Real estate property management is a business that involves managing different kinds of properties and people such as landlords, tenants, and contractors. For those who feel comfortable with managing people and property, learning how to start a property management company can definitely be a rewarding career path. Having said that, this real estate career also comes with its own set of risks and challenges. However, while not everyone would consider taking this job, property management is surprisingly an easy and affordable field to enter! So, if you enjoy and understand what it takes to manage residential properties, here are the steps to starting a property management company.
Note: If you’re still looking to get started and gain experience in property management, we recommend reading this guide first: How to Become a Property Manager in 5 Steps.
Step 1: Determine the Legal Structure of Your Business
First and foremost, you have to go through the process of setting up a legal entity for your company. This means that, as with all businesses, you must determine what type of legal entity you want to do business as. This will determine the amount of regulatory paperwork to file, personal liability regarding investment properties in your business, and the taxes you’ll have to pay.
In general, most people planning for a long-term real estate business venture opt to either establish a Limited Liability Corporation (LLC) or file as an incorporated business (S-Corp or C-Corp). Of course, there are pros and cons to each type of corporation. With the help of your CPA and/or attorney, learn which structure is right for your property management company.
The next thing you need to determine is whether you need to obtain a license to run a property management business in your state. Each state in the US has specific licensing requirements that you must know before starting a property management company. In most states, you need to acquire a Real Estate Brokers License which allows conducting both property management and real estate sale activities. Some states require a Property Management License which limits you to property management activities only. Only six states do not require any kind of licensing for managing real estate properties.
Check out this guide for more information on licensing requirements for property management companies in your state. If your state requires you to have a license, work on obtaining it as soon as possible because whether or not you’re licensed is one of the most important questions potential clients ask before hiring a property manager.
Once you’ve completed all the legal aspects of starting a property management company, now you just need to choose a name/logo for your business and find a bank that finances small businesses. You’ll have to open a business bank account as it’s important to separate yourself financially from your business. The good news is that the start-up costs of property management companies are relatively low compared to many other new business ventures! – $2,000-$10,000 according to property management software Appfolio.
Step 2: Set Up Your Company’s Office and Website
Just like any service business, you need a place for running a property management company. So, once you’ve got the cash, find a quiet place to work where you can meet with clients and handle uninterrupted phone conversations. To cut down their expenses, many new owners of property management companies start out working from a home office and then rent out commercial office space when the business starts growing and staff is hired. Either way, you need to have equipment and stationary dedicated to organizing your work like a laptop, cell phone, scanner, fax machine, copier, and more.
Furthermore, what’s even more important is that you need to build a website for your real estate property management company. In today’s world of digital marketing and Google searches, it’s absolutely critical for all property managers to have an online presence. After all, the days of pulling out the Yellow Directory to find local businesses are long gone. If a real estate investor, for example, is searching for a property manager, he/she is going to search the web to find one. In addition, if your website is great and gets found, this gives you creditability and more people will want to hire you.
So, the next step to starting a property management company is to find a company which specializes in building websites for property managers. Make sure that both property owners and the tenants of their rental properties can utilize the site and that it allows for easy communication between all parties. Later on, you should work on marketing and advertising your company’s website to attract new clients and get them to contact you rather than you chasing after them. We explain how you can achieve this later on in step #6.
Step 3: Hire the Right Real Estate Professionals
A good property manager is able to manage multiple properties without the need to hire staff. According to Management One Solutions, one person can manage about 100 doors individually. So, depending on how you structure your company, you may run the business on your own or have just an employee or two. Having said that, we still recommend hiring certain professionals when starting out this type of career in the real estate industry. Clients prefer to hire managers who have a team that includes:
- An Accountant: You need an accountant who’s familiar with real estate, management companies, and your business set-up. He/she will be able to track the company’s income and expenses, keep records to ensure transparency and honesty, manage books correctly, offer business advice, and provide the proper tax forms to keep you out of trouble with the IRS.
- A Real Estate Lawyer: Lawsuits are always a possibility with property management and other careers in the real estate industry. A lawyer will look over paperwork to verify that the company is protected from various risks, help you understand the company’s fiduciary duties to clients, as well as protect your assets and mitigating liability.
- Contractors: Lastly, property managers need several contractors on call to perform maintenance and repairs. These should range from handymen up to fully licensed contractors to tackle serious issues. A few examples of contractors that you need include electricians, painters, HVAC services, landscapers, home inspectors, locksmiths, pest and termite control, plumbers, pool services, roof inspectors, etc.
Having these professionals on your team will help you get a successful head start from the beginning before moving on to the next step of how to start a property management company.
Step 4: Get Property Management Technology
If there’s one step to starting a property management company that you can’t afford to skip, it’s this one. We live in a technological age, so finding ways to leverage automation solutions and different tools in the real estate industry is incredibly important. Not only will this make your day to day procedures more efficient, but it’ll also give you a competitive advantage while streamlining as much as possible for maximum growth potential. Plus, certain types of management software work as marketing tools that will help you optimize your website and attract new clients.
So, what kind of technology and property management software do you need? First of all, you definitely need one that allows you to easily manage your financial records, market properties, find tenants for the rental properties, track rents, handle maintenance requests, lease management, etc. If you don’t want to hire employees, leveraging the right tools helps you manage all these responsibilities and run your business on your own.
