

And it's it's just like
the buyer is assessing

their risk level of hey what's
what's the risk element.

What are all the risks involved
with buying this business.

The seller
also has to be looking at

what are the risks involved
if I sell or finance this.

And it's like I stand
to get a lot more

and keep a lot more
if I sell or finance

and the yes,
there's risk involved,

but it's lower if I'm selling
to a strategic operator.

So that's definitely something
to consider.

Don't just shoot down the seller
finance option

because there's so

many people out there like,
oh, don't do seller financing.

You'll have a horrible
experience,

you won't get your money.

And it's like, well,
depends on who

who you're agreeing to do
sell or financing with, right?

Totally. You're totally right.

You mentioned it early on.

Like,

I think

most of the conversations
I've had around that

where someone had a bad
experience, it was a new buyer,

someone brand new
to the industry, that they could

translate their experience

from something else
into a business,

and they had a bad,
you know, experience.

I haven't seen that across
our network. Right?

I mean, our buyers are already
in the space.

It's totally different.

But I have heard
some of the stories,

from other sellers,
and that's the scenario

that was in the qualified buyer
ultimately.

All right
everyone, it's been fun.

Thanks again for joining us
on this week's episode.

We look forward to seeing you on
the next episode of the Manage

the Exit podcast.

But for
this one, that is a wrap.