Real estate investing is, without a doubt, one of the possible ways to build wealth and grow financially in the long term. Apart from being highly profitable, you can diversify into any niche you prefer. Either you want to become a fix-and-flip investor, a long-term investor, a wholesaler, or you only want to handle the managerial aspect of real estate.
In this article, we’ll only be discussing the administrative aspect of real estate — property management. What is property management? How to get into property management? And what are the factors to consider before starting a property management company? If you’re only interested in the managerial aspect of real estate, read on to learn more about how to start a property management company in 2022.
What is a Property Manager?
Simply put, a property manager handles the administrative aspect of a property. These individuals ensure the smooth running of the property. A property manager can work independently or work for a property management company.
Property managers are also usually referred to as middlemen. They serve as the bridge between the property owner and the tenants. Any information (including payment, complaint, inquiry, etc.) the tenants want to send to the property owner passes through the property manager and vice versa.
What Does a Property Manager Do?
While there may be a low barrier to starting a property management company, it’s still essential to understand (and sometimes experience) the duties of a property manager. By this, you’d find it easier to develop an innovative business plan that addresses the issue in the property management industry. Since we’ve discussed who a property manager is in the previous section, in this section, let’s talk about some of the duties of a property manager.
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A Property Manager Administrates the Property.
Property managers ensure the real estate property (either a single-family property, condominium, commercial property, etc.) is properly managed by the tenants. They handle any administrative tasks about the property (including repairs (if any), tenants screening and onboarding, evictions, customer services, lease renewal, ensuring tenant retention, and so on).
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A Property Manager Handles Accounting and Finances
As a rental property, tenants need to pay monthly rental fees to continue to use the property. And the collection of these rental fees is also handled by the property manager. They encourage the tenant to pay on time and ensure the payment process is smooth and hassle-free. The property managers are also in charge of payment reminders, invoicing, sending payment receipts, and eviction of defaulting tenants. They’re accountable to the property owner or the property management company.
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Property Maintainance and Inspection
And finally, a property manager also handles the property inspection and maintenance. These individuals ensure the smooth running of the property. Property managers are creative and problem solvers, i.e., they manage any problem that needs immediate solutions.
What is a Property Management Company?
A property management company is a management firm that handles a real estate property’s administration for a fixed price or a percentage of the property’s rental fee. These real estate administrative firms handle the day-to-day activities for the smooth operation and running of the real estate property. They usually serve as middlemen between the property owner and the tenant.
Property management companies usually have several property managers working for the company. The company is an umbrella for the different property managers working under it for percentage or salary. However, sometimes, property management firms can also be property owners. But most times, the property owner is usually different from the management company. And these owners hand over the property administration to the management company for some percentage of the rental fee.
What are the Factors to Consider Before Starting a Property Management Company?
Conventionally, before starting any business (either in real estate or any sector), there are some factors you need to consider (like location, supply, and demand, finances, economic outlook, etc.) That’s also important for starting a property management company. So, if you’re planning to start your property management company, here’re some of the basics of property management.
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Organization and Communication
One of the requirements of a property manager is to be a good communicator and organized. That’s, likewise, required of a property management company. As a company that serves as an umbrella for several property managers, your property management company must be organized and invest heavily in communication. So, how do you plan to handle communication and the organization of clients’ property?
One thing to also note is that a property management company needs to be more proactive in what they do. Why? A property manager is just an individual that can handle between one and ten properties. But a property management company, which consists of several property managers, will surely need to manage several properties — more than 50 depending on the size of the organization and the number of property managers working there.
So the work required of a property manager will be different from that required of a property management company. A property management company needs to eliminate friction in communication with its employees and clients. They also need to be organized.
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What are the Registration and Licenses Required?
Generally, starting a company requires you to register with the government. The problem now is: which type of registration do you require to start your company? Do you need to register as a Limited Liability Corporation (LLC) or an incorporated Business (inc.)? What are the legal documents required to get started? For an appropriate answer, talk to a legal practitioner in this niche. With this, you can avoid self-induced problems.
Moreover, there is a low barrier to starting a property management company. No advance degree is required, the property management startup fee is low (between 2,000 and 10,000), and you can start with little experience in the niche. But one thing to know is that these startup requirements differ by state. Some state requires you to be licensed, while some doesn’t need you to be.
So before starting your company, research what the state law says about this. Ask questions from experienced personnel in the niche, talk to attornies and visit your state or local property management office for information verification.
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Building a Team
Like we said in a previous section, property management companies handle the daily activities of the property. They maintain, manage and repair damaged home utilities and ensure the smooth day-to-day running of the property.
