How STR Property Managers Are Valued Today: EBITDA, Growth, and What Buyers Really Want

Welcome to the STR data lab. Welcome to today's episode of the STR data lab. I am Rohit, the CEO of ADNA and with me today I have a very special guest. Uh welcome Jacobe. Jacobe, for those of you who don't know, is the owner and CEO of uh M&A advisory shop in the short metal ecosystem called C2G Advisors. Jacobe, why don't you introduce yourself and what C2G does?

Thanks, Rohit. Um, yeah, so I'm uh uh I'm the managing partner of C2G Advisors. I'm probably a little unique in this industry that I was actually uh born and raised in this in this pirate industry back in back in the late 80s. and uh grew up as a as a kid like stripping beds and tipping trashes out um uh for my father actually in the in the '9s down in the panhandle of Florida. So really been able to to see like the various like iterations and evolutions of of the short-term rental industry or vacation rental industry or Airbnb, what whatever you want to call it today. And uh so sa fast forward many years um I I was in the restaurant business uh most of my 20s and uh really got to learn some of the uh just the grind of of owning your own business and and the uh the tough parts of the entrepreneurial journey there. um and and sold that. Uh and that actually kind of like going through that M&A process myself actually lit a little spark under me and and made me uh pretty excited to to try to push that a little bit further.

But in uh in 2017, um my father actually started this business C2G Advisors um as like a semi-retirement uh play for himself. he had been in this this industry for 30 plus years and in various roles. Um and uh and so I I came on board in 2017 and and learned under him for for a year and then uh and it really decided I saw I saw a need for for helping these these property managers. Um I I mean honestly at that time actually was the uh the like lease arbitrage craze was going on with the the fundraising in the urban uh urban metropolitans from the Saunders Alfreds Delios lyrics you name there was a ton of those. So we actually started out um just grinding calling those up uh uh sending engagement agreements to them.

there weren't really brokers running around and trying to trying to get these deals with with landlords or developers. So, really started doing that in in the 201s and then um not to go too deep into into the story, but as COVID came, a lot of that that industry kind of fell apart slowly. uh some parts of it quicked and um uh we we we flipped our our service on its head and really started representing sellers of property management companies um within the industry. And um I guess fast forward to today um we specialize in uh sellside M&A advisory. We primarily operate in your like traditional vacation markets. So like beach, sea, mountain, desert, um lake markets. And most of that is driven by just supply demand. Uh because a lot of the urban players, I mean, I live in Nashville, Tennessee. I've only done two transactions in Nashville out of the the hundreds that we've we've closed, but many of the urban players got started um kind of on the backs of Airbnb.

And um so there's just there's less larger players in the urban markets and then also there's more generally more regulatory concerns there. So most of the most of the buyers in the industry are are buying in more of these like traditional markets that one have a a lower barrier to entry less regulations and typically have like a larger TAM um there. So uh yeah so we we uh we represent about 15 to 20 sellers a year. Our average transaction uh is is around $10 million. Um since we just work in one industry, we go up and down market. So like last year we had one of our largest transactions we've ever done that was right at like a hundred million and then we also did a $100,000 transaction and everything in between.

So um yeah, it's this industry is in my blood and I love everything about it. I I I I love that. I love that introduction and I uh I'm excited to like unpack different aspects of the Southside experience because we have listeners from both sides of the aisle. Jacobe, we have a lot of private equity funds now getting into the space. We have the larger uh shops you made like the 250 plus door uh VRM who are part of roll-ups and potentially exploring roll-ups. Then you have the potential sellside candidates uh 50 to 100 200 doors that are trying to be potential targets for these acquirers. The first question I'll ask is more to set up the macro like if a PMC owner comes to you, is this a good time to sell? What makes it a good time to sell?

Do you have any like perspective on just general macro grounding that based on everything you see?

Yeah. Yeah. Yeah. I think um I uh and and people on my team have have uh have have given me some that have have mess with me about this in the past that I'm I'm I kind of lean on the side of optimism. Um and even during the the the tough days of 22 and 23 and 24, I was like, we're right around the corner, everyone. Like we're gonna have to change. Yeah.

