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Is this the right time to invest in an LPO?
We were asked the above question recently and this was out answer.
If you are still excited about owning an LPO, there are a few reasons why we believe right now is a good time to own a LPO.This is good considering we have just been through the GFC!
1. LPOs taking longer to sell
2. Distressed owners
After you have researched the LPO industry, you need to come to your own conclusion whether you are comfortable with the how a LPO makes money and whether you feel you can further your personal future owning an LPO.
1. Profitability is still good
From the LPOs we have seen on the market, we strongly feel that LPOs are either maintaining their profitability or making more than last year. This may not be the case for all LPOs.
Banks have tightened their lending criteria all across Australia. Gone are the days where a bank will lend to you just because you were buying a LPO. Banks are now scutenising the applicant a lot more than in the past. The flow on effect is that it is taking a lot longer to sell a LPO in the current environment.
We have recently heard of a few cases whereby the banks have taken over the management of the LPO as the current owner have either breached certain lending covenants or not made repayments due to the current economic climate.
4. Everything is in the multiple
They industry always correlate the price you pay for a LPO based on a multiple of the adjusted net profit of the business. If can get a better price, you are effectively buying at a lower multiple.
5. The future is good
For the post office owners who have become our client, the near future outlook is very promising. Not only is Australia Post looking at revising their prices, but we are also proactively finding ways to improve business profitability.
Our conclusion is, we believe that there are LPOs which you can purchase at a reasonable price if you have the right “buying strategy depending on the buying strategy” in today’s economic climate.
The LPO Advisor