You can sell your apartment rental company by determining its value and working with a business broker who understands your industry. You also want to ensure confidentiality is maintained throughout the process, which a business broker can ensure happens. This review discusses everything apartment rental company owners need to know before they sell.
About The Apartment Rental Industry
The apartment rental industry is incredibly large, generating substantial revenue every year. Apartment rental companies generate profit by serving as landlords and leasing properties to tenants. This includes apartment complexes as well as rental homes, townhouses, and other types of dwellings. Here are the most recent industry numbers:
- There are approximately 725,000 apartment rental companies in the U.S.
- There was a 1.0% annual growth for the apartment rental industry from 2018 to 2023
- The apartment rental industry generates $229.1 billion in annual revenue
- The annual profit for the apartment rental industry is $82.2 billion
- Experts predict a decrease in annual growth (-0.7%) from 2023 to 2028
There is uncertainty regarding the growth of the apartment rental company. The predicted decrease over the next five years is widely disputed, and some experts also predict substantial growth. The key seems to lie in how the rental market responds to changing interest rates. Many predict that increased interest rates to slow the American economy and bring down inflation could lead to fewer home buyers and more renters staying in their rental properties for longer.
How to Value an Apartment Rental Company
Rule of thumb data, or acquisition multiples, is widely used within the apartment rental industry to determine a company’s value. This is more effective than is often the case with other industries as there is more sales data to review. The industry’s rule of thumb data includes:
- Apartment rental companies sold between 2.91 to 2.96 times the Seller’s Discretionary Earnings (SDE)
- Apartment rental companies sold between 0.73 and 3.79 times the annual net sales
- Apartment rental companies sold for approximately 2.62 times the Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA)
Beyond your financial information, your business broker may also review your unique competitive advantage and other factors that do not show up in a financial report. Their goal is to determine how much a prospective buyer is willing to pay for your company to ensure you receive the highest sales price possible, while still focusing on meeting your non-financial goals for the sale as well.
You should also check: INCREASING VALUE WHEN SELLING YOUR FENCE OR DECK COMPANY
A Step-by-Step Guide to Selling an Apartment Rental Company
No two apartment rental companies are the same, and your sales process may look much different than others. Your business broker can help you put together a personalized sales strategy. However, there are general stages to familiarize yourself with before you begin. These stages include:
- Create your sales strategy
- Prepare for the sale
- Bring your company to the market
- Complete the due diligence process
- Close the sale
Below, we take a close look at each stage. We strongly recommend working closely with your business broker and attorney to develop a customized strategy. A pre-established plan helps ensure you ensure a successful sale. Of course, before you begin, you should start with a professional business valuation.
Stage 1: Create Your Sales Strategy
A personalized sales strategy helps ensure you can sell your apartment rental company for fair market value. This should include a unique business valuation that considers your financials as well as your unique story and intrinsic company value. Your sales strategy may also be a part of a larger exit strategy.
Among other decisions, you and your broker will need to decide when to sell your company. It is not always best to go to market immediately, especially if your primary goal is maximizing the sale price. Of course, you may have additional goals beyond the sale price that are important to you. For instance, you may feel it is important to sell to someone who will maintain your rental pricing model and keep your employees. All of these details are discussed during the sales strategy stage.
Stage 2: Prepare for The Sales Process
You may decide to take steps to improve your apartment rental company’s value before you hit the market. For example, this may involve spending more on marketing, improving business operations, and documenting your financial information more effectively. Once you choose to sell your business, you will need to:
- Gather all financial documents
- Create a list of valuable assets
- Put together a sales memorandum
- Prepare an employee list (and their roles)
- Prepare a list of tenants and rental contracts
- Get copies of the lease and insurance policies
Your financial documents such as tax returns, profit and loss (P&L) statements, balance sheets, etc. are important to ensure a successful and fast due diligence process once you secure a buyer that signs a letter of intent. You will also need to assemble your team (attorney, business broker, CPA, etc.). They can help you prepare as well.
Stage 3: Bring Your Company to The Market
Selling an apartment rental company is a unique challenge. News of an imminent sale of your rental company leads to speculation among employees and tenants; employees may fear the loss of employment, and your tenants may worry about what a change in ownership means for their monthly rent payments and other costs.
Needless to say, maintaining confidentiality is of the utmost importance. Consequently, your business broker should handle this process for you. They can leverage their contacts, networks, and databases to find a qualified buyer that maintains your vision and meets the goals you have for the sale. It is not recommended to sell an apartment rental company without a professional broker as this could compromise confidentiality and lead to an inability to sell for fair market value.
Stage 4: Complete The Due Diligence Stage
The buyer is entitled to due diligence. This is a stage right before the purchase agreement is signed. During this stage, the buyer requests and reviews all financial documents that verify your apartment rental company’s worth. As discussed above, this is why preparation is essential. Providing the documents promptly during due diligence reduces the amount of time between the letter of intent (LOI) and the closing.
Stage 5: Close The Sale
The closing table may seem intimidating, but you can help ensure a smooth process through preparation. Of course, your attorney and business broker can help you prepare as well. Your attorneys and the business broker may attend the sale with you. At the closing table, you can expect to:
- Review the purchase agreement
- Start (or continue) the transfer of the business
- Pay the closing costs (if applicable)
- Attain final signatures for the purchase agreement
- Ensure the payment is sent
The transfer process is often the most complex during the closing stage. This usually involves the transfer of insurance policies, financial accounts, assets, licenses, permits, and legal documents. Employee notification and transition occur during this stage as well.
Are You Ready to Sell Your Apartment Rental Company?
You can sell your apartment rental company easier than ever before. Sigma Mergers and Acquisitions, a business brokerage that has helped hundreds of business owners sell, can help ensure you receive fair market value or higher for your apartment rental company. Interested in learning more and getting started? Schedule a consultation today.
Scot Cockroft is the Owner & President of the #1 ranked Business Brokerage, Business sales and M&A firm in Texas. Scot has been named Named Deal Maker of the Year by Dallas Business Journal.
He is committed to a “different” type of business brokerage firm, one that is NOT about a sales pitch but, rather, results! In short, a business brokerage firm that is committed to performance-based compensation. Scot believes in these principles as well as a candid honesty with clients. His candid style often takes buyers and sellers by surprise, but is often what assures successful connections between the two.
Feel free to reach out!