How to start a property management company in 9 steps
After the COVID-19 crisis, parts of the real estate industry have been nothing less than explosive. Meteoric house prices, a lack of consumer confidence, and the rise of gig work will mean more and more people will rent. That almost guarantees the need for property managers will only continue to rise.
Even with all the previous year's financial hiccups, property management is projected to be a 96 billion dollar bonanza in 2021 alone. So, how can you get a piece of that prosperous pie? Read on to avoid being one of the 50% of small businesses that fail within 5 years and discover what it takes to launch a successful property management company.
1) Obtain licenses and certifications
Depending on where you live, you may have to fulfill specific schooling before working as a property manager. For example, Florida requires both a real estate broker's license and a Community Association Manager designation.
In reality, each state has its own criteria that must be fulfilled to provide property management services. Therefore, it's a good idea to check your state's licensing requirements first. If you follow the link, you'll find most states call for one or both of the following:
- Real estate broker's license: Your license allows you to help people buy and sell real estate. However, your coursework and exam will focus on real estate in general, with a relatively brief discussion of property management.
- Real estate property management license/certification: This license or certificate gives specific property management training.
While not always necessary, you may supplement your education by getting one of the following specialist certifications:
- Certified Apartment Manager
- Certified Community Association Manager
- Certified Property Manager
- Residential Management Professional
2) Create a property management business plan
"A man who does not plan long ahead will find trouble at his door."
Perhaps, Confucius was an ancient property manager because you can bet it’s a landlord or tenant banging on your door. One way to avoid headaches is to draw up a blueprint for your business so you can architect your path. Then, when you're ready to write, ask yourself these questions when starting a business:
- Executive Summary: How would you describe the business and your potential success?
- Overview: What's the business's background, legal structure, and other key attributes?
- Industry Analysis: What does market research reveal about the real estate industry in your area, including size, opportunity, and current trends?
- Competitive Analysis: Who are your competitors, and what are their strengths and weaknesses?
- Marketing Plan: What is your marketing strategy to reach potential customers?
- Management: What unique business and property management skills do you possess?
- Operations Plan: How will you manage the day-to-day tasks of the business?
- Financials: What are your estimated revenues, expenses, and profits for each of your first five years?
3) Find your property management niche
Your niche is the specific sector of the broader property management industry you've chosen to differentiate yourself from your competitors. A niche is like a spotlight that only focuses on your particular kind of property management so that potential clients can track you down.
Beginners can suffer burnout because they say yes to any landlord for any property at any time. It's easy to get mesmerized by a juicy fee. Rather than covering all bases, you should specialize. Here are four types of property management to choose from.
Single-family residential management
Single-family residential management focuses on individual homes. Property management businesses in this field often manage a portfolio of properties. Depending on the size of the company, the property managers may handle particular regions or statewide locations.
Multifamily residential management
Multifamily residential management focuses on apartment or condo buildings. These property managers need similar skills to their single-family counterparts, but the difference is the volume of tenants at the same property location.
Managing multifamily management offers pluses and minuses. These property managers may only oversee one building. However, it may be tough to get all renters on the same page regarding laws and regulations. You may also have so many tenants to tend to that effective time management becomes a challenge.
HOA management is done on a community level. HOAs take more time and resources to maintain than single-family and multifamily properties because HOA property managers supervise entire communities or condominium complexes. Setting resident rules and fees is one of your responsibilities. HOA managers are also in charge of enforcing all resident regulations.
Like multifamily property management, HOAs require more time efficiency. HOA management companies also need to enforce community accountability. It's essential to help keep residents aligned with the HOA guidelines, even if it feels like herding grumpy kittens.
Commercial property management
Commercial property managers, similar to the other three types, also maintain tenant relationships. However, the job of commercial property management deals more with building operations.
Responsibilities in commercial management include more comprehensive cleaning and maintenance. In addition, property managers in public business buildings must understand ADA compliance and safety requirements.
4) Decide what services to offer
Take a look at your competition and see what packages they put together to lure landlords and real estate investors. Generally, as a property manager, you'll have to:
- Market listings for rent
- Conduct showings of rental units
- Screen potential tenants
- Walk tenants through lease agreements
- Inspect investment property upon move-in and move-out
- Collect rents and security deposits
- Provide customer service to tenants
- Schedule repairs and maintenance
- Deal with problems and evictions
5) Choose your property management software
One benefit of property management is how little you need to get going. All you need is an office space with a computer, phone, and printer with copier, scanner, and fax machine functionality. After that, you're off to buy the software, so check below.
- Customer Relationship Management (CRM) system: A CRM system helps you juggle your customers and remember relevant details. Several property management CRM systems are available, but you should seek one that allows you to save signed documents and monitor maintenance requests.
- Document signing: This software lets you electronically sign leases and other documents.
- Financial management: You'll need software to track rental income, invoice customers, and create financial reports.
- Rent collection: Allow your tenants to pay online and possibly reduce your trips to the bank.
- Tenant screening: You can use software to conduct your tenant credit and background checks.
6) Figure out your pricing structure
You know your services, and you have your tech, but how do you price your offerings? There are three standard types of fees:
- Flat fees: Flat fees are often collected upfront in return for services and may be one-time or recurring payments.
- Per-project fees: This model involves a la carte pricing for the services each landlord chooses.
- Percentage-based fees: Here, you receive a percentage of the rent charged each month as compensation for your services, typically a recurring amount.
Now that you know the types, aim for sustainable revenue that's still competitive enough to attract clients. You don't want to be the cheapest or the most expensive in your area. If you're just starting, the most straightforward approach to find the proper pricing is to study the local market. Check your competition's website or even call them.
