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Manage to Exit is a PMI Acquisitions Team podcast sharing practical playbooks for buying, building, and preparing your property management businesses for successful exits.
having the right
banking partner is so critical.
If you're trying
to get into acquisitions,
whether you're doing one deal
or $100 million worth of deals,
it's like you gotta find
who the right banking partner
is that that fits
what you're trying
to accomplish there's probably
a lot of interesting ways to use
AI with the information
that is out there, too,
when it comes to, like, even
preparing your business to sell
or what factors might impact
value, which add value
to their business like there's
definitely ways to utilize that.
All right.
Welcome everyone to the Manage
to Exit podcast myself Aaron.
And we've got Hunter here
we are the acquisitions
team here at PMI.
And we talk all about
acquisitions in the property
management space.
So thanks for tuning in.
All right.
Okay, so story time, you know,
we look at a lot of deals,
and something came up this week
that I was like, oh, okay.
We got to talk about this.
So, we were looking at a deal.
And, you know, every deal
that we look at, especially with
property management businesses,
we have so many past deals.
One of
like all these different sizes.
So we have so many comps
specific to property management
that we can refer back to like,
okay,
we can value this business.
And we have a handful
of very similar
sized businesses
to kind of back up.
Why we think the business
is worth here.
Right.
And we're looking at this
business and we're like, okay,
here's where we would
put this, this valuation.
And we've closed recently closed
like four deals
that match that size. Right.
And then somebody plugged
in, hey,
what's this
business worth into ChatGPT.
And it was like 300 grand
off like off of what we were,
you know, going for.
And I'm like,
I don't know that I would trust
a high like, value a business,
you know, like,
I don't know if it's It's
got to be part of me.
Yeah, I got to be part
of the equation in some cases.
But yeah, you're right
there. There is a big gap there.
And it really just shows,
you know, you've got to pull
in multiple resources.
You can't just assume
that chat's going to give you
chat doesn't have access to the
closed deals that we've seen.
Right. We've done
450, 460 plus transactions,
all off market deals.
And we've never shared
those comps with anyone else.
Aside from people
we're doing valuation for.
So but yeah, chat gave us
a pretty wide range there.
Really created
kind of like a little bit of,
you know, I'd say
like false expectations for,
for a seller to write.
Yeah.
And I think it's it's dangerous
on both sides of that equation.
You know, it's it's like for us.
Yeah we, we do use ChatGPT,
but it's to assist us in like,
hey, I know what I'm doing,
but could I use like,
what am I not seeing here?
And so it's like, yeah,
we have AI.
That kind of helps guide
some of some of our valuations.
But we've done this
so many times that we know,
hey, I need to push back here
like chat.
I see where you're going.
Like why you're
putting the price tag up here.
But there's there's
some subjectivity
that you're missing. Like
I know what to push back on.
And then chat is so kind
and polite
and there's always going to be
like, you're right.
You know.
Yeah. And so.
And I think chat
maybe one of the AI tools
we're probably most familiar
with and most people are
there's obviously
a lot out there,
but even last week
I was dealing with a seller
who owns a short term
rental management company,
and we were going back and forth
post valuation.
I'd already given a valuation,
and all of the counter terms
and questions
were all directly from chat.
It was copy and pasted.
I was not negotiating
against the seller.
I was negotiating against chat
at that point
and there was
definitely a disconnect.
The seller was relying
so heavily
on chat's influence
that I don't really know if they
they fully understood
what they were asking.
They just assume that chat knew
more than they did.
And, and they were happy to
just kind of push that on to me.
But but yeah,
just get interesting.
Right.
It's a it's a valuable resource.
But you got to know
how to use it.
Yeah.
I don't know that I like chat.
We'll get there.
You know,
I think it's increasing
in its abilities
every single day.
And it's
getting smarter and smarter.
But I don't know that it's
a wise decision to rely on it.
You know, like
there's so many people
that are trying
to buy businesses out there
or trying to sell businesses,
and it's like,
oh man, I'd be cautious.
Like ChatGPT is gray.
It's a good starting point.
But you know,
if you're trying
to buy a business
and you're like, hey, chat,
what should I pay
for this business?
It might it might tell you
to overspend by a few hundred
thousand dollars, you know,
and and at the same side, like
if you're a seller
and chat's like, hey, your
business is worth $6 million.
