The property management industry has been booming in recent years, and experts expect that trend to continue. The need for property management professionals has created an opportunity for ambitious entrepreneurs.
Whether they’re coming from similar fields such as real estate brokerage or become interested in starting a property management company from scratch after working at someone else’s firm, future business owners should know that there’s a right and a wrong way to get started. Before looking into property management software, or even writing up a business plan, check out this ultimate guide to how to start a property management company the right way.
Cover the Basics From the Beginning
There are three important steps to take before starting any new company. Future business owners need to obtain the proper licenses, register their businesses, and create business plans. The last of these steps is the most challenging, but arguably also the most helpful.
Entrepreneurs can use the general information available through the Small Business Administration (SBA) as a template for their business plans. However, there are a few issues to address that are specific to property management, as well. Be sure to include information about the types of clients the business will target and what property management services it will provide.
Registering the business and obtaining the proper licenses comes next, but the exact processes vary by state. Most states require business owners to have either a property manager’s license or a real estate broker’s license, both of which involve taking courses and passing an exam. Certifications can also help with attracting customers once the business is up and running, as can joining local or national associations such as IREM, NAA, NARPM, or NAR.
Finally, the business will need to be set up as a legal entity for tax purposes. Most firms are set up as limited liability corporations (LLCs), but both S-Corps and C-Corps offer more legal protections. The key to choosing the right one is for business owners to decide whether they want to file as pass-through businesses or to be paid as an employee of a corporation.
Figure Out a Plan for Handling Finances
A new property management company’s business plan should have a stated revenue goal for the first fiscal year that includes expected income and expenses. Entrepreneurs should also plan to put some money aside for handling emergencies, should they occur.
Keeping track of finances for each property can be a challenge for those who don’t have accounting experience. These days, though, most people do fine relying on property management software to keep track of rent, fees, expenses, and bills. In most cases, expenses will include:
- Vendor fees
- Service fees
- Membership fees
Accounting for these and other potential expenses is the key to ensuring an accurate revenue forecast. Most of the money will come from management fees, which are typically paid as a percentage of the rent charged by landlords or real estate investors. Late fees, key and lock replacements, finders fees, mark-ups, and other small charges can also help to bring in extra money.
Staffing a New Property Management Company
Laying the groundwork in the form of a detailed, comprehensive business report is essential to getting things started on the right foot when the business opens its doors. Before that happens, decide on a team structure.
Some people start companies as sole proprietors and act as general property managers. They handle everything from rent collection and resident/owner communications to inspections, maintenance, and more. This approach requires less startup capital since there will be no staff to pay, but expect to start bringing on staff quickly because this approach is stressful.
The alternative is to start with multiple staff members from the very beginning, each of whom performs a set role. One person might handle leases, for instance, while another might manage the maintenance and repair contractors working for the company. In this case, some of the work can be outsourced to other property management contractors, for instance – The outsourcing of fraud detection services can be a valuable investment as this task can be a lot to handle but not worth dedicating your limited number of staff to, however, it is of utmost importance that fraud is dealt with properly and by outsourcing, to a trusted company you can have peace of mind that this is the case.
Marketing a New Property Management Company
Getting a new business off the ground is all about branding and marketing. A company’s brand is meant to be a direct representation of its culture and values, and it should inform the business’s marketing efforts. A boutique property management brand providing specialized services to luxury real estate investors will need a different marketing strategy than one that targets HOAs, for example.
The first step is to lay the proper groundwork for future advertising efforts through the creation of a professional website, a presence on appropriate social media platforms, and carefully designed paid advertisements. Most property managers start by casting a wide net and drawing in leads from many sources, but it can still take some time to start drawing in potential clients.
Getting All the Ducks in a Row
The company should have all of its ducks in a row before bringing on its first client. That means determining things like pricing structures and fees in advance and drawing up contracts that delineate the roles and responsibilities of the property management company. The contract should include:
- A rundown of management fees
- How off-duty coverage will be handled
- Work hours and vacation time
- Information about worker’s compensation, liability, and indemnification insurance
- Maintenance and repair budgets
- Emergency funds
- The services promised
- Timetables for invoicing
- Penalties for non-payment
Experts recommend having a lawyer look over the contracts before finalizing them. That way, there will be no question as to whether they are legally binding.
Start Brainstorming Now
Rome wasn’t built in a day, and a new property management company can’t be, either. Start the brainstorming process now by investigating the competition, looking into templates for business plans, and finding out what tools are available to make the day-to-day aspects of running the business easier. While there is such a thing as spending too much time on preparations and not enough on the action, there’s also plenty to be said for taking enough time to learn the basics of business ownership before jumping into the deep end.