If you’re thinking about starting a property management company, you’re on the right track. Property management is a lucrative part of real estate business. That is, if you do it right. There are many moving parts in property management. It’s not a business venture you want to take lightly without preparation. You have to plan well and do your due diligence to expect success. In this article I discuss how to start a property management company the right way.
Step 1: Start with a Business Plan
If you plan to use any real estate investor financing, you may need a business plan. Most lending institutions aren’t quick to hand over their funds without knowing how you’ll use them. Even without external funding, you need direction. Make a detailed description of your property management business’s next five years. Layout where it’s going, how you plan to use investments, and revenue projections. Give details about the employees you plan to hire or contract. You also need to communicate the properties you plan to target and manage.
Once you create your plans, you’ll know exactly what each action step should be. Your first step is to get your paperwork in order. Know what you’re legally required to have or file to be an official property management business. Work with state departments to make sure you meet all requirements for your location. Get an attorney to verify the property management rules too.
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Step 2: Research the Licensing & Legal Requirements for Starting a Property Management Company
There’s no stipulation on the type of entity you choose. It should fit well with your company’s financial layout. Your goal should be to protect your personal assets as you build the business. Some feel an LLC is best for protecting personal assets. Others feel there isn’t enough evidence supporting protection from LLCs. Corporations (C-Corps or S-Corps) may be a better option.
Aside from business licenses and legal entities, you may also need a real estate license. Some states require real estate experience to know how to start a property management company. If you don’t have real estate as a major or minor, you’ll need work experience under a broker. Other locations may need owners of a property management company to have a broker’s license. Get specific rules from your state license commissioner or your attorney.
Step 3: Decide What Real Estate Property to Manage
Choosing a specialty will keep you organized and attract specific clients. There are many different types of properties to manage. Under residential, you could focus on homes, apartments, or vacation rentals. Companies can also choose to focus on commercial property. Your company could specialize in managing retail space, industrial buildings, or office spaces. There are pros and cons to each property. Do your research and seek advice from experienced property managers.
You also need to know how many properties you can manage at a time. If you start a property management company by yourself, your starting number may be lower. You’re taking on other company responsibilities, so you need to balance. If you’re hiring or contracting experienced property managers, you can take on more. Experts suggest each manager can take on at least 30 properties.
The workload may also depend on the type of property. Individual houses or commercial spaces could lead to more work. Locations further apart in distance mean more travel and resources. The buildings could also need different maintenance and have different rules. An apartment complex with identical units may be easier for one person to manage alone.
Step 4: Build a Solid Team
When you first learn how to start a property management company, funds may not allow you to hire a full staff. Especially if you’re pouring in your savings and not using banks or investors. Carefully plan when to add employees and how many. Focus on generating revenue. Base your hiring decisions on who will bring in more money than you invest. You may decide to start off as the property manager and build from there. Contracting and outsourcing may also be an affordable way to build a team.
Two people who are a critical part of your team are attorneys and accountants. In real estate, there are many guidelines to follow. You have updates and courses each year. That doesn’t include changing tax laws and industry regulations. Hire an accountant who specializes in real estate to help you keep up with IRS rules. Your attorney will do their part to make sure your procedures and paperwork are in order. They can also review contracts coming through your office. Investing in a team of experts can keep you out of legal and financial trouble over time.
Step 5: Never Stop Training
With property management, you’re handling various areas of someone else’s possession. Some areas are:
It’s important to stay updated on rules and procedures. That means ongoing training should be a part of your organization’s workflow. Look into joining an association for realtors or property managers. A good one will give you a wealth of training resources. You’ll have access to ongoing courses, document templates, and software.
Step 6: Set Your Prices Right
Monitoring income and expenses is vital when you’re learning how to start a property management company. One part of that process is deciding what to charge for your service. Research the area and what your competitors are charging. That way, you’ll know where you stand as a new company. You could choose to charge a percentage of the revenue or a flat fee.
Payments should also be reasonable for those bringing in clients and tenants. Some companies pay their property managers a percentage of monthly rent. You could also pay a percentage of fees from clients or a flat fee per property. This depends on what properties they manage and how many. The terms of your agreement (contractor, employee, roles and responsibilities) matter too. Whatever plan you choose, it must help them meet their cost of living to make sense.
Step 7: Promote the Business Effectively
Use your marketing budget wisely. Start off with low cost options in the beginning. Digital options like Facebook ads are a cost conscious way to get your business noticed. Using professional social media sites are a free way to market. Word of mouth is also still a powerful marketing tool. Incentives for your team will motivate them to promote your business. Another option is starting a referral program. A well planned program can yield returns without ever opening your wallet upfront.
Property management is a growing business. Rental property continues to expand and owners are becoming renters. In major cities like New York and Boston, renters make up 60% of the population. Still, that doesn’t mean dive in and get started based on emotions and demand. There’s a right and wrong way to start the company. The right way is by having the proper setup and training, sound investments, and fair pricing. You also need a good team and some expertise behind you. If you plan and spend wisely, you’ll be happy with your decision to start a property management company.
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