Starting a property management business is like starting any other type of business. It requires careful planning, a clear understanding of the industry and strategic thinking to navigate the complexities of the business landscape. Here are some steps to follow when starting your company.
Determine What Type of Property Management Company To Start
Property management companies don’t just manage single-family rentals—that’s only one facet of the property management world. Here are five of the most prevalent types of property management companies:
- Single-family residential property management: These companies specialize in managing single-family homes, condominiums and townhouses. They tend to work with individual renters and manage property maintenance, rent collection, tenant relations and more.
- Multifamily residential property management: These companies are similar to single-family residential management, but instead of managing single-family homes, they manage multifamily buildings like apartments or condominiums. The tasks are generally the same as those of single-family management but on a larger scale due to the increased number of renters.
- Commercial property management: These companies specialize in commercial properties, such as office buildings, retail spaces, shopping malls and industrial properties. Similar to residential management, these companies are responsible for tenant relations, property maintenance and rent collection, but they must also understand specific business needs, public space compliances, such as Americans with Disabilities Act (ADA) laws, and how to maintain professional spaces.
- Vacation rental property management: These companies manage vacation rental properties. Instead of long-term tenants, they work with finding individuals or families temporarily in town for vacations. These properties might include cottages, condominiums or villas that require unique management needs around cleaning, booking and customer service.
- Student housing property management: These companies manage on- and off-campus housing properties for universities and colleges. This sector requires dealing with academic cycles and student issues and often works closely with universities.
Create a Property Management Business Plan
Creating a comprehensive property management business plan will give you a map to build a solid business. Do not worry about getting everything right. You can always fine-tune and adjust the plan as necessary. Here is an outline of the bullet points your plan should include:
- Executive summary: Create a business mission statement, vision and overall objectives.
- Company description: Give a brief overview of your company, including its formation, legal structure, services offered and unique value proposition.
- Target market: What type of properties do you want to manage? Who will be your clients? Focus on specific niches like residential, commercial, vacation rentals or student housing.
- Services offered: List the services your business will offer. Common services are maintenance, rent collection, tenant screening, lease administration, marketing and financial reporting.
- Market analysis: What does your local market look like? Who is your competition? Make sure to include property demands, average fees and growth opportunities in your analysis.
- Marketing strategy: How are you going to find new clients, build relationships with property owners and promote your services? Examples include an online presence, networking events and promotional materials.
- Operations plan: Outline daily operations. Include personnel structure, responsibilities, support staff, technology and administrative tasks. Define your team and management hierarchy.
- Financial projections: Estimate initial investments, expenses, revenue and growth potential. Create a budget, profit and loss projections, cash flow statement and balance sheet to gauge your business’s financial health.
Obtain Licenses and Certification
While each state’s requirements are different, most states require specific licenses, permits or certifications to operate a property management company. One key license is the real estate broker’s license. For this license, you will need to complete a predesignated number of course hours and pass an exam that is likely to cover property management, insurance, taxes and contracts. Some states also require a real estate property management license. For this, you will need to complete coursework and pass an exam about how to act as the liaison between the tenant and property owner.
Determine Service Offerings
Before starting your company it is important to list all the services you will offer, starting with what type of properties your company will manage. After that, create a comprehensive list of services that will be available to both tenants and property owners. Services for property owners generally include tasks like marketing, finding tenets, showing properties and collecting rent. Services for tenants generally include things like responding to work orders, maintaining the working order of the property and providing any additional customer services.
Register Your Company
Registering a property management company is similar to registering any new company. The exact requirements will vary by state, but generally, your first step is to decide on a name for your business. After ensuring the name is not already in use, the next step is selecting a business structure. Do you want to be a partnership, limited liability company (LLC) or corporation? Each entity has its own advantages and disadvantages so it depends on which is most beneficial to your situation. Consider hiring a business attorney or accountant to help you make this decision.
After that, it is time to apply for an employer identification number (EIN) from the IRS. Certain business licenses and permits might be required depending on which state your business is located in. Lastly, if your state requires property managers to have a real estate broker’s license or a property manager’s license, make sure you have those before registering your company.
Choose Property Management Software
In today’s business world, leveraging the right software tools is a necessity. Financial management software like QuickBooks helps to streamline everything from invoicing to profit and loss (P&L) statements. It is also invaluable for managing taxes and audits. Document creation like Google’s Workspace not only helps you create documents, spreadsheets and presentations, but it also has a sharing capability that makes it easy to collaborate with team members. Email management software is crucial for organizing communication with tenants and property owners, while survey software can help collect feedback from residents.
Property management software-as-a-service (SaaS) platforms cater to the unique needs of the property management business. For example, these platforms offer online rent payment processing, centralized property accounting, maintenance request tracking, property inspections and renters insurance management. SaaS software can streamline operations and enhance the efficiency of your business.
Set Up Pricing Structure
There are three standard ways property management companies structure their pricing:
- Flat fees: Flat fees are a fixed amount charged by the company for their services. These may be one-time or recurring fees. They are collected regardless of property size or rental income.
- Per-project fee: Per-project fees are similar to à la carte fees. The property owner pays them in exchange for the completion of specific services rather than paying for services they do not use.
- Percentage-based fees: A percentage-based fee is a percentage of the monthly rental income in exchange for property management services. The fee can fall between 8% and 12% of the rent.
You can also set up à la carte fees for specific one-time events, such as setup fees, late payment fees, eviction fees and vacant unit fees. When determining your fees, be sure to do a market analysis of what the other property management companies in your area are charging for similar services.
Figure Out Expected Expenses
It is important to calculate your expected expenses for financial planning. Expenses can be divided into two broad categories: fixed costs and variable costs. Fixed costs include office rent, insurance, licensing fees, accounting software, office supplies and paid advertisements. If you have staff, consider salaries and benefits as well. Variable costs may include tenant screening costs, maintenance and repair costs, advertising for vacant properties and legal fees related to lease agreements or potential eviction processes. You should also consider capital expenses, such as computers, company vehicles, property management software and any other specialized equipment you might need. In addition, don’t forget expenses such as professional development or certifications to remain competitive.
Hire Staff
Property management is a big job with a lot of moving parts. More than likely, you will need to hire staff to help you run your company. While a single person can manage several properties independently, having a team brings in diverse expertise that can prove beneficial in tackling various challenges that often arise in property management.
These team members can be full-time, part-time staff or independent contractors. Potential hires could include additional property managers, leasing agents, maintenance managers, marketing specialists, office managers, receptionists and sales representatives. As a property manager, having a reliable team of contractors, such as plumbers, painters, electricians, groundskeepers and pool cleaners, ready to service the managed properties is critical.