Looking to start a business offering property management services? Remember there’s an overlap between what a property manager and real estate agents do. They both work in the real estate industry. And have some of the same requirements.
A broker can work as a property manager. An outline of property management activities follows. And how you can start one of these businesses for a rental property or investment property.
What is a Property Management Company?
These are the people who look after the property owned by someone else. That includes all kinds of residential property and industrial and commercial spaces. They do things like collect rent, advertise properties and clean and maintain them.
Absentee landlords hire them for managing properties.
How Much Does it Cost to Start a Property Management Company?
You need to consider capital and operating expenses to start this type of business. Property management enterprises start out with costs averaging $19,267 dollars. They can work with a real estate agent to sell apartment buildings. And get involved helping out with other activities.
17 Important Steps to Starting a Property Management Company
Starting a property management company requires following several steps. Like the following.
1. Research Other Property Management Companies
Before you can start your own property management company, you need to know what you’re up against.
That means market research into the property management industry. Potential property managers need to know who their direct and indirect competition are.
- Who their customers are. These are your potential clients.
- What products they offer. Do they sell properties too?
- Their pricing. What’s a month’s rent worth?
Remember, direct competitors are other property managers. Indirect competition can include in house managers. And those who sell real estate.
2. Choose a Name and Brand Your Property Management Company
A well thought out name supplies a lasting impression. Here’s a few tips for property managers looking to brand a new business venture. Successful property management companies start out branding.
- Make sure the name is unique. There’s legal issues about duplication in most states. Try a Google search to see what’s taken.
- Choose the url carefully. It needs to be memorable. Don’t just focus on the SEO value. You’ll get traffic from one people remember. It shouldn’t be hard to spell or understand.
3. Write a Property Management Business Plan
Any good property manager knows a solid business plan will keep their enterprise focused. They help with a variety of things like setting goals and even choosing a business model.
Following are a few points that need to be covered.
- Business Model and Services. Add the general structure of your business here. Plus a few words on who you are and what you do.
- Goals. Property managers need to have long and short term objectives. Landlord resources written down can help you put these together .
- Structure. Most SMBs have specific positions. Outline them.
Those are some areas a property manager starting up should cover. Here’ s a generic business plan template site.
4. Form a Legal Entity and Register
You’ll need to make your business legal. That means picking an entity. And registering.
- Sole Property Management Business. Business losses and profits go on the personal tax returns of a sole proprietor.
- A Partnership. Got a few commercial properties to look after? Partners claim business income on personal taxes. They are liable for claims too.
- Limited Liability Corporation. Contrary to popular belief, an LLC isn’t an incorporated business. The property management company’s owners have limited financial and legal liability.
- Corporation. Business and personal taxes get filed separately.
5. Open a Business Bank Account
You could be working for a real estate investor with several investment properties. Or other residential property concerns. You’ll need a bank account specifically geared to what you do.
There’s more than just getting a business credit card to consider. For example, some states require the money from lease agreements is kept separate from security deposits.
6. Make Sure You Have the Licenses and Permits Required in Your State
Property owners require the people managing their real estate properties to be licensed. And have the right permits. Adding a real estate license to the mix doesn’t hurt.
Property Management License: This is a requirement for some boards. You’ll need to pass a property manager license exam. Real estate investors favour these.
Real Estate Brokers License: This is a common requirement. The exam usually contains both property management and other questions. Here’s some easy steps to get a real estate broker’s license.
Leasing Agent License: Some states require these that specifically focus on activities in a defined real estate market.
7. Create a Business Website and Choose a Location
If you’re starting out, you can save on commercial office space by going online. You’ll save money. Plus, most property management companies market digitally. Consider costs like search engine optimization for the website and hosting.
A business email hosting service is good. The setup fee should be low.
8. Consider Ongoing Costs and Fees
Your business will need to balance costs and fees to stay afloat. Here’s some of what you’ll need to look at.
- Ongoing Management Fee. The money you get paid. Charge a flat rate or a commission on the rental value.
- Lease Renewal Fees. Be sure to clarify these. Usually they can be a flat rate or a percentage of rent.
- Legal Fees. You don’t need to pay these. They’re optional, but a real estate lawyer can help. Max cost is $1,500 USD.
- Utilities. This is a cost if you’re going brick and mortar. Water, heat and hydro. Property taxes too.
- Advertising. Business cards, signage and digital marketing are just a few possibilities. The national average for a business sign is $438 dollars.
Don’t forget to add in your tools and a leasing fee if there’s no existing tenant.
9. Get Your Taxes in Order
Taxes can very by state. But you need to find out what they are and get the proper tax forms for your local market.
Many business owners qualify as independent contractors. That means double the Social Security and Medicare contributions.
If you’re self employed manager of your own company, there are separate rules.
10. Purchase Business Insurance
Business insurance is another must.
- Errors and Omissions Insurance. Also called professional liability insurance. Protects against property manager mistakes.
- General Liability Insurance. Covers day to day services.
- Tenant Discrimination Insurance. Not necessarily covered under the general liability policy.
11. Plan Your Accounting System
Keeping the books straight is important. Look for software that can capture records for individual properties.
12. Set Up Your Business Phone System
Frequent communication is key. Search for features like a mobile app, voicemail to email and the ability to remove and add users.
13. Hire Staff
Here are the employees you’ll need. You might need to look into an National Interest Exemption (NIE) where applicable.
- A Property Manager. They look after collecting rents, managing budgets and more.
- An Accountant. Corrals all the financial records.
- A Maintenance Officer. Aptly named since they look after maintenance requests.
Depending on the size of your budget, you can add in a marketing officer.
14. Finalize Your Services and Pricing Structure
Attach the costs and fees to your services with the above info. Then you can calculate revenue forecasts. And tweak the numbers where necessary.
15. Consider Property Management Software
Keeping track of your finances is important when you’re working with rental properties. Rent and tenant tracking are two must haves.
16. Market Your Business
Increase your real estate sale activities with marketing. A website needs to be optimized. And mobile friendly.
17. Expand Your Portfolio
A property owner needs a successful property manager to maximize their ROI. Starting a property management business is easier with the steps listed here. Watch monthly rental income spike and property owners will line up to get you on board.