Um but but so so where we're at right now in the cycle is like and I've been kind of saying that we had really the great reset happened and in really like Q2 of 25 and it's just continuing on to today. So we had like the COVID frost of 212 all the gang busters all the reasons why the the industry was just going bonkers. Um M&A was crazy new buyers were coming in. Interest rates were super low. So, a lot of M&A happened there and then the uh the music stopped for a lot of other reasons as well and really like we hit the the height of the mountain and like call it Q2, Q3 of 22 and then so the next three to four years was just like any year-over-year metric you were looking on a sales same store sale basis was down. So, if you're looking at revar occupancy, ADR, GDB per unit, like any of these you're looking at was down. And so the buyers during the go- go days, they were having trouble trying to rightsize what they just acquired at premium multiples at the height of the market.

And then sellers, they've been that hadn't actually sold that uh had been offered aggressive numbers in 21 and 22. Now we're looking in 203 24 looking to sell and we would have we do evaluation for them and be like I'm sorry you're only worth 50% what you were what this person put put an offer for you two years earlier. It was a challenging time for sure. Um, and then 2025 happened and I don't know if what was in the water or or or what, but like for the year 2025 to Q1 of 2026, every large player and I am saying this as an absolute. I I'm pretty positive that every large player over a,000 units traded hands in 2025 to Q1 and 2026. Um if one of those transactions would have happened that would have been big news for the industry but all of those happened around the same time and part of that was driven by the first set of those large transactions happened in 21 2021 and generally private equity has like a four to six year of hold period.

So this was that that next uh uh turn there and then also um Costco taking bicasa private was a massive play for the industry. they add a lot of exposure on the map there and then created several several other uh small medium large players within the Costco ecosystem. So I think I think from an M&A perspective 25 and and Q1 and 26 really like reset all these groups of um these sellers now had a new partner that now needs to 3 to 5x their portfolio in the next 3 to 5 years. And then there were the groups that all came in second, third, fourth, fifth, sixth place in those deals. So they spent a year reviewing the industry. Now they're looking for their platform acquisition. So that's from like an M&A perspective.

Now from like an actual like like how are these PMs doing? How are these property managers doing like trending? we finally started to see in Q1 of 26. Um, and Q2 is starting to look pretty good from from your company, from AirDNA, and from other data around the industry, which is great that we have pretty good data in this industry that finally we're starting to see a bottoming out of uh year-over-year metrics comparing to to the same time last year. And so I think that paired with so some stability paired with a lot of M&A is going to create a really really exciting next uh next couple years. So I guess I guess going back granted Q1 the the Rocky Mountain states they had a pretty pretty challenging winter and that was more macro driven by snowfall than than demand but we talked to a lot of those groups and they're actually really bullish on how the summer's going um compared to last two.

So we see that as like a positive trend. But in terms of like your question like is it the right time to a seller? I think the next 24 to 36 months the windows open. And so figuring out what that number is that you want at the end and everybody has a number. Sometimes it's arbitrary. Sometimes it can actually be backed up by data. Figure out what that number is and then work your ass off over the next 24 months or whatever to to to get that amount. There will be a there will be a lot of people ready to pay that.

Jacobe, as you have conversations with these private equity groups or the large acquirers that have traded hands, how much of their thesis is inorganic growth, aka acquiring more doors versus how much of it is like organic growth with the existing brands that they have in space and how are they thinking about expansion and growth because usually it's a combination of the two. Sometimes it's overweight on acquisition. What are you seeing in conversations you have with those players? definitely a combination like you like you mentioned. Private equity comes in all shapes and sizes. Um so so they all have a slightly different thesis for it. I would say that that they do lean more towards inorganic versus organic. It is what we've seen is that as companies get bigger generally they have a better lead funnel that they they can uh gross add more properties but they also have a higher churn so they they actually gross lose more properties as well.

So it's been we've seen we've seen some do better than others but we've definitely seen the actual like organic part be a little bit challenging at scale. Um, but I would say the primary way they're looking to grow is in organic.

In organic. And so as you have these conversations with these uh sort of buyers, what would you say is a typical buy box that they they look at when they look at a PMC? I'm not I'm not like it could be certain markets, it could be certain uh margins, it could be certain like metrics, it could be certain latmen women risks. Uh what are what is the perfect buy box in your mind for these different sort of buyers out there? if you you sitting in their IC or their their memos uh in terms of what they're looking at.

