The property management industry is expected to boom in the upcoming years. With such growth, the market is enticing to property managers wishing to start a property management company from the ground up, take on more clients, or even real estate brokers looking to test the waters.
So you must be wondering how to start a property management company?
There’s a lot to consider before you get into property management. That’s why we have created a comprehensive guide on what you need to do before you open the doors of your business.
What is Property Management?
Property management refers to managing one or more apartment buildings, student housing, community amenities, and commercial assets. The owner and manager may be the same person, but this is not always the case. The owner or manager may also be someone who does not have enough time to manage these particular properties themselves.
What do Property Managers do?
Property managers look after and manage buildings and other real estate assets on behalf of people or groups of individuals. They are the traditional middlemen who link landlords and tenants and maintain vacant rental properties.
Property managers are responsible for promoting unoccupied units, exhibiting properties, collecting applications, signing leases, collecting rent, monitoring property maintenance, completing move-in/out inspections, and more.
The ability to be highly organized, connect and sympathize with people, and be sensitive to various critical situations are just a few of the most important qualities of a great property manager. You’ll be interacting with residents and prospects frequently, so excellent customer service skills are required.
You’ll also need the ability to build positive working relationships with suppliers, as you’ll require a network of contractors to take care of maintenance concerns and special requests. You’ll need to be proactive in identifying ways for property owners to improve their properties while also saving money where possible.
Working with landlords, residents, and contractors will make up most of your daily chores; therefore, your ability to communicate and deal with them is critical. Property managers must be meticulous, dependable, self-sufficient, and consistent.
This task is being outsourced so that the owners do not have to be involved. A successful property manager is a problem solver who is innovative and effective. Finally, you must have a good awareness of housing laws and regulations at the local, state, and federal levels, as well as a fundamental comprehension of finances.
Writing a Property Management Business Plan
A business plan serves as a framework for your entire property management business. It helps you plan all aspects of the business, from start-up capital to your break-even point.
According to the Small Business Administration (SBA), a formal business plan includes the following:
- Business description
- Market research conducted
- Managerial and Organizational structure
- Outline of services or products
- Plan for sales and marketing
- Financial forecasting
The work that goes into drafting a business plan helps novice property managers develop skills critical to their success (such as researching their competition and examining their finances).
However, don’t become fixated on getting every aspect of your company strategy correct. You don’t even have to draught a 100-page business plan. Do your homework and write a one-page business plan instead.
Also read: 15 Business Planning Tools and Strategic Planning Models That Can Help You Incorporate Your Vision
Licenses and Certifications required to be a Property Manager
It is important to know which states require licensure for property managers before you start your business. This will help avoid confusion when you are trying to do business in that state, especially since housing regulations are changing rapidly these days. While certifications are not essential, some will help you grow your business:
- Real Estate Broker’s License
- Property Manager’s License
Here are some associations that can help you network, give your business credibility and nurture their staff with continuing education in property management.
- Institute of Real Estate Management (IREM)
- National Apartment Association (NAA)
- National Association of Residential Property Managers (NARPM)
- National Association of Realtors (NAR)
In reality, each state has its own set of regulations that must be completed to provide these services, so it’s a good idea to look them up beforehand.
Filing Your Property Management Business
After that, you’ll need to file a tax return and choose a legal entity for your firm. This is necessary to keep your assets safe and separate from your company’s assets. Most property management companies are organized as LLCs (limited liability corporations), although S-Corps and C-Corps are viable options that provide additional legal protections.
You must decide whether you want to file as a pass-through entity, such as an LLC, where money flows directly to you, or as a C-corporation, where you will be paid as an employee.
Double taxation is a risk for C-corporations, but you shouldn’t have to worry about it if you have a qualified accountant who understands the regulations. There is no risk of double taxation because S-corporations pass their taxes on to their shareholders. Instead of business revenue, the earnings are taxed as personal income.
Financing your Property Management Business
The next stage is determining a pricing system that provides a stable income while being competitive enough to attract customers. After researching how to start a property management company, the next big question is how do you finance it? What are your expected revenues and expenses? How much should you set aside for contingencies that may occur during this period? These questions are important in planning the financial future of your business.
Write down your monthly, quarterly, and annual expenses. Remember to write everything down – no matter how small the purchase. Writing down every penny, you spend will help you set realistic income goals, and protect you from possible financial difficulties.
Your most important expenses include payroll and vendor fees, overhead, other service fees, and membership dues.
Forecasting Revenue and Creating Targets
Most of the revenue comes from management fees, which are usually a percentage of the rent. The other option for owners is to charge a flat fee and provide additional services.
Other revenue sources include:
- Late fees.
- Fees for replacing keys or locks.
- Referral fees for finding residents.
The list is long and includes maintenance bill surcharges and other smaller fees.
How to start a property management company?
Now that you’ve done the groundwork, it’s time to start gathering and piecing together people and tech.
Structuring your Property Management Team
It is possible to start your property management business in two ways. The first way would be As general manager, taking care of all tasks such as leasing, inspections, communication with residents, collecting fees and rents, and maintenance.
On the other hand, depending on the size of your company, you can also hire staff for more specific tasks. You can assign a person to handle rentals and other maintenance tasks, working with repair specialists or contractors.
When you are just starting, your staff will be minimal. However, with time your team will begin to grow. Full-time or part-time employees you may hire might include:
- Additional property managers
- Admins or receptionists
- Maintenance staff
- Sales representatives
- Payroll and accounts payable
- Leasing agents
- Showing coordinators
- Move-out coordinators
- Field managers
- Maintenance managers
- Office managers
- Service coordinators
- Marketing specialists
To safeguard your firm if something goes wrong, request a copy of their license, insurance certificate, and bond certificate (if they have one) before you hire someone. Also, try to negotiate a lower cost for your tenants—they’ll appreciate your efforts to save them money.
