Anyone remotely aware of the small business market in Central Florida is no doubt aware that the sale of vacation rental management companies is a significant portion of the market place. For the past several years I have sold dozens of these companies and have come across some really bizarre statements from buyers and brokers alike about what is the methodology for valuing one of these companies.
The purpose of this blog post is to provide what i hope is some reasonableness to what I think is the appropriate methodology for valuation.
Some background first: There are some 17,000 or more homes and growing of properties that are in specific zoned zip codes where this type of business can be conducted. The number of companies handling services known as vacation rental management are @500 or more. An absolute number for this is not definitively identified simply because of the fragmentation of the market. I have seen incorporated companies as small as 8 properties to as large as 600 or more. The size, scale, revenues and operational makeup of the business is wide ranging and broad.
As a result the mode and services portfolio of the companies ranges from doing all the services in house to sub contracting them. The variable in which is in or out is quite frankly the owner of the property management company, their desires and skills, and willingness to grow both in staff and properties.
What I am about to state is opinion but opinion backed by data and well tested valuation methodologies.
For prospective sellers out there you may hear brokers and buyers sharing that your business is worth a specific $ amount per home. Like allot of things if you say it enough times it sounds legitimate and true. The facts and numbers; however do not reflect this. There are many variables that impact the value of a Vacation Rental company…..these are just a few that logically destroy the myth of the price per home method.
1. Not all homes and properties are the same. As professional vacation rental managers each of you know and recognize that certain homes have different revenue streams. For example a 4 bdrm home with a pool 5 minutes from Disney will have more value to you than the same home in Haines City. The revenue and corresponding Gross Margin from every property is different.
2. Organic Bookings vs Tour Operator Bookings: Tour Operators are a fact of life and much like the Walmarts of the world….not something that can be defeated and removed from our world. That being said it is self evident that the bookings margin from a tour operator and subsequent profit to the vacation rental company will be lower. Logically one must therefore assign a higher value to a company where there are organic bookings.
3. Return Guests: An often overlooked value impact items is the frequency of return guests. Return guests tend to be organic, require less spend on advertising and to some degree are less of a soft cost impact. One would naturally insure that there is demonstrated monitization of this list of guests but a value should be placed on them.
4. Property Location: It goes without saying that the location of the homes is critical as it relates to who your guests are and the ability to fill the home. This factor should be measured in relation to the total consumer market visiting Orlando and the subject companies targeted demographic. I.E. American Market vs. European vs. Snowbirds. vs Brazilian etc.
5. Homeowner Mortgage Position: I heard this factor phrased as “home owner tolerance” . In short the mortgage position of the homeowner is a significant driver of the ability to fill a home and subsequently drive incremental revenue. Homeowners who bought during the recession at floor prices are feeling great equity lifts and should have a higher tolerance for tour operator bookings as opposed to someone who bought at the market peak on an interest only loan whose mortgage is now $2000 a month. Their minimum booking rate may very well be out of the marketplace and thus un-bookable.
6. Occupancy: Occupancy rates drive the cleans which in normative comparison is a high margin revenue line. A company with a 75% occupancy rate should be valued higher than a company with the same homes at 45% occupancy.
At the end of the day I would ask sellers of property management companies to seek prudent counsel on their valuation of their businesses. Do not allow simplistic methods that simply are wrong and buyer benefiting to have you leaving money on the table. Valuation always comes down to what you make in profit….these variables and more are what I call valuation impact multipliers….they differentiate and increase your value in the market. Be aware of them and manage them for maximum benefit.
For further questions please feel free to give me a call at 321 -287-0349 or https://yourfloridabusinessbroker.com