Yeah. Yeah. And so so once again, it depends on like the level of the buyer. So, like if it's a I know you said private equity, but if it's just like a strategic buyer or someone that manages a hundred properties in 38 Florida and they're kicking ass and they want to buy a tuck in on 38 as well, they may reach out to us and and ask us if we don't have any like 20 unit operators where it's like a mom and pop and they're doing all the work and they could just take their contract. So, like that's one of them. There's tons of people doing that. I love love the entrepreneurial side of that. as you get get higher up, the next wrong are these uh we've we've seen an increase in these like search funders and independent sponsors. Um I think Harvard book that was like entrepreneurship through acquisition and it's been all the rage now and it's you can take classes in college now and uh and those buyers they're typically they worked at private equity or investment banking.

They've got a good relationships with ultra high net worth investors and so they're kind of raising like you can think of it as like a mini private equity shop except it's just like a one man or one woman team and so they typically fill that void of um in that like one to two million of range. So, so once it gets higher up, it's really more like earnings focused like the profits of the company usually one to two million of IBIDA and then uh private equity you either have private equity backed so ones that have already been acquired by private equity and they're they're trying to roll up. So, they'll they'll go down if it's in any of the markets they're already currently in, they'll go down to as small as whatever in that specific market be 20 units in a market. If it's a new market for one of those, generally they want to see a minimum of a million of EDA for them to do it. And then at the the top end, so private equity trying to find their platform acquisition, their first uh portfolio company in the industry, typically they want to be in that like 3 to 5 million of range.

And that's where it's like very thin. How many companies are actually that size? And

I'm assuming it's a similar story when you're doing the valuation indexes as if you're a seller. depending on where in this bell curve you fit with scale comes multiple expansion. Could you speak a little bit more to like what not the exact multiples but like what are the sort of like operating principles that a PMC should think about when trying to position themselves for A, B or C in any of these scales?

Yeah. Yeah. I mean that's that's the that's the multi-billion dollar question right there. there there's a combination of like quantitative metrics and qualitative metrics that really paired together is what what either pushes your multiple up or or or makes it be discounted. And really the the in the end there's a multiple that's applied to your trailing 12 months your last 12 months on your profit and loss segments IBIDA which is essentially your profits removing any like personal or one time. It's funny. I'll pause you there is like we used to have this game on I like similar to you. I was an investment banker in my prior life and we would have a phrase where like the way someone would say would speak to their personality and so like we would have a drinking game around this but it's it's just neither here nor there but like you said it in a in a more polished manner than uh most would someone say EVDA is when there's a problem.

There's a real problem there.

I love it. I love it. and and some of these several of the like the larger property managers, they got into it from being developers from like the real estate side. So, they may have built a community and like started managing or whatever. So, like they're talking like real estate finance. So, it's always fun like the slight uh nuances between like uh uh business M&A and like real estate finance and discussing cap rates and uh almost being like uh inverses of of multiples but um so so the question is like as a company scales generally as they get bigger now this isn't an absolute but typically as they get bigger they're going to have more of a team they're going there's going to more there's going to be less key man risk. So that's one of the largest things. So keyman risk is really like how important is the seller is that person to the entire business. Is it a business or is it a seller with a ton of relationships and that seller is wearing seven hats and running around like a hat?

So like this is I love the key point that you bring up because let's say I am the uh 100 door 3A property manager who's looking to buy this 20 door burnt out owner. How important is the keyman risk in that instance? Or is it just always important to figure out a way to like automate or like like basically have like some sort of a GM out like give enough leverage to yourself to where you're not critical to the deal getting done like like walk me through that because if I am a 100 door 30A operator and if I'm looking to just buy doors where I'm getting your contracts how important are your operations because I'm looking at just getting the contracts or is there some risk there as well?

