Are you new to the real estate industry and looking to start a property management company? While the task may seem daunting, starting a property management company is worth the hard work.
There are many different steps you have to take and details you need to cover before entering property management! Although it’s a lengthy process, these steps may be simpler than you think.
That’s why we’ve put together our comprehensive guide on how to start a property management company, structure your business, and meet all of your personal and professional goals in no time!
Get the Right Licenses and Certifications
Before beginning your journey as a property manager, you must decide which property management certifications and licenses you will pursue, and look into which ones are necessary for you to legally work as a property manager.
The certifications that you will need in order to work as a property manager vary depending on where you are located. Florida, for example, requires property managers to acquire both a real estate license and a Community Association Manager designation.
In the United States, each state will often have its own requirements for property managers, so it’s important to research what exact certifications and licenses are necessary for you to enter the business.
Most states call for at least one of the following licenses or certifications:
- Real estate broker’s license: This license allows you to help individuals buy and sell their real estate properties. While working to obtain real estate license, your coursework and exam will mainly be focused on the general field of real estate, but it will briefly touch on the subject of property management.
- Real estate property management license/certification: Obtaining this license will give you specific training on the subject of property management.
While the following certifications aren’t necessary to start your own property management company, they can help you further your career in the business and supplement your education and skill:
- Certified Apartment Manager
- Certified Community Association Manager
- Certified Property Manager
- Residential Management Professional
Create a Plan for Your Property Management Business
One of the best ways to avoid running into future problems with your property management company is to plan ahead. This is why it is crucial to create a property management business plan in the beginning!
Start by drawing up a blueprint for your business. Then, once you’re ready to start planning, ask yourself the following questions as you create your business plan:
- Executive summary: Create an executive summary by asking yourself how you would best describe your business. What does a successful property management company look like to you?
- Business overview: What is the background of your property management business? Additionally, what is your business’ legal structure? Continue to ask yourself more questions about how you would describe your company’s defining attributes.
- Industry analysis: Take the time to conduct thorough research on the current real estate market in your area. What does this research reveal about the current trends and business opportunities in the area?
- Marketing plan: How can you best spread the word about your new business to potential new customers? Consider your marketing plan for your company and what strategies you will implement to further your reach in the community.
- Competitive analysis: Do some research on the competitors in your area. Who are they, and what are their strengths and weaknesses?
- Management: What property management and business skills do you bring to the table? What is unique about your property management business?
- Operations plan: How do you plan to manage the daily tasks and operations of your business once you get started? There are often an endless number of things on the to-do list of a property manager. What is your plan to ensure that everything is streamlined and organized?
- Financials: Take the time to calculate what the estimated revenues, expenses, and profits will be in the first five years of your business.
Find What Makes Your Property Management Company Unique
An important question to ask yourself as a business owner in any industry is this: what is your niche? Your niche is the specific sector of the property management industry that you have chosen to focus on.
Having a niche can help you stand out against competitors in a crowded market. Think of your niche as a spotlight that narrows in on your specific type of property management, making it easier for potential clients to find and work with you.
One mistake that many new property managers make is saying yes to any landlord who wants to work with them for any type of property, at any time. This can quickly lead to burnout, which can cause certain things to slip through the cracks or be looked over.
This is not ideal for any property manager, as there are often many details and important tasks that come with the job! While it may be tempting to take on every client you can for the paycheck, it is always a good idea to specialize in one specific type of property management.
But what are the different kinds of property management that you can choose from? We’ve outlined the four main types below:
1. Single-Family Residential Management
This is when you focus on managing individual or single-family homes. In this field of property management, professionals can build up a portfolio of investment properties that are under their care.
Property management companies with this business model can take on particular regions, although some bigger property management companies cover entire states. There is a lot of potential for growth and success as a property manager!
2. Multi-Family Residential Homes
A multi-family residential property manager focuses on apartment complexes or condo buildings. Professionals in this field often have a similar set of skills as those who manage single-family homes. However, multi-family homes are accompanied by a greater volume of tenants that all occupy the same location.
This means that being a property manager who specializes in multi-family homes has its pros and cons. If you choose this route, you will often be able to oversee only one property at a time.
