Originally Posted by GlobalWealth

The problem evaluating this type of service business is the lack of guaranteed future earnings. When you say 2x earnings, do you mean 2x cash flow, ebitda, ebit, or what? Generally my experience with property management businesses is that you are collected 10-12% of the rental fee plus any expenses to maintain the property. As long as the property is rented, you make your fees. In most of these contracts the owner can cancel the contract with little or no notice. This makes the future predictions nearly impossible. The only way I see to reasonably value this type of business is to pay something up front, and an earnout based on monthy/quarterly/yearly earnings. If the business earns $50k/yr and he is asking $100k (just a mathmatical example), then maybe you offer $25k up front, and X% per month for 2 or 3 years. If the business continues as it has in the past, then X% should earn the seller more than his $100k asking price. This is to compensate him for the continued risk, but give him some of the upside as well. This also protects you should the busienss evaporate.