Yeah. So there there's going to be almost zero 20 unit operators that don't have team risk. If if you figure out to be 20 units and you have a whole team and you're profitable, then please show me the show me the way cuz you're you're you're a unicorn in that situation. If you're 100 units and you're looking to buy 20 unit kind of worn out seller, um you're you're just looking to buy the contracts there. Okay. However, since the seller is likely going to have a relationship with all 20 of those homeowners, and they may have his or her cell phone numbers and all that good stuff, the the transaction is going to be uh based on like a price per contract. So they're going to go through and they're going to underwrite and be like, "Okay, we we're valuing each contract at $10,000, for example, and since there is a ton of demand risk on on every 20 unit operator, um we're going to pay $2,500 or $5,000 cash at closing for those.

And if those homeowners leave within the first year, you're not getting the second payment for those homes."

So it's like a pseudo earnout that's structured in this way. That's that's that's awesome.

Yeah. The the more keyman risks you have, the more structured the deal is going to be. And if I'm selling my business, like I don't want to have 50% of the purchase price tied up over multiple years with like performance contingencies. That that doesn't sound like fun.

Well, the performance contingencies are tied to basically the retention of the customer or the account over a certain time period. On the smaller deals, it's typically tied to uh the contracts um retention. Uh you can also have a carrot there that like, hey, what if I add some contracts after close? Sure, those can take the replace some that may have left or get you an extra little bonus or it could be tied to to like commissions or revenue of your business because as as you know and as we all know, not all contracts are created equal. If you lose a 10bedroom beautiful home on the beach on 38 is bringing in $400,000 a year and you add a studio condo in Dest Florida that brings in 40k a year that that that that's not cool right there. Um there there's a disconnect. So uh revenue is one that's that that's also a big one looked at like hey so the net profit is something that is being underwritten as well alongside the contract plan.

Yeah. Yeah. It's one slightly less manipulative than than that. And then as as deals get larger or private equity gets involved generally there's there's an IBID component and and that could look more as like an earn out where like if Ebid grows within the next year like they may pay a multiple of that gross on top of what they pay at closing. So so that's that's where like the larger you get the more optionality happens and the more like interesting uh structures you can get.

So So let's go uh by each type. Let's go by the 20 door burnout Joe. Let's call them the burnout Joe who's like build this amazing portfolio but like they're on on the verge of burnout. They come and call you. What what are things that you've seen where for the prime assets that you take on as clients? What are things that they've done typically really well that you see across the board and what are some mistakes that you're like ah like you could have avoided that if you had engaged me ahead of time? If there's things you have set up and practice, like is it like a like a some sort of like financial books, QF, like is there any standard recommendations you would give a listener where you're like, hey, if you have these best practices which are of no incremental uh cost to you right now and you just get yourself some leverage, it allows you to be slightly more pristine when you do decide to go to market uh for those for the burnout.

Joe,

yeah. Yeah, good question. So, I would tell anyone like if you're trying to build a short-term rental business or vacation rental business, like get to 50 properties under management. Like, it is there are the rare cases, but it is very hard to run a profitable shop under 50 properties with having any semblance of a team. So, if you want to that that zero to 50, if you want to build a big team and not work a ton or whatever, you're going to be cash flow negative. And that's that may be fine if if you're willing to keep keep funding the business or you're likely going to be burnout Joe um getting to that spot. So like uh now obviously not all properties are created equal. So like maybe you're looking at like call it two two and a half million of of like uh of like GDD of like topline could be like a more more data point there. under that most of the time

the net profit like actual GBV of two and a half million

GBV so the total amount the guest is paying at booking so that would be the the the rents they're paying so the nightly rates plus all the ancillary fees you're charging cleaning um limited damage waiver booking fees whatever else so so that would be kind of an average property doing 50,000 a year uh get getting to that amount so below that most of the time the buyers are going to be um buy just the contracts for those. They're going to honestly be a little bit less caring about your operations um even your financials to a to an extent. Um the main uh hindrance on those deals are going to be your management contracts. So that is what can really restrict your ability to sell that. These these deals will be an asset deal and they're going to you will at closing assign your contracts over to the buyer and the homeowner contracts they have a clause and I'm not an attorney so disclaimer. Um but they have a that they will either have a clause or they won't have a clause about assignability.