And when in reality it's not,
it's like,
well,
now you're going to be anchored
to a false idea
of what your business is worth
and you're going to it's
going to be really sad
when offers come in
much lower than that, you know?
And so it's like
on both sides of that, it's
it's a helpful tool.
But I don't know that I would
rely on it.
You still need to have
expert help to,
to look at it to be like,
now here's, here's
where I missed, yeah,
I think a lot of it too
is about asking
the right questions. Right.
And I believe even,
you know, that
that common question of like,
hey, what question am I
not asking that I should be.
Right?
And I think,
you know, for a seller
to utilize that tool
in combined research
with some of our valuation
pieces based on close deals,
like what happens when you push
those closed deals
into their model
that they're suggesting.
Right. That's
that's the interesting part.
Like you can't just
I'm looking at our space and in
particular property management.
And I'd say
our average deal size
is still probably just around
$1 million. Now.
And if a seller comes to us and
wants a comp on a $200,000 deal
or a $3 million deal,
we can provide a comp,
but that's probably
a pretty wide range
for some of the, like,
publicly available information.
From chat.
But yeah, it's interesting
because I'm getting more
and more of that negotiation
through chat from from sellers
than even buyers using that,
you know,
to what they think
is to their advantage. Right?
Yeah.
It's like it's a helpful tool.
But Man one
it's like you picked up
on that immediately
when you saw that you're like,
this is copied
straight from chat.
Like everybody can tell
that's chat, you know.
But I think it's it's
very useful to help guide.
But don't rely wholly on it.
You know what I mean?
Like it's
maybe it'll get there someday,
but it's not there yet.
It's just your starting point.
It's the diving board
to get started, you know.
But I would definitely I would
I would rely more on that than
just googling.
What's my business worth?
You know, I think
I think chat will give you
a better answer than that.
Yeah. And I mean,
I think you and I both
see that quite a bit, right?
Where someone online
may have read that a business
could sell for three
x, for example,
and they maybe don't
quite understand
if that's three x
on gross revenue or on cash flow
or on, but,
and that common misconception
where someone thought, yeah,
they thought their business
that was generating $1 million,
you know, gross
is potentially worth 3 million.
And so it's just not
it's not on gross.
It's on cash flow. It's on Ebit.
There's some value behind the,
you know, gross revenue
multiple.
But cash flow is where we start
Ebit us where we start.
So yeah chat will help you.
You also need
some other resources.
You need other people
to help you as well.
Right.
yeah, that definitely became
apparent on this one where,
you know, they they ask chat
what's this business worth?
And it was like,
oh dude, I wouldn't pay.
I definitely would not pay that
much for this, this business,
you know.
So it's always interesting.
I think most
small business transactions
and maybe I'll insert this
into the chat right now,
but I'm trying to think about
all the transactions
that happen off market.
Right.
Like there's
a lot of these deals
that are closing
not just in the PM space,
but across small businesses
that are purely off market,
that transactional data
isn't going anywhere.
It's,
you know, it's between business
brokers, it's
between attorneys, accountants.
So you know, in such a niche
market like we have,
I'm guessing that maybe
only the larger deals get,
you know, really published
in a way,
maybe more of that information
is available.
But for the majority
of these transactions, like what
we do on an average size
around a million,
how much of that
that close deal,
you know, data is actually
available through chat.
Now. I need to know.
I gotta go
research it right now.
There's not a lot.
It's not like there's
there's a database out there
that you're like, hey,
X amount of companies like, hey,
I want to buy a,
roofing company.
And it's like, okay, what are
what are the multiples on this
That's going to be
tough to go off of
because are they combining?
Are they looking at multiples
of publicly traded companies.
Like what size companies
are they looking at.
Because when you're in the, sub
$5 million range,
it's like that's not
public information.
You know, like it's it's
all I think what's the stat.
It's like 80 or 90% of business
transactions are not on market.
So it's like it's
all just there's
there's not a database for it.
The reason we have a database
is because we do this a lot.
But it's like that's not common.
You know.
Yeah.
I mean,
I think there's probably
a lot of interesting ways to use
AI with the information
that is out there, too,
when it comes to, like, even
preparing your business
to sell or what
what factors might impact value,
which add value
to their business like there's
definitely ways to utilize that.
I'm just trying to understand
too, you know,
what other opportunity
moving forward is there?