So, when starting your property management company in 2022, how do you plan to structure your team? What’s the setup that works for your property management business model? What’re the requirements that would help you hire the most appropriate individual for the job? That can only be possible by building a team of experts.
So, when starting a property management company that aims to handle several properties, you need to have a team in place for different operations. There should be multiple working parts. You need a team of experts (including accountants, bookkeepers, technicians, contractors, legal counsel, property managers, administrative assistants, etc.) in place that can ensure a smooth operation.
If you need some tips to guide your team members selection processes, here are some things to look out for:
- Ensures they have necessary licenses and certifications
- Do a thorough background check on the prospective team member
- Ask for reference and check previous work done
- Ask questions about their experience level
With these and some other requirements, you’d have a great understanding of who your prospective team members are and how they’d fare in being part of your team.
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Finances and Accounting
As a real estate management company, you’d be responsible for the finances of the property you’re managing. So, how do you plan to handle the finances of your clients’ property? How do you plan to be accountable for all pennies spent?
While you can use a spreadsheet for this purpose, it’s not advisable to use that for your management company. Why? First, a management company would be handling several properties. Another reason not to use a spreadsheet for your finances is that it requires manual input. Manually managing the finances of several properties can be exhausting and frustrating. And exhaustion can lead to errors and problems.
As a property management company, you can also automate your accounting processes. Accounting Softwares (like Quickbooks, Freshbooks, Tilpati, and so on) will improve your accounting and financial accountability. Some sophisticated accounting software can help you segment expenses, fees, and can make it easier to retrieve and send financial information to clients.
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Networking and Marketing
The purpose of starting a property management company is profitability. That’s only possible if you have clients to work with. With marketing and networking, you can get your company in front of your prospective clients.
So if you’re starting your property management company, how do you plan to market your new company? How and who should you network with for results? If you want answers to these questions, below are some tips to get you going?
- Be strategic: One of the most effective ways to build relationships is to be strategic with the type of circle you keep. Make sure the people you rub elbows together are interested in what you do. For example, those you build relationships with as a property manager should be those interested in real estate. These people (like real estate investors, building contractors, wholesalers, and so on) will increase your odds of getting clients.
- Ask to be introduced: Being introduced by a friend or network to their networks will increase their trust in you. So instead of walking to a stranger and building your relationship with them from scratch, asking your friends to introduce you to their friends will help you bond fast and reduce the stress involved in developing friendship from scratch.
- Give First: Networking is a two-way street, i.e., both parties (you and your new friends) need to contribute to nurturing the relationship. So to build trust as fast as possible, you have to offer something. Refer your connection to opportunities, introduce them to beneficial things, connect them to people that may need them. This way, you build trust. And in turn, they’ll never forget you when the opportunity arises.
- Follow Up: Friendships and networking are like planting a tree — it cannot be built in a day. Just like planting, watering, and nurturing it for years until it matured into a giant tree, networking and friendship also require nurturing and watering. So, to bond well with your connection, you should nourish it by strategically following up with your new friends. Connect with them on social media and communicate with them. Send follow-up messages and send help their way whenever they need one. By this, you’ll be dear in their heart, and whenever someone needs your services, they’ll remember you.
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Software and Technology Integration
As a property manager, you should know that you need to keep correct and updated records of your clients. Setting up a property management company requires you to be detail-oriented and attentive to details. For example, as a property manager, you only need to manage a few properties by yourself. And so, if you are detail-oriented and extra careful, you can choose to go manual without integrating tech into your business.
But setting up a management company, you need to consider the different types of people on your team. Some are not good with numbers, and others need constant reminders to meet deadlines. And so, for your company to be successful, you need to consider what works for all team members. And the only way to make this possible is to automate your business processes for seamless operation.
What’s the accounting software you can use to automate record-keeping? What’s the communication technology to remove the bottleneck in talking to the contractors and the property managers? What’s the financing software to remove the hassle in rent payment for the tenants? What marketing software should maximize opportunities? These questions will answer any problem you may have with your team.
So, What’s Next?
Although there is a low barrier to starting a property management company, it’s essential to be very careful when starting a professional property management company. Just like any other business, starting a real estate management company is also risky and requires you to consider some factors (which we’ve already discussed in the article).
If you’re looking for how to run a successful property management company, here are the summary of the tips discussed above:
- Just check for the required license and registration
- Build your team
- Know how to handle your finances
- Market and network strategically
- And integrate technology into your business to remain relevant in the long term
With this, you have all it takes to start a successful company. However, if you encounter any problem, you should talk to an experienced individual in the niche.
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