And so if it does have a clause about assignability it needs to say this contract may be assigned without the prior written consent of the other party. That's good. That's fine. You can assign those. If it says this contract may not be assigned without the prior written consent to the the other party, the buyer is not going to put a dime down in cash and close until they're only going to pay for every homeowner that sends uh emails that consent that they're fine with you uh ABC vacation rentals, Joe's vacation rentals selling to to some bigger player. Um, and so it could like sound a little bit like shady, sketchy type thing, but like that's the difference of could be hundreds of thousands of dollars if you have to. The goal is to be as have as little friction as possible in a deal. And u there's already going to be some friction, but like slapping a a consent form in front of a homeowner um you're bound to lose some of your properties at at closing there.

Having a really buttoned up management contract, homeowner contract process, and like making sure that's covering all of the potential clauses is super helpful for this anyone with 0 to 50 or beyond, even beyond. Yes, the you could have an absolutely beautiful company, awesome inventory, great team, and we've seen time and time again like contracts create this huge structure contingency that just makes it way the seller be way more exposed. Um the second part of that is um the trust account. So I I'm not a CTA um disclaimer, but uh the majority of states in the US do not require you to have a separate trust account. You can like legally tomingle your funds, which is bizarre that that most states do not fall under the real estate commission. I would say more than 75% of property managers run an underfunded trust account and the majority of those don't even realize it. Um, and so what that means is if buyer is going to pay you $500,000 for your 50 properties, but going up to closing, they go in and run the advanced deposit report and they see what's in your in your trust account and the trust is $200,000 short.

They're going to reduce the purchase price by that amount. So you're only getting $300,000 even though you thought you were going to get $500,000. So that's honestly a huge part. People don't like to talk about financials and blah blah blah. I've got a bookkeeper for that or whatever. Um the issue is the flow of funds in this industry is pretty complicated. There's a lot of things happening all all at one time and the PMS's they're getting better. Um but bookkeepers, there's not enough bookkeepers that are like specialized in this industry. So a lot of them they may they may do bookkeeping for restaurants and for law firms, but then also have this. And so, um, that's something if if I'm a PM, like I'm checking on that every couple months and just having a half hour call and just confirming that that my trust account is fully funed.

And this is like for those who do M&A for a living, like working capital means is something that's very normal at closed. And typically it's not like a dealbreaker, but I'm assuming if it's someone's first foray into selling a business, getting slapped with that sticker shock of like, oh, like we're going to reduce a purchase price by X because of Y could feel like a snaking of the deal uh last minute and it's a hardation for everyone.

Yeah, you're right. And it happens closer to the end of the deal. And so even though you took the reservations, let's say you're closing on August 1st, you're selling. Even though you have $500,000 of reservations that you've taken for stays occurring after August 1st, those are liabilities until the stay actually occurs. So you have to transfer those to the buyer at closing. And so that's where uh people don't even realize that they don't actually have the deposits in their in their account. Well, these is these are some golden nuggets for uh the smaller operators. Now, let's say like you're at the 50 to 150, you are running a legit like you know like this is like an operation, you got a team, you're trying to like figure this out. Talk to me about like what are like in when you take on a mandate like what are like you putting together a sim or like for those like not in the investment bank can speak like a like an investment memo for why this would be an asset worth buying.

what are the bullet points that you're trying to see? Like the way I always think about M&A is I try to think about the investment memo that's being written about the business and I try to work backwards. I'm like, okay, these are the four bullets Jacobi is going to pitch my business on in like 24 months. What can I do to start building those out now? So like I can be that asset that is like when someone gets that deck, it's like oh like XYZ metrics all to the right and voila, like I get that premium multiple.

Amen. Amen. I wish I wish uh most sellers were like that. Um and unfortunately most of the time it's it's very reactive. They're like, "Oh, I got reached out to by XYZ. Like, help me sell now. Like, oh, can we spend a year like working on this stuff?" But so the average profit per property in the industry is around $6,000. Now, it differs based on the size of the deal, but so you can think about a 100 unit company generally will be around $600,000 of Ebida or profits. So that's starting to get into like a good buyers are going to pay an ebidon multiple for that. Um generally 600,000 in today's market is going to be about probably around a five multiple there. So you're getting you're looking at about a $3 million business. So but what can make that five multiple be five or five and a half or four and a half or three um are these qualitative components of the business and I guess quantitative.

