How To Start A Property Management Company: Everything You Need to Know
Property management is an excellent business niche for more than one reason. The requirements for starting and succeeding in this industry are not high, and one doesn’t need a sizable up-front investment or years of experience in the field. However, as is the case with any business endeavor, there are several things one should consider and do to ensure success.
So, if you are wondering how to start a property management company properly, let’s get right on it. Below, we’ll cover everything you need to know about starting such a business - from what property management is to how to draft a business plan - so that you can confidently make this your career path.
What is Property Management?
Property management involves managing and overseeing one or more properties. It could be any kind of housing: residential, student, commercial, or community association. Most of the time, the duties coincide with those of the landlord or the property owner. However, not everyone has the time, experience, or will to handle the tasks themselves.
Some of the responsibilities property management companies can take off landlords’ plates are marketing rental units, hosting an open house, or simply showing the property to prospective tenants and collecting their applications. Screening new tenants and getting the paperwork set up for the selected ones is another service these companies can provide. Once a tenant moves in, the property manager is the one responsible for collecting rent, handling maintenance, and inspections.
If you are up for it, let’s talk about how to start a property management company in more detail. Here is a step-by-step guide you should follow to ensure your business gets off the ground.
Step 1: Legal Structure
The first step is establishing the legal structure of your business. Typically, these firms are founded as limited liability companies (LLC). Occasionally, they can also be registered as incorporated businesses (Inc.).
You can accomplish this task online yourself or hire a respectable LLC service company to handle it for you. If you can fit it into your budget, going with a service provider is the better choice because it will save you a lot of time.
Step 2: Business Plan
This is probably the most daunting task you’ll encounter on your way to a successful property management business. However, drafting a business plan early on will help reach your company’s goals as it will keep you focused and make you take a systematic approach to what needs to be done to get everything up and running.
You’ll want to ask yourself some critical questions as you embark on this journey. For instance, what kind of services will you provide to your clients? Should you focus on a specific type of property? How should you handle maintenance? Once you get these answered, you’ll have a clearer picture of what you need to do to have a successful property management company.
If you are worried about what should be included in a formal business plan, Small Business Administration (SBA) lists the following sections as must-haves:
- Executive summary
- Company description
- Market analysis
- Organization and management
- Service or product outline
- Marketing and sales
- Funding request
- Financial projections
You should consider reading up on all the SBA’s business plan guidelines if you are writing such a document for the first time. Alternatively, you can hire someone to write it for you.
Step 3: Employees
When starting a property management company, you’ll likely be your only employee until you begin getting paid for your services. Once the business starts bringing in money, you’ll be able to hire someone to help you out with the workload. As you might not be able to afford a big team, at least not at first, you should think about what fields of expertise your company would benefit the most from. Also, it could be cost-effective to have external service providers handle certain operations for you.
Hiring an accountant or subscribing to a good accounting and bookkeeping online service is something every “How to start a property management company” guide should advise you to do. A good accountant is a must for every business, regardless of how small it may be. You’ll also need legal services as you’ll want to make sure your company’s operations comply with the law. That’s why having a real estate lawyer in your ranks or signing up for online legal services should be another priority.
Once you have the essential services pinned down, you should go back to your business plan and determine whether you need more employees and whether you need them to work full-time, part-time, or per contract. Don’t worry; by the time you have a big enough budget to start hiring people for your property management firm, you’ll know which aspects of the job require a full-time commitment and which need attention only once in a while.
Once your business starts expanding, you can hire additional property managers, payroll and accounts payable clerks, showing, move-out, and service coordinators, and leasing agents. If you plan to advertise your services online, you should consider finding reliable marketing experts and IT professionals.
Step 4: Technology
Speaking of IT, you should keep in mind that there are plenty of programs - some of them even free - that could handle certain tasks for you. Therefore, it would be wise to dedicate some time to exploring property management software solutions, as these could take a lot off your plate and help you provide better property management services. The best ones will allow you to manage your business with just a couple of clicks.
Many other solutions will prove invaluable when you can’t yet afford an entire team. If you don’t have a lot of paperwork to handle, you can take advantage of free accounting software, for example. Once you start hiring people, you should consider payroll software, too.
Finally, it would be best if you also went for one of the marketing tools available online. Putting up your business’ website yourself with the help of a good website builder can save you a lot of money, which can then be used for paying for the services you can’t handle on your own.
Step 5: Pricing Structure
Determining the prices of services your property management company will provide can take some time, as you need to work many details into the calculation. You need to earn enough money to keep your business not just afloat but growing further.
First, you should consider your competition’s pricing plans and use them as a point of reference. When you’re just starting, your prices need to be competitive. On the other hand, you need to earn enough to cover the expenses of running your business.
So, to determine the pricing structure when setting up a property management company, your first step should be to go undercover and give the competition in the neighborhood a call to get informed about their price ranges. Once you estimate the standard prices in your area, you will get a better idea of how much you should charge for your services.
