Analysts anticipate by 2026, the market for property management will reach $26 billion, according to analysts. A market with this much growth attracts property managers trying to expand their businesses, take on more doors, or even real estate brokers eager to test the waters. If you too are planning to start a property management company then read this article to know the right way.
But there are many things to think about before you start managing properties. That’s why we’ve created a thorough list of everything you must accomplish before welcoming customers and residents inside your place of business.
Here’s a complete guide on
How to Start a Property Management Company In The Right Way
#1: SETTING UP YOUR PROPERTY MANAGEMENT COMPANY
First, you need a license, file your business name and develop a business plan to seize the opportunity.
How Should a Property Management Business Plan Be Written?
To start a property management company you should first have a plan. A business plan is a blueprint for your property management operation, including every aspect of your enterprise, from startup costs to break-even points.
According to the Small Business Administration (SBA), a business strategy includes the following:
- Executive Summary
- Company Description
- Market Analysis
- Organization and Management
- Service or Product Outline
- Marketing and Sales
- Funding Request
- Financial Projections
For individuals preparing their first business plan, the SBA also offers assistance with writing business plan examples.
Tip: A property management business plan will outline the types of clients you intend to target and the services you will provide.
What Licenses and Certifications Do You Need To Start A Property Management Company?
Only a few states do not require the licensing of property managers. Make sure you have a license to practice in your state before opening your business, especially considering how quickly housing regulations can change.
- Real Estate Broker’s License: A licensed real estate broker has passed an exam covering property management courses, including insurance, taxes, and contracts.
- Property Manager’s License: A property manager’s license requires coursework and an exam.
These certifications will help increase the value of your business.
National and international groups can also help you network, establish the legitimacy of your company, and develop your personnel by providing them with continuous education and property management certification. They consist of the following:
- Institute of Real Estate Management (IREM)
- National Apartment Association (NAA)
- National Association of Residential Property Managers (NARPM)
- National Association of Realtors (NAR)
You may deconstruct licenses, certificates, and licenses using the information in Property management certifications that give you an edge.
How Should a Property Management Company be Filed?
To start a property management company you must register your company with the IRS and select a legal entity. Filing is essential for protecting your assets and separating them from your business.
Though S-Corps and C-Corps are also excellent candidates with more robust legal safeguards, most property managers set up their management companies as limited liability corporations.
You must decide whether to register as a C-corporation and receive payment as an employee or a pass-through business like an LLC, where money flows through the company directly to you.
C-corporations run the possibility of having a double taxation issue, but if you have a competent accountant who is familiar with the rules, you shouldn’t be concerned about that. Double taxation with S-corporations is impossible because the taxes are passed on to the shareholders. In place of business income, they tax the earnings as personal income.
#2: ORGANIZING YOUR FINANCES
Do you have a revenue target in mind for your first fiscal year? If not, consider coming up with one; it should be in your business plan. How much do you anticipate making? How much will you be spending? How much money should you save for unanticipated events? Your targets and ways to achieve the targets should be always on your priority list before you start a property management company.
Keep this in mind as you start planning your company’s financial future.
Creating an Accounting Property Management System
Updating a spreadsheet is an easy way to track your owners’ properties. However, we don’t advise it. With comprehensive property management accounting tools, you can monitor spending, pay recurring payments, and keep track of rent and fees.
They can assist you in keeping track of both incoming and outgoing funds. For instance, tenants’ rent and other income sources might be considered income. Repairs and other payments to vendors for upkeep are expenses that you make.
Pro tip: Establishing the structure of your bank accounts will lay the groundwork for a disciplined accounting system. Remember, you should maintain your security deposits in a trust account that complies with the law, with a different account for the properties owned by your owners and yet another active account for your business.
The Costs Should You Anticipate
You can set realistic revenue objectives and prevent financial difficulty by keeping track of every dollar leaving your business.
Your expenses may include the following:
- Payroll and Vendor Fees: This includes the money you pay your contractors for their services and the wages you receive for yourself and your staff.
- Overhead: For brick-and-mortar businesses, this includes supplies, rent, and utilities.
- Other Service Fees: This category covers any software you use to run your business or to identify potential tenants and property owners.
- Membership Fees: Consider the cost of membership in any property management organizations you are a part of when calculating.
Setting Objectives and Predicting Revenue
Most of your income should come from management fees, which are often a portion of the rent collected. But some companies charge a set amount for basic services. Owners can choose to add extra services at a premium cost after that.
Late fines, key or lock replacement costs, finders’ fees for bringing in new tenants, markups on maintenance bills, and other minor charges will provide additional revenue.
#3: Launching Your property management company
After establishing the foundation, it’s time to start assembling the components that will power your efforts—the personnel and the tools they’ll employ.