You know,
like with our valuation tool
that's been built in-house,
you know,
how can I improve that model?
Right?
I think that's maybe
an interesting discussion.
Just as as it progresses.
How do we take advantage of that
on a larger scale?
And I know you and I
are already looking at
some of those opportunities now.
I think within the next year
it'll be really exciting.
Maybe
that's a little foreboding.
Maybe that's maybe that's
telling people what's coming.
But, I'm thinking I'm
thinking of our New York deal
and thinking about the
what have we learned from that?
We're
working on this deal right now.
We're, Oh, my
gosh, it's been taking forever.
And we finally realized
why the bank keeps coming back
with more questions
and more questions
and more questions.
And then all of a sudden
they're like, oh, by the way,
now we need all updated
documents and financials
because it's been 90 days.
And then we're going to ask
more questions
and more questions
and more questions.
And then all of a sudden we need
updated financials because it's
been another 90 days.
And there's some other factors
in there.
I think the bank is being
acquired by another bank,
and that's really what's
causing them to drag their feet
so much is,
you know, don't rock the boat
during the acquisition.
But regardless,
it was really eye opening
going through that experience
where we were like,
okay,
so this is kind of your
local bank that you're using,
and they are just general
SBA lending.
They don't specialize in
anything versus when we
all of a sudden we switch to
Live Oak, where they have a team
that focuses on property
management acquisitions,
and they get right to it.
They're like, oh yeah, okay.
Yeah, we need X, Y
and Z documents and we can
we can start this.
We could probably get it done
in like 45 days.
And it's really eye
opening to see, like
just because someone says a bank
says that they're an SBA
preferred lender does not mean
they're the right bank
for the deal
you're trying to buy.
There's a lot of people
out there trying to land
on small businesses, right?
I think you and I together
probably get, you know,
a number of emails every week,
but someone else trying to grab
some of this market space,
on the lending side, but,
but yeah,
I think the more and more deals
we work on,
the more appreciative I am to
of working with a bank that,
I mean, if they're waiting for
anything, they're waiting on us,
you know, like we're not
waiting on them hardly ever.
So we need people
at that to push the process.
Obviously the timing. Right.
Like everyone
has heard that, you know, time
kills deals is and,
you know,
working with the lender
that maybe isn't familiar
with this space,
you know, how
that could impact the deal?
I mean, we're looking at that
right now,
right, with this deal.
And luckily we've got a good,
you know, preferred
lender that can step in
and make that happen.
But, you know, those delays
with the bank that maybe
has less experience
in this space,
you know,
on these larger transactions,
I mean, that is an issue.
Right.
But when it comes to lending,
not to dive
super deep into that.
But, you know,
what's our typical process?
Maybe share a little bit
about that as far as like,
you know, we obviously like to
comp this out a little bit too.
And and understand
what other lenders
are out there, maybe something
local in some cases. Right.
Yeah, I'm
totally fine with people
like a buyer saying,
hey, I've already got a great
relationship with my bank.
I want to use them. Awesome.
If you've got
a great relationship
there, that's so much of the
lending process is like,
they have to trust you.
You have to trust them like it's
it really is a partnership.
And,
so it's like if you've got
a good relationship, go for it.
Use them.
As long as they're like, okay,
we understand
this business that you're trying
to buy and how it makes money,
and here's the money
you need to buy this. Great.
Right.
that's kind of ultimately
how it works is just
you need a lender that that can
say they understand you.
They trust your ability.
They do understand
the business that you're buying
and how it makes money.
And and you know, the risks
associated with that.
And they're comfortable
with that
because some banks, it's like
they just
don't have an appetite.
Or maybe they get so many,
so many businesses
that they're trying to land
on so many of these deals
that it's
like they really can be picky
and some are starving
and they're just like,
well, in on anything.
Like we just need something.
And so it's like,
you got to find the right one.
Because we worked on one
in Florida where, yeah,
they wanted
to use their local bank
because they had
a good relationship,
but then they quickly realized
going through the process,
they were like, wait, my bank.
We have a good relationship,
but this bank knows
the business industry really
well that I'm trying to buy.
And I plan on buying more,
and this is going to be
a fruitful partnership
if I build
this relationship here,
even though I've built
this relationship on this side.
So it's like, yeah, not
not all banks are created equal.
So finding the right,
the right one.
Like that's why we tell
we tell people like
talk to 3 or 4 banks, Yeah.