Keep in mind that whatever you calculate in, you must not forget that you should never compromise the quality of your services. Your good reputation is your main selling point, as this business is all about trust and relationships. So, even if you have to charge a bit more to provide a better service, don’t hesitate to do it, as this is the key to professional property management.
To help you format the pricing structure, we’ve laid out some of the most common fees property management businesses charge their clients.
This is a typical fee most service providers include, and this niche is no different. You would apply the setup fee when you sign up a new client, and the amount usually goes up to $300.
Another one-time payment, a leasing fee is something you should charge for getting a vacant property leased. Most companies charge the equivalent of one month’s rent or at least half of it, and the amount should be clearly stated in the property management agreement. This fee covers numerous services provided, starting from listing a vacant property to you using one of the tenant screening services to find the right person to move in.
Lease Renewal Fee
You should consider adding this optional fee to your pricing structure, as it covers renewing the lease with an existing tenant. It is typically up to $200.
Another optional but strongly recommended fee you should consider adding to the list is the eviction fee since you can be called on as an official representative if an eviction process involving the property owner is set in motion.
Ongoing Management Fee
This fee is the one that will keep your business in property management growing. It’s essential to include it in your pricing plan as it will cover all the daily operations, from collecting rent and conducting inspections to handling repair or maintenance requests. A set percentage of the monthly rental income is used to calculate this fee, going anywhere between 3% and 10% - the actual rate typically depends on the local market.
Step 6: Marketing Strategy
Once you get the basics down, you need clients. Figuring out your marketing strategy is not going to be easy, but it is one of your business’ aspects not to be disregarded.
For example, as we’ve mentioned before, you’ll need to set up an online presence and start advertising. After all, if someone is looking for property management firms, they will most likely do it online.
Also, your website will be where your commercials and marketing efforts will lead to, and having a good one will add immensely to your credibility. If you’re on a tight budget, you should think about making it yourself. There are many great website builders available online. You might need to roll up your sleeves a bit, but considering how expensive some companies providing these services are, it is certainly worth the effort.
Still, if you want to ensure your website is done professionally and you have enough funds, hiring someone to create one that will be not only pretty but also useful is a good path, which many entrepreneurs in the property management industry take. Of course, your site’s primary purpose will be attracting new customers and allowing them to get in touch with you quickly.
You’ll also want to have someone create and implement an online marketing strategy, manage social media campaigns, and use all other available promotional tools to increase your online visibility and reach as many landlords and owners as possible.
Step 7: Networking
While online marketing is a must, don’t forget that networking is the easiest way to gain new clients and sign them up for your services. If you are running a commercial property management business, you should pay a visit to your local business organizations. Establishing good relationships in such places will undoubtedly lead to your services getting heard of and recommended to a number of prospective clients. Also, It would help if you got in touch with local real estate clubs and contractors.
With every new customer, your business will prosper. That is why it is fundamental never to stop networking, thus finding new clients and properties, but also ways to provide better service and keep your old clients satisfied.
The Costs of Starting a Property Management Company
Starting a business in this field is not an expensive endeavor, as it usually takes between $2,000 and $10,000.
While it might sound like a nuisance, it is crucial to keep track of every expense you make from day one. By doing so, you will be able to set financial goals and stay out of trouble.
The most common expenses you will incur as you build your company are administrative ones, including salaries and benefits (along with payroll taxes), office supplies, and various services such as advertising or legal counsel. The price of any software you might use to help you get started is not to be forgotten either.
Getting a Property Management License
In the US, whether you need such a license usually varies from state to state. Most of them won’t require you to get a license or any other advanced degree. However, getting a real estate or property management certification will undoubtedly prove useful on your way to success.
Many US programs offer courses for licensed agents to get property management certification. Although these are by no means mandatory, completing some of them is also bound to help you learn the ropes of the business.
The answer to this question is a pretty straightforward one and doesn’t differ much from those to be followed when starting any other type of business. You would legally establish the company, make a sound business plan, create a competitive yet profitable pricing structure, and hire the necessary employees (or sign up for online services that would help you with the workload). Then, you’d start acquiring properties and developing a marketing strategy to help get your foot in the door and attract clients.
Starting this type of company is affordable as it usually costs between $2,000 and $10,000. Still, it would be best to have some extra money set aside in advance for the expenses you will incur once the business starts growing. To cut down on costs a bit, you can leave some of the work to external service providers or even get yourself a virtual assistant. Also, you can handle some tasks on your own, at least until your company starts generating enough revenue for you to start hiring people.
The main reason these companies fail is due to their owners’ inexperience or reluctance to introduce certain innovations into their company’s daily operations. For example, some property managers refuse to embrace technology and use affordable online services to save some money. Most of them end up hiring more people than they need or can afford to pay. Other unsuccessful entrepreneurs in this industry often bite off more than they can chew, taking on too many tasks while having insufficient resources. Those who don’t know how to start a property management company properly are also usually those who haven’t learned how the market works, charging too low for their services but overpaying for the maintenance.
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