Brandon Laughridge·January 22, 2024

Buying a Business to 20x a Real Estate Empire | Brandon Laughridge Interview

Brandon Laughridge, a Kansas City native who had already built and sold a digital SEO agency and cut his teeth on deals at a private equity firm, bought North Terrace, a scattered-site multifamily property management company, via SBA loan in March 2017 after nearly two years of on-and-off negotiation with the founder (the deal initially stalled over a small working-capital dispute). At acquisition the business managed about 800 units with 12 employees and roughly $1.5m in revenue; seven years later it manages about 1,600 units with 25 employees and about $4m in revenue, achieved mostly through dozens of incremental 'fax machine' modernizations (online payments, e-signatures, professional photography, cloud-native workflows, automated bank reconciliation) rather than any single dramatic change. The more important story is what the business enabled outside itself: because Laughridge had already been assembling his own rental portfolio, owning a property management company gave him deal flow, market intelligence, and the operating income to focus full-time on real estate, and he says his personal real estate portfolio grew roughly 20x in the same period the operating business only doubled. He is candid about the business's structural downsides -- minimal pricing power, high client concentration, and the constant tension of serving clients, tenants, vendors and staff who are often at odds -- and argues property management makes sense as a search target primarily for people who intend to pair it with building (or exiting into) a real estate portfolio, not as a standalone lifestyle business. He also now co-owns a second, larger business (his wife's furniture retail store) and is exploring shared back-office services between the two rather than pursuing new acquisitions.

Deal facts

revenue: ~$1.5m at acquisition (2017); ~$4m/year today (with significant pass-throughs affecting comparability)
financing structure: SBA loan
notes: Negotiations stalled for months in 2016 over a working-capital disagreement (roughly a $50k gap); deal reopened when Brandon decided to just eat that difference. Closed March 1, 2017. At acquisition North Terrace managed ~800 units with ~12 employees; today manages ~1,600 units (double) with ~25 employees. Client concentration was high at purchase: top 5 clients were about half of revenue.

Why this business

Brandon had built and sold a digital marketing/SEO agency, dabbled in private equity, and had been assembling his own rental property portfolio in Kansas City since 2010. He grew frustrated managing his own units and had a bad experience outsourcing to a third-party property manager, which led him to study the property management industry. He wanted an operating business with real enterprise value (not a broker/lender-type role) that could fund and support building a large real estate portfolio over time, rather than just buying more and more unrelated businesses. He specifically targeted North Terrace, a scattered-site multifamily property manager in a historic/hipster area of Kansas City he already knew block-by-block, reasoning that owning a property management company would give him deal flow, market intelligence, and a full-time operating base while he grew his own real estate holdings.

What's working

The business is B2B, recurring, and extremely sticky/entrenched with clients, and is not at risk of tech/platform disruption the way his old SEO agency was
Owning the property management company created a 'knowledge flywheel': cost knowledge, deal flow, and inside information from brokers and clients that outsiders wouldn't have access to
Operating leverage/scale point reached where units can be added faster than headcount
Dozens of 'fax machine' operational upgrades (online payments, e-signatures, professional photography funded by clients, cloud-native photo/document workflows, bank-reconciliation software via Plaid integration, 60-day notice periods with pre-move-out inspections) compounded into large efficiency gains
A Google-review bonus program tied to service tickets that improved online reputation and team morale
Vetting clients/properties upfront and being willing to walk away from bad-fit clients to avoid absorbing tenant conflict and reputational risk
The real estate portfolio grew 20x since acquiring the business (attributed directly to owning North Terrace) while the operating business itself only grew about 2x, making the pairing of property management + personal real estate acquisition especially powerful
Diversifying into a second business (his wife's furniture retail business) and exploring shared back-office services (HR/recruiting) across both businesses

What's hard

Property management has very little pricing power: management fees are effectively capped by market/consumer expectations (e.g., ~8-12% norms) and can't be raised on existing clients, while software and other input costs rise every year
Every dollar the property manager charges is perceived as a dollar taken directly out of the property owner's returns, creating an inherently adversarial dynamic around fee increases
Managing conflicting constituencies simultaneously -- clients, tenants, vendors, and employees -- with the property manager absorbing tenants' negative energy as the 'bad guy' buffer
The business is far from passive; real estate itself is 'not as passive as we've been led to believe,' and clients who treat it as fully passive create friction because true results require ongoing asset-management thinking, not just property management execution
Old-school/legacy operations at acquisition (checks/money orders on the office floor, in-person lease signings, Craigslist-only marketing, no online payments, no private offices) required a long tail of incremental digitization
Client concentration risk was significant at purchase and remains a structural issue because many clients are properties Brandon himself co-owns, making a future sale of the business complicated
In hindsight, walking away from North Terrace the first time over a relatively small ($50k) working-capital dispute delayed the deal by roughly a year
Earlier in his career, an unfounded fear that Google could shut off his SEO agency's revenue caused him to under-invest in that otherwise-strong, sellable business rather than diversifying its service lines
Bringing services like landscaping/snow removal in-house was tried and reversed (twice) because self-performing those services created liability exposure and adversarial dynarnics with clients without enough offsetting benefit

Notable quotes

It's a lot more exciting to make a change in a business and see it forever improved over you know oftentimes relatively simple things.

If you really look at who's successful in a community... typically it's the small business owner that has a pretty simple business and has just kind of incrementally made that better over time... lifestyle business as a pejorative, it's like the opposite to me, whatever the opposite of pejorative is a compliment I guess, that's what a lifestyle business is to me.

Business 2x, portfolio 20x.

If someone said to you, hey I want to buy an apartment building... and all I got to do is find the property management company who will put my business plan into practice and execute it perfectly, you'd be like this person is insane... but for whatever reason we've all been tricked into thinking that's possible.