Are you considering starting a property management service?
It’s important to note that the roles of a property manager and real estate agents have several points of convergence. Both roles exist under the umbrella of the real estate industry and share certain prerequisites.
A broker possesses the qualifications to operate as a property manager. What follows is an outline of property management activities and guidance on launching a business that caters to rental properties or investment properties.
What is a Property Management Company?
So, what does a property management company do? Simply put, these individuals or teams shoulder the responsibility of managing a property that is owned by another party.
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Their jurisdiction includes various types of residential property, along with industrial and commercial spaces. Their tasks range from rent collection, property advertisement, to the regular cleaning and maintenance of the premises.
These companies are often the preferred choice for absentee landlords who seek expert management for their 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.
These businesses often collaborate with real estate agents to facilitate the sale of apartment buildings and contribute to other related activities.
17 Important Steps to Starting a Property Management Company
The process of starting a property management company is not a spontaneous one; it necessitates following a series of well-thought-out steps. Let’s delve into what these steps entail.
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
One of the first steps in setting up your property management company is to choose a name and build a brand around it.
An impactful, well-thought-out name can leave a lasting impression and help in establishing your identity in the market.
Here are a few tips for aspiring property managers looking to brand their new business venture. Remember, successful property management companies start their journey with a strong brand.
- 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 successful property manager understands the value of a robust business plan in guiding their enterprise. Such a plan assists in multiple areas, including setting achievable goals, choosing an appropriate business model, and keeping the focus sharp.
In the following sections, we will cover a few crucial points that need to be addressed in a well-structured business plan.
- 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
To operate legally, you’ll need to select a suitable business entity for your company and registering it accordingly. This crucial step not only legitimizes your operations but also defines the framework within which your business will operate.
- 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
As a property management company, you could be working with various clients, including real estate investors owning multiple investment properties or individuals with residential property concerns.
Regardless of the client base, a business bank account is essential for managing your company’s financial operations. This involves more than just securing a business credit card.
For instance, some states require funds from lease agreements to be is kept separate from security deposits, necessitating careful financial management.
6. Make Sure You Have the Licenses and Permits Required in Your State
Property owners expect the professionals managing their real estate properties to hold the necessary licenses and permits. Compliance with these legal requirements is key to building trust with your clients.
In this context, having a real estate license, although not always necessary, can be an added advantage.
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
In the initial stages, an online presence can help you save on commercial office space and tap into the digital market, where most property management companies now operate.
Having a professional website will not only save you money but also expand your reach to potential clients. However, remember to consider associated costs such as search engine optimization for your website and hosting fees, which are essential to increasing your visibility online.
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
Tax regulations can significantly vary by state, and as a business owner, it’s crucial to understand your specific tax obligations.
You’ll need to source the relevant tax forms applicable to your local market. Many business owners operate as independent contractors, resulting in double the contributions for Social Security and Medicare.
If you’re self employed manager of your own company, there are separate rules.
10. Purchase Business Insurance
Just like any other business, procuring business insurance is an absolute necessity for a property management company. This protective measure ensures that your business can withstand unexpected financial blows, thereby providing a safety net for your venture.
- 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
Given the nature of a property management business, maintaining consistent communication is key. Opt for a business phone system that offers useful features like a mobile app, voicemail-to-email service, and the flexibility to add or remove users as per your business needs.
13. Hire Staff
Now, let’s talk about staffing. Here are some of the key roles you’ll need to fill to ensure the smooth operation of your property management company. In certain circumstances, you might need to look into obtaining a National Interest Exemption (NIE).
|Property Manager||They are responsible for collecting rents, managing budgets, and overseeing various property-related tasks.|
|Accountant||Their role involves managing all financial records, keeping track of incomes and expenses, and ensuring financial compliance.|
|Maintenance Officer||As the name suggests, they handle all maintenance requests, ensuring that all properties are kept in good repair and meeting all necessary standards.|
|Marketing Officer (If budget allows)||Responsible for creating and implementing marketing strategies to attract potential tenants and increase the company's visibility in the market.|
14. Finalize Your Services and Pricing Structure
Once you have a clear understanding of your services, it’s time to associate costs and fees with each service. This will allow you to calculate revenue forecasts and make necessary adjustments to the numbers, ensuring your pricing remains competitive while also profitable.
15. Consider Property Management Software
Financial tracking is crucial when dealing with rental properties, making property management software an invaluable tool. Features like rent collection and tenant tracking are essential to efficiently manage your property portfolio.
16. Market Your Business
An effective marketing strategy can significantly boost your real estate sale activities. Ensure your website is well-optimized for search engines and designed to be mobile-friendly, as the majority of users now access the web via mobile devices.
17. Expand Your Portfolio
Every property owner seeks a successful property manager to maximize their return on investment (ROI). Starting a property management business becomes more straightforward when following the steps listed here.
As your portfolio expands and your clients’ monthly rental income spikes, you’ll find more property owners queuing up to bring you on board.
Starting a property management company requires careful planning, strategic implementation, and a constant eye on evolving market trends.
This path may seem daunting, but by following the steps outlined in this guide, you’re positioning yourself for success in the vibrant field of property management.
Always remember that, at the core, this business revolves around people and properties – a seamless blend of strong relationships and meticulous care for assets.
As your business takes root and begins to flourish, you’ll find the journey equally rewarding as the destination itself. Go forth and conquer the world of property management with confidence and competence!
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