However, though this may seem more simple, it can be difficult to handle all the different tenants and get them on the same page regarding rules and regulations. You may end up having so many tenants to attend to that it can become challenging to effectively manage your time and keep up with all of the work there is to be done.
3. HOA Management
HOA property management is conducted on a community level. HOAs are more time-consuming and require more resources than single-family and multi-family properties because an HOA property manager supervises entire communities or complexes.
One of your many responsibilities would be to set up the rules and fees of the community. HOA managers are also responsible for enforcing all of the resident regulations that have been put in place.
Similarly to multi-family property management, managing an HOA requires more diligence when it comes to time management and organization. HOA managers also must be able to hold entire communities accountable to the strict regulations that are often in place.
Ultimately, it is essential to keep all of the residents under your care in line with HOA guidelines, even when it feels like herding cats!
4. Commercial Property Management
Commercial property managers, like other types of property managers, must maintain tenant relationships. However, managing commercial properties means dealing with building operations more than anything else.
As a property manager of a commercial rental building, your responsibilities would include more of a comprehensive role regarding the cleaning and maintenance of the property.
Additionally, property managers who handle public business buildings must have a good understanding of ADA compliance and safety regulations and requirements.
Decide Which Services Your Business Will Offer
During this step in the process of building your property management company, you will want to research your competition. See what kind of packages they have put together to attract a wider pool of property owners and real estate investors.
Generally, to be a successful property manager, you will have to do the following:
- Market vacant properties to attract prospective tenants.
- Conduct open houses and showings of rental homes.
- Conduct a thorough and detailed tenant screening process before selecting new renters to occupy the properties that you manage.
- Walk new tenants through the lease agreements.
- Conduct thorough move-in and move-out inspections of the rental property.
- Collect rent payments and security deposits from tenants.
- Attend to any customer service needs that tenants may have.
- Attend to maintenance requests by scheduling repairs and ensuring they are done correctly and the property remains in top shape at all times.
- Handle all problems with tenants and evictions while following any legal requirements that may be present in your state.
Decide on a Property Management Software
One excellent thing about starting a property management business is how little is needed to get your company going. All you really need when you start is a commercial office space that has a computer, phone, printer with a copier, scanner, and fax machine. These are all pretty attainable office supplies!
After you have acquired all of this, you will need property management software to run your business smoothly. The following is what you will need:
- Customer relationship management (CRM) system: A CRM system can help you keep track of all of the property owners you work with. With this software, you will also be able to remember any important details. There are several CRM systems on the market, but ultimately you should choose one that will allow you to save signed documents and keep track of any maintenance requests.
- Document signing: This software allows you to electronically sign important documents including lease agreements.
- Financial management: As you start a property management company, you will need software that can track business income, create invoices to send to property owners, and create financial reports for you to analyze each month. This can also be helpful for tracking your company’s KPIs.
- Rent collection: An excellent way to save time and streamline operations is to provide tenants with online rent payment options. This can save you many trips to the bank and increase the likelihood that tenants will always make their payments on time.
- Tenant screening: Using property management software is a great way to ensure that you are conducting a thorough tenant screening process by checking their credit and criminal backgrounds.
Determine Your Business’ Pricing Structure
Now that you know what services you offer and you have your property management software set up and ready to go, it’s time to decide how you will price your services. Typically, there are three kinds of fees in property management:
- Flat fees: Flat fees are usually collected from property owners upfront in return for your property management services and can either be in one-time or recurring payments.
- Per-project fees: This pricing model involves charging for each service that a landlord chooses.
- Percentage-based fees: By using this pricing model, you will receive a small percentage of the rent that is collected each month in exchange for your property management services.
When deciding on a pricing model for your property management firm, your goal should be to generate sustainable revenue while continuing to remain competitive in the market and attract new customers. Simply put, you don’t want your company to be the cheapest or the most expensive property management company in your area.
If you are just starting out in the field, the best approach would be to study the rates of other property management companies in your local market and use this information to determine your own pricing. Check the websites of your competition and even call them for more information!
General fees in the property management industry include the following:
- Setup fee: This is a one-time fee for a new property owner to cover the cost of opening a new account with your property management company. This fee is typically around $300.
- Ongoing management fee: Depending on your local market, this fee can be as little as 3% or as high as 10%. This charge includes all the daily tasks that come with property management, such as collecting rent, attending to tenants, conducting property inspections, and handling maintenance requests.