What Organizational Structure Should Your Property Management Team Follow?
You can build up your property management company using one of two basic formats. The first is to begin by taking on all management duties as a general property manager. Inspecting, communicating with residents and owners, collecting fees, maintaining, and leasing would all fall under this category.
The alternative is to hire people to fill more specialized roles. You might designate two employees—one to manage leasing and the other with contractors or repair technicians—to manage maintenance.
The organizational structure would then be more precise, with different levels of staff reporting to you.
Creating Your Team
Your crew will be small when you first start. For the time being, it might just be you, and that’s okay. People will naturally join your team as you expand.
Full-time, part-time, and contract employees may make up your staff. The first stage is identifying the type of work required, followed by deciding whether hiring someone internally or outsourcing the work is more cost-effective.
You could think about hiring either full- or part-time workers from the following categories:
- More property managers
- Admins receptionists (if you have a physical location)
- Maintenance staff
- Sales personnel
- Payroll and accounts payable
- Leasing agents
- Showing coordinators
- Move-out coordinators
- Field managers
- Maintenance managers
- Office managers (for a brick-and-mortar location)
- Service coordinators
- Marketing specialists
A team member or company may still be desperately needed even if they are not currently employed. The following are some of the contractors that property managers use.
- Accountant (a good accountant will always be your most trusted advisor)
- Real estate lawyers (also a partner to make sure you are in compliance with the law and protected from potential liability)
- Contractors such as painters, plumbers, roofers, groundskeepers, pool cleaners, locksmiths, chimney sweeps, or HVAC specialists
- Customer service representatives
- Communication and IT employees
To protect your business in case something goes wrong, request copies of any vendor’s license, insurance certificate, and bond certificate when hiring them. Additionally, please make an effort to negotiate a lower fee for your property owners; they will be grateful for your actions on their behalf.
Pro tip: You can use software to centralize all of your processes. For instance, many online platforms offer software that enables you to manage accounting, 1099 filing, communication, and maintenance chores without hiring additional people.
Finding and Recruiting the Best Individuals for Property Management Staffing
Find the staff who can make it happen after you’ve decided on the full- and part-time positions you need. This procedure consists of two steps. It would be best if you first invited solid prospects for an interview. To do that, create clear job descriptions and use advertisements that reflect the ethos of your business (and benefits). Post your advertisement where your target audience will see it.
Organizations like the NARPM maintain job boards for property managers, and most popular job sites like Indeed and ZipRecruiter also feature relevant positions.
You’ll want to retain the right employees once you’ve found them. Additionally, you want them to promote your business and culture. One of the most effective strategies for drawing in fresh talent and enhancing your brand’s perception among consumers and property owners is to have contented personnel. After all, they are the ones who publicize you first.
Develop a strong company culture to keep your staff satisfied and grow your business. Ensure that your perks are competitive, pay attention to your customer’s demands, and encourage learning and career advancement.
Developing Bonds with Owners of Properties
Appreciating your relationships with your employees and local property owners can help you grow your business.
To do this, you must establish expectations before a property owner accepts you as a customer. Before you sign a contract, speak to potential customers to learn what they want from a property management company and to demonstrate what you can offer.
Send monthly owner-draw reports, maintain constant communication, and let them have the opportunity to ask questions and offer input. While doing so, you ought to have no trouble giving owners constructive criticism and spotting chances for new sources of income.
You want to provide your owners with the best possible customer service and living environment for your inhabitants.
What Software and Technology do you need for Property Management?
There is software available for every type of business.
From invoicing to P&Ls, QuickBooks can handle all aspects of finance for your business operating account. You may manage taxes and audits with it as well.
Google offers web-based solutions that compete with Microsoft’s Office package to create word-processing documents, spreadsheets, and even slide shows. Furthermore, Google Drive lets you store and share your documents.
You can arrange your emails with MailChimp and get opinions from locals with SurveyMonkey.
You will, without a doubt, require software tools to assist you in running your organization. A summary of your company’s operations and research into the software solutions that can help you save time, money, and resources are necessary for choosing the best ones.
Platforms for property management SaaS (software as a service) are available, particularly for property managers, which can come into use to meet your company’s unique demands without requiring you to piece together various software solutions.
For instance, you may consolidate your property accounting and receive rent payments online using some online software. You may manage your tenants’ insurance, property inspections, and maintenance requests through it as well.
Utilizing mobile-enabled technologies for property management helps keep your company flexible and accessible for those who are frequently on the go.
#4: MARKETING YOUR PROPERTY MANAGEMENT COMPANY
Your branding and marketing are a big part of getting your business to take off.