First off um at this point they're buying a business. they're not just buying a collection of contracts. And so you need to have clean financials. Um, and that that's where your profit and loss statement needs to like from the top to the bottom like your revenue line items need to be broken out. You need to have each each uh chart of accounts that is each revenue that's coming in. We still see so many sellers in a one revenue line item just called total income. and it's just a a hodge of everything that that comes in. Um the second part to that is you need to have cost of those revenues a COG section and those need to be the direct cost of all those revenues that are coming in. One that helps you as you grow start to understand what your margins are on these revenues. But then two, a buyer can come in and they see clean financials. They can run their margins. They can see how they do their margins versus how you do it.

they could see maybe uh low hanging fruit for them or they could be like, "Whoa, this company's amazing at this. Maybe we can implement that in one of our other brands." Um, and then your your operating expenses underneath that and then getting to a a uh a true net income. So, like having financials that that are and secondly on top of that like most companies in this industry do a mixture of corrual basis of accounting where they do like some cash and some approval. Um, I'm not going to get too far into like the accounting right and wrongs with that, but there's still several companies, even big ones, that they put the advanced deposits from the guests on their profit and loss statement as the money is paid by the guest. And that is a no no. That needs to go on your balance sheet until this day occurs. And then you recognize the revenue either on like checkout day or nightly if it's uh if it's like straddle two months.

And so if you're putting your your advanced deposits on your P&L, then your revenues are artificially high and it starts messing with all the all the numbers. So at this side, like buyers want to see, you don't have to be the best uh CFO uh Fortune 500 set of set of uh accounts. So buyers want to see a relatively sophisticated um some financial hygiene there. Um so that's one. Now, uh, they also want to see kind of where is the company trending. So, the beauty of this industry is we get to see a a snapshot into the future, a little glimpse into the future with with advanced bookings. And so, you're being valued on your trailing 12 months, but what is your next 12 months look like? And even more importantly, what does your next peak season look like? And so if you're trailing 12 months is 600k of Ebida, but your next peak season is up 28%.

Then you're going to have a ton more leverage in negotiations and be able to push that multiple up because buyers are going to be in the money right when they they close the deal. And vice versa, if your future is down, and we saw this a lot with with these winterbased companies when we were selling them in uh October, November, December of last year, pacing was down significantly. And that that's that's risk for for a buyer. So that's one buyers like to understand like what churn and growth look like in terms of uh uh most companies don't keep track on a monthly basis but if they can keep track annually that would help. If you can keep track monthly that only makes you look more sophisticated um which is which is just awesome. Is that like a gold standard for what that net revenue retention or net logo retention for an owner needs to look like? like a range ballpark for an for a BMC.

It's not even that that sophisticated. So, um the average churn rate in the industry just gross units lost throughout the year is like 13%. So, if you have a 100 properties, you're going to lose 13 throughout the year primarily due to home sales. So, you have to add 13 just to just to be flat. So, it's really like if you're just net growing your property count and revenue, then then that's buyers are going to be happy for that. Now, if you're if you're at 10%, 20%, 30%. That now now it's getting pretty pretty exciting.

Awesome. And in terms of like I'm I'm sure like the buyers are already valuing this in terms of the booking information coming in but how important is things like you have dynamic pricing upselles baked in you have automated operations like the general every software vendor is trying to spew their BS around like what uh the PMC's need but like what do I actually buy for like is it just it comes down to like doesn't matter if it's flat pricing but as long as you have the booking trends that's great or like what's the under underlying value that they do give some brownie pick some points to

Yeah. Yeah. It's It's funny like some of the stuff some buyers actually like for sure like static pricing because they see they're like

there's huge upside. Exactly. And even they need fine paid and aggressive multiple because they're like day one we're going to maybe we paid an eight multiple, we're going to be a six multiple by the end of this year. So like that is also a little bit a little bit funny with with some of that. Buyers look at a company's take rate is an important uh metric there. They want to understand so like on average a company makes 50% of the revenue from commissions and 50% of the revenue from other ancillaryies with the largest ancillary being cleaning uh revenue. Um so the more that you're making uh additional monies because those monies are not split with homeowners generally those are going to be be uh 100% to the company. the more generally that's just going to flow down to your bottom line and make your your EBA margins uh even better there. But in uh on top of that like the biggest things honestly if you're going to like boil it down to like the most basic stuff is like clean financials they want to be able to understand what's going on and the cleanest it is the better that can help.