If you manage short-term rentals, like vacation homes listed on Airbnb or similar sites, you need vacation rental software to advertise listings, manage calendars, keep track of check-ins and check-outs, oversee cleaning and maintenance, etc. Basically, you need something that integrates the day-to-day tasks of a property manager with the software needed to operate a company. There are several companies that offer such software, so research them to see which one best fits your company.
Take a look at this article to learn about the 7 Best Property Management Tools for 2019.
One of the most unique property management tools in the market is Mashboard. Besides allowing you to get in touch with your clients in an efficient and automated manner, it also allows you to grow your client base! Using our wide database and analytics, you can identify and contact property owners and quickly qualify them as leads.
Also, if you work with real estate investor clients, they’ll most likely be on the hunt for investment properties to buy. If that’s the case, you can use Mashboard to find off-market listings, identify the right property for your clients, and share property reports that include key info that investors care about like expenses, ROI, and comps without spending hours on research. This is one of the management services that real estate investors need and showing them that you can offer it will encourage them to hire you!
To learn more about our product and how we’ll help you get more properties under your management, click here.
Step 5: Determine Your Pricing Structure
The next step is to determine a pricing structure that offers a sustainable income but is still competitive enough to lure clients. You don’t want to come in too low on the market or be the most expensive either. If you’ve been managing real estate properties for some time, you’ll know what that standard price is for your area. If you’re just getting started, the best way to set the right price is to research the local market by calling property management companies in the area to find out the going rates. Here are some common fees to consider when setting your pricing structure:
- Setup Fee: This is a one-time fee that you charge landlords for the cost of setting up an account with your property management and it’s typically around $300 or less.
- Ongoing Management Fee: This is the bread and butter of your business. It can be as low as 3% of monthly rental income or as much as 10% – depending on your local market. It covers daily operations such as communicating with renters, collecting rent, conducting inspections, and responding to repair and maintenance requests.
- Leasing Fee: This is a one-time fee for leasing a property when it becomes vacant. It’s generally equivalent to one month’s rent or a percentage of the rent (50%-75%). It covers staging the rental property, listing it, showing it to potential tenants, providing applications, screening prospective tenants, preparing the lease, and moving the tenant in.
- Lease Renewal Fees: This is an optional fee that you can charge when renewing the lease for an existing tenant and is typically around $200 or less.
- Eviction Fee: This is also optional but it’s strongly advised you charge it as you’ll likely be called to act as the liaison (or even official representative) for the property owner in the eviction process.
Find out what your competition is charging for these services and consider what you have to offer when setting a pricing structure. Most importantly, make sure your charging rate doesn’t influence the quality of your services. Reputation is important in all businesses, and real estate property management is not an exception!
Step 6: Set Up a Marketing Strategy
When starting a business venture, you need to remember that customers don’t just appear. You need to search for them and attract them. So, the next step in how to start a property management company is to establish a marketing strategy to get clients. When you’re just starting out and have no clients, traditional marketing methods such as word of mouth and a referral payment program can be great for advertising your business. For example, you can contact a top real estate agent in your area, introduce yourself as a property manager, and ask them about properties for rent and those looking to buy property for investment. A real estate investment club is also a great place to find landlords and investors whom you can turn into clients for your management.
As mentioned earlier, having a website is also a great strategy for marketing and advertising your property management company. There are plenty of online marketing channels that you can leverage in this step. For example, social media platforms like Facebook, Twitter, YouTube, and Instagram can be the best way to increase awareness of your company. Besides, having an online presence is one of the traits clients look for in a management company.
You can also use Google ads and pay-per-click advertising to drive targeted potential clients to your website. Another marketing strategy for property managers is to use content and email marketing to build trust and credibility with those who’ve visited your website. Lastly, learn how to use SEO (search engine optimization) to increase your discoverability and chances of potential customers finding your content and website.
Related: 10 Tips to Succeed as a Residential Property Manager
Step 7: Keep Networking and Growing
Once you start marketing your property management company and building a client base, it’s important to remember that your work doesn’t end here. In the real estate industry, it’s essential to conduct heavy networking at the start of your career. This is the only way you’ll get to grow your business to include new clients and additional investment properties.
So, make sure to build a real estate network and create connections with all sort of professionals in the industry like agents, lenders, and contractors. Moreover, don’t forget about your current clients – they may know other property owners in need of property management services! While this can be time-consuming and requires continuous effort at the beginning, it’ll quickly become second nature for you if you’re right for the job.
The Bottom Line
Figuring out how to start a property management company is only the beginning. Becoming a successful property manager requires dedication to learn the ins and outs of the ever-changing real estate industry as well as commitment to handle the everyday tasks that come with this job. Being a property manager can be a challenge – especially if you are on your own – which is why it’s not for everybody. However, if you have the experience in managing real estate properties and confidence that establishing your own company is worth the risks, simply go for it! Great rewards come with great risks and starting a property management company can be an extremely lucrative career in real estate.
Ready to start your own company? Sign up with Mashvisor to find property owners and qualified leads for your property management company and get access to the best tools that attract them to hire you!