I'm thinking about
one of our buyers
who's out in the Midwest
and has done a number,
you know,
just purely self-funded deals.
And then just within
the last year went through an
SBA backed product through
I'll just mention it up and Lee
Live Oak Bank, who is the group
we're really referring to here.
And it's not a pitch for them
entirely, but I guess it it is
but you know, through that,
that group, through live
oak in their team,
you know, he's been able
to do a number of transactions
all within the last 12 months.
And, and do them quickly. Right.
I think we've seen it
take up to 60 days,
but more recently,
a deal closed in 45.
All of those were over
a million.
One of them.
actually,
I don't know if there was office
space in that
second transaction or not,
but I, I'm curious to know
one of these upcoming deals
that that buyer is doing will
likely include some real estate
as well.
So that's just an interesting
part of of these loans to you.
Is is that something that is
needed for the transaction?
Is that something that the buyer
wants?
Yeah,
a lot of opportunity there.
But also just realizing that
you don't want the bank to be
the one pushing this out,
and you don't want to
lose the deal
with the seller because the
bank's going to take too long.
And, you know,
I think
we've been lucky on that one
you mentioned, but
it's been going on a lot longer
than any of us buyer, seller
and us have thought it would.
But we got the right bank
in there,
and now it's progressing
the way it should have.
Right.
It got to the point
where even the seller was like,
please switch
to this other bank.
Maybe we I just tried like, hey,
we've been working with them
and they've done, you know, x
amount of million with us,
like on other acquisitions
in the last quarter.
And you're just like, oh.
And I was like, yeah,
they understand
this business model.
They understand now
property management
doesn't have a lot of tangible
assets.
It's got a stack of paper
contracts that cash flow,
and they're good with that.
And then they can land on that.
You know they know our process.
So it's
it's like
which is also a really cool
thing about what we do with PMI.
It's like
on the grand scheme of thing,
like our individual franchisees,
they can lean
on the relationship
that we've built with this bank,
because the bank knows
if we bring a deal to them,
they know our process,
they know our success rate.
And it's like they're good.
They know, hey, we could
bring them a deal in Arkansas
or a deal in LA
or in El Paso or wherever.
And they're like,
hey, yeah, we're good to go,
you know, because we've built
that relationship and they know
we're going to make sure
that these businesses close
and there are no defaults.
And, that's that's
kind of a cool thing
because it's like now
these individual franchisees,
they're not the ones that have
to do like 15 deals
and build
a really solid relationship
with the bank because it's like
we've built that in,
you know, through our larger
scale of, hey,
we have like 500 franchisees
trying to buy businesses.
Yeah.
I don't see why Live Oak Bank
wouldn't be a large
part of our $50 million
target in 2026.
I really do think
that a majority of those
loans will go through Live Oak,
and that's
just kind of the appetite
that our network has right
now, right?
I mean, if, like,
we've been scaling up
over the last few years
and now are getting to a point
where we really rely heavily
on these,
these lending partnerships
that we have.
But yeah, it's exciting.
And, you know,
I don't know if that's
I really like working
with Live Oak.
I also suspect that
all the success
they're having
is probably attracting
other lenders as well,
trying to grab part of that.
know, maybe that's a nice,
you know, plug for them.
I don't think anyone else
is providing
the level of service
that they are.
But yeah,
they're a big part of our goal.
And like I said, as a PMI,
you know,
we definitely rely
on those partners because we
we do a lot of the volume.
And you know,
we can't do it alone. Right?
We need the right people
to help us with these deals.
Yeah.
So that that just goes to show
of like
having the right
banking partner is so critical.
If you're trying
to get into acquisitions,
whether you're doing one deal
or $100 million worth of deals,
it's like you gotta find
who the right banking partner
is that that fits what you're
trying to accomplish and that,
you know, a lot of that it
it takes a lot of conversations,
you know,
a lot of launch appointments
or a lot of just activity,
a lot of of experience
working on deals together.
And so it's,
you know, some, some banks,
they're like, hey,
now we specialize in property
management acquisitions
or we specialize
in manufacturing companies,
like whatever it is, you know,
some are just preferred
SBA lenders, which is great.
That means they do a lot of SBA
loan,
but that does not mean
they have a hungry appetite
for the type of business
that you're trying to acquire.
You know?
So just, finding the right
banking partner, it's it's
really important.