Uh how's the company trending? What is pacing and advanced pacing looking like and what does the team look like? um is a seller uh young and hungry still and wants to take some chips off the table and keep rocking and rolling, that's like uh the price Tony survives right now. Um if the seller is not, if it's a seller that might be a boomer that's looking to retire, what does he or she have a leadership team underneath him that's going to rock and roll? And if they don't, that's going to that's definitely going to hurt the multiple there.

Now, let's flip the narrative. If you are a large private equity buyer or like one of these strategics from the space that's looking to add-ons, what are structures that you see in a typical turnoffs for buyers? What I mean by this is like anyone can come in and say like, "Hey, I'll give you a six times eBay for your business and once you get down to the finish line, the deal is so structurally complex that the actual cash takehome for the buyer is not what they imagined it to be. they now have to like get a second bite of the apple as you said it in some of your posts in terms of like out structures and they have to continue invested in the business. What are what are deal structures where you've been like these are home run deals you'll get like a pipeline of like sellers all day long ready to like do this versus these are complexities that are typically like where deals die.

Yeah. I mean the basics of it is like sellers like cash that that that definitely is a is a big component of it where we've seen like the cleaner the offers the better. So like we've seen all all shapes and sizes of offers as deals get bigger the contingencies or you may hear them called deferred considerations or or whatever. basically saying to them like, "Hey, the company in the next 12 months needs to do at least as good as it did in the trailing 12 months." That used to be very common, I call it before a couple years ago, but like that's generally fallen off. And if you're a buyer and you're you're paying 70% cash and 30% in this contingency, um you're not going to be as as um compelling or appealing anymore. Most of the offers that are what in lie of that in lie of a contingency they're kind of offering an earned up or an earn out where they're saying hey your business is valued at X we'll pay you 80 to 100% cash maybe the other 20% you get equity in our business so you have a little bit of skin in the game.

No contingency there. You just now have equity in our business. And then we'll also pay you an additional $5 million or additional multiple of the next 12 months if the business that IBID does better. So you're you're getting paid on the business today without any contingencies and a bite of the apple and a potential for for more. And really that we've seen that reinvigorate somebody that may feel a little bit burnt out or tired or they're like okay I'm going to whoop ass for the next 12 months as well. Um, it's hard. It, if you think about it from like a private equity perspective, like everyone in in this industry, they're all super entrepreneurial and most of the people, including myself, they're they're they wouldn't be good at being W2 employees. So, you're trying to convince a daredevil, an entrepreneurial to be a W2 employee for some some amount of time. So, like the best way to do it typically is money.

Lastly, if you're like all this P money coming in, typically they come in when there's fragmentation in the space, there's a lot of targets, there's room to consolidate, there's upside in terms of revenue management, other things you can do, there's margin that people are leaving on the table. What's the what's the northstar here, Jacob? two, three years is it like do we see the cycle where there's a bunch of consolidation, there's a fewer players and then there's fragmentation again like what's what's driving this thesis and where do you see this going being the uh predictor of the future that you can be?

So I've I've looked at a couple different data sites and everyone's slightly different on this but generally there's around like 30,000 property management companies in the US and granted like how do you define a property management company? We we we don't need to get into that. But like of that there's 300 that manage 300 or more properties. So there's 1% that manages 300 or more. If you of that about 50% of those have already sold. So you have about 150 companies that currently manage 300 or more properties. And with the average profit per property being $6,000. So you've got about 150 companies that are around $2 million of Ebida or more. So, so you you kind of have an imbalance that like only three to five of those come to market a year.

