Behind the Decline of Seller-Financed Internal Transitions in HOA Management

In years past, it wasn’t unusual for HOA and condo management company owners to sell their businesses internally, often to a long-time manager or partner, using a seller-financed note. But today, as valuations have climbed and deal structures have evolved, that kind of internal handoff has become far less common.

Here’s why internal transitions via seller notes are now the exception rather than the rule, and what management company owners need to understand before exploring one.

Seller Notes Carry Heavy Risk and Deep Discounts

Let’s walk through a common illustrative example:

Suppose your HOA management company generates $150,000 per month in cash flow, or $1.8 million annually in EBITDA. With today’s market multiples, your business might be valued at 10× EBITDA, or about $18 million.

Now imagine you decide to sell the business internally, say, to a top-performing employee, and agree to finance the deal via a seller note. You structure a 10-year, fully amortizing note at 5% interest, with monthly payments capped at $75,000.

That payment supports a loan of approximately $7 million, which is less than 40% of your market value. In effect, you’ve discounted your business by ~61%.

You're probably wondering: Why can’t the internal buyer just borrow more?

The cap on the note size isn’t arbitrary. It’s constrained by a basic rule of thumb used by lenders and deal professionals: the Fixed Charge Coverage Ratio (FCCR). This metric tests how comfortably a business can cover its fixed obligations, including debt service.

In most cases, buyers (and lenders) aim for a 2.0× FCCR, meaning EBITDA must be at least twice the size of the company’s fixed charges. Since the seller note payment is treated as a fixed charge, the maximum “safe” monthly payment is $75,000 ($150,000 ÷ 2.0). Any more, and the buyer might be at risk for default.

If you shortened the note to 5 or 7 years, or increased the interest rate, the purchase price supported by the note would fall even further, and your discount would rise to 70%–80%.

The Seller Risks Can Quickly Stack Up

Even at the “lightest” discount scenario (10-year term, 5% interest), internal seller-financed deals come with major challenges:

• Seller risk: You take on credit risk. If the business stumbles, you may not get paid.
• Buyer liquidity: Most internal buyers can’t bring significant cash to the table, meaning you finance 100% of the purchase.
• Operational pressure: The buyer now has to operate, lead, and pay you monthly, all with minimal cushion.
• Lack of competitive pricing: You’re essentially giving away the business at a huge discount compared to what financial or strategic buyers would pay.

In today’s market, where outside buyers are paying full value and bringing cash to close, seller notes just don’t stack up economically.

Internal Sales Still Happen But They’re Rare

Seller note structures were more common a decade ago, when:

• Valuation multiples were lower (e.g., 3–5× EBITDA)
• Banks weren’t lending to small businesses for M&A
• Outside buyers were scarce

Today, the landscape has changed. Institutional buyers and private equity-backed platforms are active in the HOA space. Multiples are higher. And deals are competitive.

Still, internal sales do occasionally happen typically when:

• The internal buyer is a long-tenured, trusted leader
• The seller prioritizes legacy over economics
• The company is smaller or harder to market to third-party buyers

Even in those cases, the structure often includes creative elements: partial equity rollovers, earnouts, performance-based payments, or outside investor participation.

But for the average management company owner with a highly valuable asset, external sale routes are almost always the more practical and profitable option.

Final Thoughts

Selling your business to someone you know and trust can sound appealing. But unless that buyer has access to capital or is part of a larger strategic transaction, seller-financed internal deals often leave millions on the table.

At CAM Advisors, we help HOA and condo management company owners understand the real economics behind their exit options, including seller notes, private equity roll-ups, and strategic sales. If you’re considering a transition in 2026 or beyond, we can help you explore the path that protects your legacy and maximizes your return.