Your branding defines your company’s identity and mission. It ought to be an accurate reflection of your ideals and culture. Are you a specialized property management firm that offers a boutique service? Do you concentrate on upscale Class A properties or HOAs? Each of these elements helps to build your name.
It’s time to start promoting once you’ve established your brand. Your social media paid advertising, website, and local networking should all be used to promote your business operations, whether you do it yourself or employ a company.
How to Build Your Portfolio from Scratch
You might have one or no property in your portfolio. To develop your portfolio, you need to “feed the top of the marketing funnel” with lots of leads.
This is the time to cast a wide net, entice potential investors and property owners, and then start chatting with them about your services to pique their curiosity and move them into working with you.
But such leads aren’t made up on the spot. Please start with a multifaceted marketing plan to attract new customers. The following tools will help you accomplish that: services to gain their interest and bring them closer to signing with you.
• Social media: Join your target demographic’s appropriate social media platforms and begin posting. Engage your audience by inviting them to leave comments, and don’t forget to address any requests, grievances, or praises. You can also remark on other people’s posts and contribute stuff. Social keeps you in people’s minds even if they lack the resources to produce new content.
• Review Sites: To improve your reputation and attract more customers, encourage your owners or residents to leave a review on your social media handles if they are satisfied with your services.
• Local Business Events: Network and share your knowledge to promote new business in your neighborhood and spread word of mouth, particularly among local investor groups.
• Paid Search: Target particular search terms that prospective customers use and place a bid to have your name show up first in the search results.
• Marketplace and matchmaking services: Hire one of these companies, like All Property Management, to handle your marketing efforts.
• Professional Referrals: The first step in developing enduring, fruitful connections is encouraging referrals from other real estate contacts, such as brokers or investors. Pro tip: If property sales arise with your owners, you may pay brokers a cash referral fee and grant them the first right of refusal.
Would you like to learn more about how to fill your marketing funnel?
#5: Getting your first property started
You have a new customer. Congratulations! It’s time to discuss fees and sign the contract at this point. Here are some pointers to assist you in choosing your price schedule and handling contracts.
How Should a Pricing Structure Be Set?
You must conduct a thorough study before deciding on fees. Look at the rates that other property managers are charging for equivalent services. Look at your revenue targets to evaluate if you can offer more affordable prices. It would be best to consider the properties you are taking on.
The pricing structure and inclusions in your ongoing management fee, which includes your primary service, may impact how competitive you can remain.
Although this charge typically includes managing tenants, collecting rent, keeping up with upkeep, and doing inspections, you want to be careful not to adopt a one-size-fits-all strategy that makes it nearly impossible to generate a profit.
If you currently have a significant portfolio, you must choose the compensation you will give each property manager. Will you pay them according to the number of units, gross rents, or the percentage of rent collected if you hire them as independent contractors? Again, these are challenging problems that you can resolve by understanding your market and its labor force.
The following are three typical methods used by property managers to determine their ongoing management fees:
• Percentage-Based Costs: While some recommend a range of 8 to 12 percent of the rent for property management fees, others advocate for various amounts. Make sure you complete your study because this will depend on your local market and services formula.
• Flat Fees: Some property managers offer services at no additional cost while charging a flat rate for others. It enables property owners to select and personalize the services they want.
• Per-Project Fees: This is the most fantastic and cost-effective choice if your property owner needs services on an as-needed basis. They will like not having to pay for services they don’t frequently utilize.
Setup fees, lease fees, late payment fees, unoccupied unit fees, and eviction fees are a la carte charges to take into account:
• Setup costs: These are one-time charges for setting up your system. When you have property management software, it’s even simpler to justify. A helpful hint is that many of our clients use property management technology in their sales presentations to highlight the value-added benefits of elements like owner reports and resident-facing portals.
• Leasing Fees: This one-time cost assists you in covering the costs of finding a new resident and arranging for their move when you have an empty property (e.g., showings, screening, leasing, move-in, and rental listing syndication).
• Lease Renewal Fees: This cost covers lease renewals, which, if a strict renewal procedure is in place, might be a brilliant idea.
• Eviction fees: While it is evident that thorough tenant screening can help you avoid evictions, they do occasionally take place. This fee will partially cover the time you invest as the property owner’s advocate in the court proceedings.
Once more, understanding your market and being clear on how you allocate your resources will help you choose the appropriate pricing, which will change over time.
Developing reliable Property Management Contracts and Agreements
Do you recall the proverb “strong fences make good neighbors”? Well, reliable property management agreements create loyal commercial ties. There should be a clear outline of the functions and responsibilities of property management in a contract.
A well-thought-out contract will include the following:
- 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
To ensure everything is secure in your contracts, always have a lawyer review them. They may also help you create a template for contract talks.