So, you have significant more um demand from from buyers than you have sellers here. So, I think over the over the next couple years um there's just going to be more and more acquisitions of those companies. Private equity is going to have to keep going lower market uh down market to to acquire uh smaller ones in their in their uh in the areas they're already in. However, the beauty of this industry, potentially the curse, is that it still is a little piratey and like the barrier to entry in most markets is super low. Like my dad used to always say, if you can fog a mirror, you can start a vacation rental company. That hasn't changed that much. Um, very very small licensing you got to take. Um, depending on on the state. And so we've been talking to I've been talking for years, those 50 unit operators that I talked to two or three years ago, they're now 150 unit operators. So while I think definitely there's going to be continued consolidation at the top end and a lot of the kind of more legacy players are getting acquired.

They are it's going to be interesting to see how quick those mid-level players will fill those voids um of that. And uh so so I don't think it's going to be an industry where there's like five big players and then a ton of 50 units and below. I think just as many 200 unit operators that are getting acquired, there's there's that many being being created each year. Um and uh and the the the the demographic of the new property manager over the last 5 years is very different than the demographic of the property manager from 10 to 20 years ago. And so those 10 to 20 years ago property managers are the ones getting acquired. And the five years ago ones, they're actually incredible at like organic growth. They're really good at organic growth. Now they don't like the operations component as much and they're they're pretty techsavvy. So they figure out some automations and stuff. So if they can just hold off and get through some of the operational struggles, like they're just going to replace those those legacy companies.

So I see a pretty bullish next couple years for sure. And if AI takes over the world, then like if no one has jobs, then everyone's just going to be vacationing their whole life. So hopefully that'll that'll push the industry forward.

It cannot you cannot have a podcast in today's day and age without asking the AI question. Do you see AI services dominating in property management in a material way or uh what do you what are some hot takes you're seeing there?

I think a few groups are doing it are implementing it pretty well. We're seeing some groups like completely rewrite their entire stack and and get off a lot of these offtheshelf products, not not PMS um but some of the the other like ancillary uh saters that plug in and I think that it remains to be seen like how well that actually does. we are seeing a lot being done right now from like the guest communication side and um and I think that we haven't actually seen like cost go down yet but I think that that'll be the like at least for us from what we see that'll be like the the uh the indirect um component that we see is that these companies if if it starts being integrated correctly and if AI really is turns out to be what what it will be I think margins of these businesses will will go significantly and or they'll be able to offer homeowners lower commission rates and still be able to keep the same margin.

So, we haven't seen that that today, but I think that would be super interesting and could share some of those savings with the homeowners. That's exactly the conversations I I tend to have with property managers is if AI is not helping you grow topline which is like either you're getting more doors at lower fees or you're doing something unique in terms of your outbound or something else or you're increasing your margin because of XYZ implementation of processes like it has to show up in the financials just because what you what you're validating is just because a property manager says we are an AI native property management company they're not getting a valuation expansion as a function of that. It has to come down to the basics.

Yep. Yep. We we we got to show the data behind it. That's that that that's it for sure.

Awesome. One last question. If I'm a property manager and I want to reach out to you, at what point in my soularching journey of selling, should I uh is it is it a month is it as soon as I get an offer or is it as soon as I'm even tinkering about like I always build this to sell? Like what is the right time to get in touch with you and what's the best way for folks to get in touch with you?

Yeah. Yeah, thanks Roit. We um anytime so we we I mean my day every day is uh half the day are discovery calls with with companies. Um so so anytime you want to reach out if you have a random question, what does this margin look like? This random company hit me up. I'm thinking of hiring this person. Is this a good idea? We'll either be able to answer or point you in the right direction there. Definitely as early as possible. Like don't wait until you're you're completely burnt out. Like let let us help you. Like our goal is uh my favorite thing literally is is to be able to like a seller thinks they're worth X and be able to show them they're they're actually worth X plus X amount and like let us let us back a brink struck up to your business um or or your home. But uh yeah, we do we do like 30 valuations a year with companies and like half of them the companies are looking to sell. The other half they just want to snapshot in time at what they're worth.

We do a SWAT analysis. We do a KPI scorecard. They just want to understand kind of a force from the trees approach. So um yeah, anytime you want to have a conversation, please reach out. Um our our website C2G advisors, my email is Jacobe, my first name c2gadvisor.com. uh would love to have a conversation.

Awesome, man. Thank you so much for being a guest on the show. I love this conversation.