Typical fees in the industry include the following:
- Setup fee: This is a one-time charge for new landlords to cover the expense of opening an account with your property management company, usually about $300 or less.
- Ongoing management fee: It may be as little as 3% of monthly rental revenue or as high as 10%, depending on the local market. The fee includes day-to-day activities including interacting with tenants, collecting rent, performing inspections, and responding to maintenance requests.
- Leasing fee: This is a one-time charge for leasing an empty property. It is usually between 50% and 100% of one month's rent. The fee includes your cost to stage the rental property, advertise the rental, present the place to possible renters, send applications, vet prospective tenants, draft the lease, and manage the tenant's move-in.
- Leasing renewal fee: The lease renewal fee is an optional charge that you may collect when renewing a lease for an existing renter, and it is usually about $200 or less.
- Eviction fees: It's also optional, but a highly recommended charge since you will almost undoubtedly be called upon to serve as the liaison (or possibly official representative) for the landlord throughout the eviction process.
7) Get your paperwork in order
If there's one thing a property manager must learn to love, it's paperwork.
a) Register your property management company with the state
Before you collect your first fee, you must choose the legal entity you'll file with the state. Start by selecting the type of business structure for your property management company, such as sole proprietorship, limited liability company (LLC) (sometimes called limited liability corporation), or incorporated business (C Corp or S Corp).
b) Apply for your EIN
Your Employer Identification Number (EIN) identifies your new business for taxes. Fortunately, it's free and easy to get your EIN from the IRS.
c) Open a business bank account
Once you have your EIN, you can open a business checking account for your startup, apply for a business loan, and separate your personal and business finances.
d) Get property management company insurance
As a property manager, your world is 3 AM phone calls and tenant emergencies. People and circumstances are simply unpredictable. That's why you need solid small business insurance for your property management services.
Here are the key coverages to insure your property management company:
- Workers' compensation: This coverage protects your employees if they get sick or injured while working in your property management firm. Every state requires workers' comp, and the consequences of skipping this coverage could cause the state to close your business. (You can get a quick estimate on what you'd pay for workers' comp with our 60-second workers' compensation calculator.)
- General liability insurance: This policy protects your property management company if you're sued for a property damage or injury claim. (Expensive lawsuits can quickly put you out of business.)
- Property insurance: This policy protects your property management office equipment from fire or theft.
- Business interruption: This coverage, also called business income insurance, provides financial support to your property management company if you must close because of a covered reason.
- Business Owner's Policy: This policy bundles general liability, business property, and business interruption insurance for your property management company in one convenient package.
8) Hire your first employees
It's common for property managers to start on a solo mission, but soon they seek out a personal assistant or sales rep. When you add that first helping hand, you'll need workers' compensation insurance to operate legally.
After you finish your paperwork and legal requirements, a hiring checklist is waiting for you from the Small Business Administration. As you think about talent, your potential staff may be full- part-time or full-time workers or independent contractors. When your business grows, you may need:
- Additional property managers
- Admins or receptionists
- Field managers
- Leasing agents
- Maintenance managers
- Maintenance staff
- Marketing specialists
- Move-out coordinators
- Office managers
- Payroll and accounts payable staff
- Sales representatives
- Showing coordinators
- Service coordinators
Beyond the people on the payroll, every competent property manager needs these folks on the team:
- An accountant
- Contractors (such as chimney sweepers, electricians, groundskeepers, HVAC specialists, locksmiths, painters, plumbers, pool cleaners, and roofers)
- IT staff
- A real estate lawyer
When employing any vendors, get copies of their licenses, insurance certificates, and bond certificates (if applicable) to safeguard your business if anything goes wrong. Also, try to negotiate a lower cost for your property owners because they'll appreciate your efforts to save them cash. And who knows, that appreciation could lead to referrals or a more long-term client relationship.
9) Spread the word about your new property management company
To grow your new venture, you should:
- Build a website. Get the domain name for your business. A service with templates like Weebly or Squarespace can make setting up your online presence painless.
- Dabble in search engine optimization (SEO). After launching the website, you can get clients to visit it with great content that answers their inquiries in a way that makes Google and other search engines happy. Hire a digital marketer for help.
- Launch your social media accounts. Get your unique Facebook, Twitter, LinkedIn, Instagram, Pinterest, TikTok, and other handles relevant to your niche.
- Create word-of-mouth. Small business owners understand word-of-mouth advertising is worth its weight in green. The best way to keep your business name on the tip of everyone's tongue is to wow landlords and tenants with stellar service.
- Distribute brochures, business cards, and flyers. It's kicking it old school, but these marketing materials generate new clients even in the digital age.
- Network in the community. Join Business Network International (BNI), Chamber of Commerce, or a real estate investor club.
- Partner with related businesses. Can you link onto a few top real estate agents as their go-to property manager?
Bonus: Check out these tips for running a successful property management company
To build your own property management company, you need a solid foundation. Of course, you won't have to pour concrete, but one thing must be set in stone: a commitment to lifelong learning. So, here are some resources to help you construct your future:
- The Property Manager Podcast: Buildium, the property management software company, sponsors this podcast that offers fresh insights and stories from top thinkers and business owners.
- National Association of Residential Property Managers: The association offers continuing education, discounts, and focused research on the property management world.
- Rental Housing Journal: The Journal is the premier publication for answers to the day-to-day problems that arise when running a property management business amidst an ever-changing market.
This article was a lot of info to hammer into the ol' noggin, so here's how you can let it all process and stay sane as an entrepreneur at the same time.
If you're still crazy about property management, you can get business insurance from Huckleberry almost as fast as you can hand a tenant the keys. (Getting a quote is free, easy, and 100% online.)