#6: HOW TO improve YOUR RESIDENT EXPERIENCE
Residents will be in contact with you and your team every day. Making sure your tenants have a positive resident experience keeps your properties running efficiently, encourages the referral of additional tenants, and enhances your standing with landlords.
Target the right residents for your properties, promote a sense of community, and maintain open lines of contact to achieve that.
Offering Your Residents the Proper Experience and Amenities
The residents’ preferences your properties draw will determine the kind of service and resident experience you offer. Residents want more than just a roof and four walls. They seek a practical setting that fits their way of life and feels like home. Apartments in the city draw young professionals and retirees wishing to downsize. Families may be drawn to homes and apartments.
Every part of your property management company, from amenities to routine communications, should consider the residents, from emergency preparation to facilities.
Older people, for instance, might feel more at ease getting emails or letters in the mail. Facebook is most likely their preferred social media network. A young family might like text notifications in the meanwhile.
Pro tip: Use a resident center (or portal) online so that your residents may obtain the required data, make rent payments, and get in touch with you quickly and easily via a mobile app.
Have you considered the amenities you want to provide residents if you manage multifamily buildings with common areas? Benefits like offices, outdoor fitness areas, event calendars, and Amazon package mailboxes make homes stand out. The amenities won’t be under your control, but you can control how you advertise them and build an excellent resident culture.
Ways to Handle Concerns, Disputes, and Requests
When a person has a concern, a request, or a disagreement, listen to them and assure them you are interested in learning more about their problems. Give your residents a deadline if you can remedy it right away. If not, do it as soon as you can.
Explain why if there is a problem you can’t solve.
The Best Way to Make Emergency Plans
Real estate managers require emergency plans for storms, earthquakes, fires, and damaged pipes. Your preparations should be precise, comprehensive, and catered to your area’s emergencies and natural disasters.
#7: MANAGING YOUR PROPERTIES
It’s time to start considering the requirements you’ll need to meet to manage the properties you choose to target (single-family, multifamily, condominiums, etc.) or the market you choose.
Taking care of Upkeep and Repair
For potential customers who don’t want to deal with the effort and expense of maintaining their properties or resolving unforeseen problems, offering maintenance and repair services may be a huge seller. Additionally, it benefits your company since you may reduce the cost of repairs while relieving your property owners’ stress.
Listed below are some considerations to make if you decide to provide those services:
- Specify exactly which services you will offer and how they will be paid for in your contract.
- Make sure your liability insurance covers all your workers and contractors who perform the work.
- Establish a reliable method for job orders. You can encourage residents to submit work requests online using a platform. Then utilize it to monitor the project’s progress.
Building Your Leasing Services
Filling vacancies is a significant value addition provided by many property management firms. Unoccupied units will cost you money in lost rent, so you’ll want to keep them as complete as possible.
Similarly, you should make sure your process is lean and mean so that you can swiftly, effectively, and with a solid first impression place high-quality tenants in their homes from lead to lease. Here, technology has a ton to offer. Here are all the ways technology may speed up your lease process.
1. Marketing Rental Listings: To market a rental listing, you must promote it and draw desirable tenants. Rental listing syndication is a feature available on many property management platforms that allows you to send a single listing to numerous websites, including Zillow and Trulia, with a single click.
2. Schedule showings: This might be a full-time job if you’ve attracted interested renters. Software for scheduling and showings can therefore save a ton of time.
3. Tenant Screening: Next, you should conduct background checks on potential tenants utilizing a partner like Transunion.
4. Lease: You want to streamline, simplify, and manage the leasing process. Software for property management also provides a simple method to reduce paperwork, gather signatures, and keep them electronically stored online.
5. Property inspections: You should do checks as tenants move in and out and during the lease term. Why not run your inspections through a mobile app? Doing this ensures you document any damage beyond regular wear and tear, fixed, and paid for by the right person while maintaining compliance with local and state building rules.
Ways to Stay Compliant
Regarding construction codes, compliance is a significant aspect of your profession that you cannot ignore. You will be responsible for keeping up with rules and regulations regarding elevators, sanitization, and building permits. Additionally, you will need to pass routine inspections by the fire department, which will check for the placement of smoke detectors, fire extinguishers, and exit signage on your premises.
WHAT’S YOUR NEXT MOVE?
You’ll need strong project management and customer service abilities to succeed in property management. You’ll need to stay abreast of regional laws, regulations, and business trends.
You must be able to sell your company and real estate, entice prospective customers and residents along the sales funnel, and secure leases and contracts. I know it seems like a lot.
You do not need to struggle alone. Take it step-by-step and surround yourself with individuals you can genuinely trust if you’re serious about learning how to launch a property management firm. The only way to scale up your business securely is to lay the proper foundation for it.