- Leasing fee: This is a one-time fee that property managers collect for leasing a vacant property. It is typically 50% to 100% of one month’s rent. This fee covers the costs of staging, marketing, and showing a rental property, vetting prospective tenants, creating a lease, and managing the move-in process for a new tenant.
- Leasing renewal fees: Lease renewal fees are optional and you may charge clients this fee when you renew a lease for an existing tenant. This fee is usually $200 or less.
- Eviction fee: Evictions are lengthy and time-consuming processes, so while this fee is considered optional, it is highly recommended.
Organize All of Your Paperwork
As you will learn as you navigate life as a property manager, the job comes with a lot of paperwork and bookkeeping.
Here are the main steps to getting all of your necessary papers in order:
- Form a legal entity and register your property management company: Prior to even collecting your first fee, your company must be registered with the state. Begin by choosing your business structure for your property management company (ex. Sole proprietorship, Limited Liability Corporation, or incorporated business).
- Apply for your Employer Identification Number (EIN): This will allow you to identify your new property management company for future tax purposes. This process is free of charge and relatively simple to obtain from the IRS.
- Open a business bank account: Once you have obtained an EIN, you will need to open a business bank account. You will then be able to apply for a business loan and separate your personal finances from your professional ones.
- Get insurance: As a property manager, you must prepare for anything, as there are many unpredictable aspects of this field. Generally, you will want to obtain worker’s compensation, general liability insurance, property insurance, business insurance, and business owner’s policy.
Begin the Hiring Process for Your First Employees
While it’s common for property managers to begin their business journey on their own, they will soon need to find a personal assistant or a sales rep to help cover all their bases and take some work off of their plate!
Once the first employee has been hired by your company, workers’ compensation insurance is required to continue operations legally. After you have organized all of your paperwork and obtained any legal requirements, you will receive a hiring checklist from the Small Business Administration.
As your property management business begins to grow and you start to have more room for taking on employees, you may need the following help:
- Additional professional property managers.
- Receptionists or admins.
- Field managers.
- Leasing agents.
- Maintenance managers.
- Maintenance staff.
- Marketing and advertising specialists.
- Coordinators for the move-out processes.
- Office managers.
- Payroll and accounts payable staff.
- Sales reps.
- Coordinators for showings of properties.
- Service coordinators.
Beyond the people that are employed by your property business, every professional needs the following people on their team to help along the way:
- An accountant.
- Contractors like electricians, plumbers, groundskeepers, HVAC specialists, locksmiths, etc.
- IT staff.
- A lawyer who specializes in real estate.
When you are employing vendors for your property management company, make sure that you obtain copies of their licenses, insurance certificates, and bond certificates (if applicable) to make sure that your business remains safe in any situation.
Spread the Word About Your New Business!
Now that your business is up and running, you’ll need to focus on growing your company!
Here are some things that will help you to spread the word about your new property management company and attract new clients in no time:
- Build a good website: Your first step should be to obtain a domain name for your company. Creating a solid website that is easy for potential new clients to find and navigate is the best way to begin growing your online presence. Your website should include essential information about your company.
- Try incorporating search engine optimization (SEO): After you have launched your website, you will be able to reach more clients by providing excellent optimized content that can be found easily through a Google search. For this task, it is best to hire a digital marketing company to help.
- Create social media accounts for your business: Get your business on all of the relevant social media sites and make sure to clearly communicate your niche on all of your accounts!
- Advertise by word of mouth: For a small business, word of mouth is essential to growing your clientele. The best way to grow your network via word of mouth is to provide consistent and excellent customer service to each and every client that you work with.
- Invest in traditional marketing techniques: While you may be tempted to stick to modern marketing strategies, traditional techniques can be just as effective. Distribute business cards, brochures, and flyers to help generate interest with new potential clients and get the name of your business in front of new eyes!
- Engage with the community: Try joining Business Network International or a real estate investor club! You could also consider cold calling prospective clients.
- Partner with other businesses: Be sure to network with other professionals in the real estate industry. Are there any real estate agents who could make you one of their top property managers to recommend?
Now that you have all the steps and information you need, you can finally start your own property management business. While it may be hard work, managing rental properties can be a worthwhile and exciting career for anyone with a passion for business!