Hiring the Right People
Once you have decided what positions are needed, it is time to find the people who can make it happen. There are several steps to this process:
- Write clear job descriptions and use ads.
- Place those ads so people can apply to you.
- Bring the shortlisted candidates into your office and assess whether they are the right fit for you and your company.
You do not just want to hire the right people; you want them to stay and commit to your company. They are one of the most powerful tools you have to attract new talent and represent your company on a community level. Once they feel comfortable in their work environment, it’s only logical to spread their goodwill through the public.
Building Relationships with Property Owners
Setting expectations before a customer becomes an owner starts with talking about what they want. It’s important to spell out exactly what your services include and provide, which increases the chances of winning the bid.
Keep communication channels open at all times, send owners monthly reports on the draw, and allow them the opportunity to ask questions. At the same time, provide your proactive feedback on what needs to be improved and identify opportunities for additional revenue streams.
You should provide the best customer service to owners and the best living environment to residents.
Property Management Technology and Software Required
You’ll need automation to save time if you’re starting as a one or two-person property management company. There are options for automating your daily activities, like switching to property management software or using alternative apps.
Because you may not have the financial means to invest in expensive property management software initially, you will benefit from using free online resources to get started.
Listed below are a few:
- DocuSign: For signing and tracking rental applications.
- MailChimp: For marketing-related email automation.
- Calendly: For scheduling showings
- Quickbooks or SmartSheet: For managing profit and loss, bookkeeping, and reconciliations
- Google Docs: For drafting required standard notices and papers.
- SurveyMonkey: For gathering feedback from residents.
You’ll also need to register for a rental listing site to advertise your properties, in addition to these tools. Renter leads will begin inquiring about the properties you advertised once you find this out for your property management company.
Scheduling showings and pre-screening tenants while self-managing everything can become a major headache. Switching to smarter tools might help you effortlessly automate your lease process.
Marketing and Advertising your Company
The undisputed part of your business is branding and marketing.
A brand is essentially who you are when people see your business. It should be a direct representation of the culture and values your company holds.
The more niche the industry or service you offer your customers, the more likely that will have an impact on how consumers respond to your branding. It’s a trait that comes across clearly in your marketing materials because these details directly contribute to who you are as a company. Always remember word of mouth is the best method of advertising your brand.
Setting a Pricing Structure
If you want to become a property manager, you need to have a proper pricing structure.
- Do your research- Find out what other property managers charge for similar services at comparable properties and consider the type of properties you will manage.
- Staying competitive- Being the competition can come down to pricing and what is included in your ongoing management fee. In most cases, this means taking care of residents, accepting rents, keeping track of maintenance and performing inspections. However, you need to be careful if you choose a one-size-fits-all solution, as this could make it impossible to make a profit.
- Individual property manager fees- If you already have a large portfolio, it is important that you know how much you will pay each property manager. If hired as an independent contractor, will you pay them based on the number of units or gross rents? These questions can only be answered if you know the market and your staff.
The three common ways property managers set their ongoing management fees are Percentage-Based Fees, Flat Fees, Per-Project Fees, À la carte fees to consider are setup fees, leasing fees, late payment fees, vacant unit fees, and eviction fees.
Creating Solid Management Contracts
A solid contract that specifies the duties and responsibilities of a property manager is the guarantor of stable business relationships. Solid contracts create more stability in your daily life.
An ideal contract should include:
- Management fees
- Off-duty coverage
- Work hours and vacation time
- Workman’s comp, liability insurance, and indemnification from loss and damages
- Whether you or your property managers will live on-site
- Maintenance and repair budgets
- Emergency funds
- A detailed description of the services promised
- A timetable for invoicing and any penalties for non-payment
It is recommended that a lawyer looks over your contracts to make sure everything is locked down and put together a template for contract negotiations.
Creating Better Residential Experience
- You and your team will interact with residents every day. Creating an exceptional experience for tenants will keep properties running smoothly, help attract new residents through word of mouth, and strengthen your reputation with owners.
- Residents have different preferences, so the type of experience and service you provide will depend on the type of residents your property attracts. Residents are looking for more than just 4 walls and a roof – they want amenities that fit their lifestyle.
- Every complaint, request, and dispute should be taken seriously when brought forward. If it’s something you can fix or resolve as quickly as possible, give your residents a timeline for resolution. If it is something you cannot fix, explain why.
- A property manager needs contingency plans for all types of emergencies. Your plan should be clear, detailed, and tailored to the common types of disasters in your area.
Managing your Properties
It’s time to start thinking about the requirements you’ll need to meet to manage the properties you’ve decided to target (single-family, multi-family, condominiums, etc.) or the market has chosen for you.
You must choose the type of property you intend to buy. Single-family homes, multi-family homes, and condominiums are all real estate options. Once you have decided which one best suits your needs, it is time to think about what requirements you need to meet to manage it properly.
Maintenance and Repair
Maintaining your property is time-consuming and expensive. Therefore, offering maintenance services would be a great way to keep potential customers happy. You can mark up the cost of repairs while relieving them of worry because after all, you are there for them.
This means that you should set up a process that can help tenants quickly and efficiently when they are in trouble. Technology is the best way to achieve this goal.
Compliance is an important part of your job and should not be overlooked. You must follow all rules and regulations like elevators, plumbing, and building permits. You’ll also need to pass regular inspections by the fire department, which means making sure smoke detectors, fire extinguishers, and emergency exit signage are properly in place.
The property management is massive and will grow with each passing year. And the younger population also wants to get into this field but has a big question: how to start a property management company?
The best way is to work with an experienced professional because practical knowledge is more important than theory. This post is designed to help you understand the business and answer the question “how to start a property management company?”. And we hope it was informative.