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Starting property management businesses involves an incredible amount of hard work and knowledge to succeed. This is especially true in the property management industry.
When somebody decides to start their own property management company, they're committing to spending countless hours dedicated to managing and growing that business. Although there are endless success-driven individuals who are willing to put in the work necessary for this endeavor, they may not even know where to begin.
If this sounds anything like you, you've come to the right place. Below, we've outlined the entire process of how to start a property management business. We also included some general information and tools that could benefit you along the way.
What is a property management company?
One of the first things you should be very familiar with when starting your property management company is: what are you going to be doing?
In simple terms, a property management company is responsible for assisting landlords with various day-to-day tasks of real estate management. The company allows the landlord to not have to worry much about the mundane responsibilities they deal with.
Now, different companies may provide different services, but most property management companies revolve around similar basic services:
- Marketing and advertising
- Tenant screening and background checks
- Rent collection
- Accounting
- Maintenance requests
Overall, your property management company could be responsible for all of these services, and maybe even more. These are only the basic responsibilities that landlords have to deal with, until they find a reliable property management company.
Still interested? Read on to familiarize yourself with the entire process of how to start a property management company.
How to start a property management company
If you're already committed to starting your business, you're already one step ahead of everyone else. The next step is to gather the necessary knowledge and procedures to make sure you can execute your idea.
Below, we've created a comprehensive list of steps that, if followed correctly, will provide you with a robust grasp of what needs to be done to start a property management business.
1. Learn about your state's laws and legal requirements
This is an essential foundation that must be done before anything else in the company. In every state, there's a long list of laws that must be followed to avoid any legal conflicts with your business.
Although some of the laws are pretty self-explanatory, some can be confusing, and it's important to understand them to their full extent, especially the eviction laws and landlord-tenant laws.
Eviction Laws
In the real estate industry, an eviction is when a landlord forces a tenant to move out of the property. There are many steps that must be taken before carrying out the eviction, as it could become a legal disaster. There are also many actions that a landlord is not allowed to take when carrying out an eviction. If the landlord were to break any eviction laws, they could face a hefty lawsuit.
Not sure about your state's eviction laws? Find them here to find out exactly what they entail.
Landlord-Tenant Laws
Landlord-Tenant laws are laws and regulations that govern the way commercial and residential properties are rented out. These laws apply to both the landlord and the tenant, and they should be followed by both parties as well.
As a property management company, it's important for your clients to be aware of the legal requirements and regulations. These rules must be followed to avoid any legal conflict or lawsuits. If you want to learn about your state's landlord-tenant laws, visit this website to learn everything you need to know.
2. Acquire the necessary licenses and certifications
In most states, it's required that individuals involved in real estate complete a formal education or certification before beginning. Although it may not be required in your state, you should still get some sort of license or certification. This helps attract more clients and makes you more knowledgeable about the business.
As a property manager, an important license to obtain before starting your business is the Real Estate Property Management License. This license provides specific training on how to act as a middleman between the property owners and the tenants effectively.
Another license that may be useful to obtain before starting your property management company is a Real Estate Broker's License. This license, along with the coursework and exam, covers various topics like property management, insurance, leases, and many more.
There are only a handful of states that do not require such certification to become a property manager, so make sure that you're up-to-date with your state's requirements and that you are following all of them precisely.
3. Write a Business Plan
Now that you've completed the homework for your business, it's time to actually start thinking about the functionality and framework of your company. This is a crucial step when starting up your business, as this is where you are going to describe every single aspect of it, from marketing strategies to a potential customer base and your short-term and long-term goals.
Along with writing a property management business plan, it is important that you determine where you are going to conduct business, and with what financial resources. This means you should make sure you have a suitable workspace that suits your needs as a business owner. You should also set up a business bank account after choosing the legal structure of your company.
A very important aspect of your business plan is the legal structure of your company. Typically, a property management company starts as either a limited liability company (LLC) or a Sole Proprietorship. It's important to know the differences between these two legal entities in order to choose the one that's best for you and your business.
Limited Liability Company (LLC)
A limited liability company (LLC) is a business structure where the owners of the company are personally protected from the company's debts and liabilities. This means the owners of the LLC can not be pursued in any way for repayment of the company's debts or liabilities, as it falls on the LLC itself. Also, an LLC does not pay taxes as the entity, as it passes the losses and gains to the members, who report them in their individual tax documents.
Sole Proprietorship
A sole proprietorship is a type of unincorporated business where there's only one owner. The owner of this company pays taxes for the company on their personal tax documents. This is the easiest kind of business to establish, as there isn't much regulation, and it's freely set up.
4. Plan Your Finances
Although this should be included in your business plan, it's important to continuously monitor every single cent that comes in and out of that business, starting from the very beginning. Apart from recording your company's expenses, you should have an efficient method in place for keeping track of all of your client's property expenses as well.
Some of the most common expenses that a property management company faces include the following:
- Overhead expenses, which are ongoing expenses that exist when operating the business, like rent and utilities for physical offices or locations
- Salary expenses, which include the salary for yourself (ongoing management fee(s) and more) and your employees
- Third-party fees, which include the costs of software for your company as well contractors and outside workers that charge for their services
Apart from planning for your expenses, you should determine what your future goals are in terms of profit and form an effective pricing structure to compete with local real estate companies.
For a property management business, there aren't a lot of upfront costs to begin managing properties, so a property manager could break even soon after starting the business. After that, it's all about making your business as efficient as possible and setting realistic financial goals to make sure the company continues to be profitable.
If you struggle to keep up with these goals, or you lose track of your company's expenses or profits, you may be interested in some sort of real estate accounting software to help you stay on top of your business's finances.
What Is a Property Management Accounting Software?
A comprehensive accounting software could be very helpful for keeping track of all of the finances of your company and could help you determine future financial goals. It can also help you, as a business owner, determine what aspects of your business are not generating a profit and which ones are.
Also, some accounting software, like DoorLoop, offer a plethora of services apart from accounting services that could help you, as a property manager, streamline your business by keeping track of every aspect of your business, all in one place.
5. Determining Your Team
When you have every other aspect of your business settled, it's time to think about the people you would want on your team.
This does not necessarily have to mean these people are going to be doing the same work you do. One single person could manage a plethora of properties by themselves, without the need for assistance. This team of people could refer more to a group that helps you with external services that do not necessarily have to do with property management. These people do not have to be part of your payroll, or even part of your company, but they can provide services that could become very useful in certain situations.
For example, in the world of real estate property management, there are many chances for a lawsuit to occur. A real estate lawyer, however, makes sure your company is completely protected from any legal risk that may leave the company vulnerable to a lawsuit. A lawyer can also provide guidance about your state's laws and regulations and help protect your assets from becoming liabilities.
Other examples of people you should consider adding to your team are contractors that you hire based on the services that the managed properties require, like plumbers or painters. It's important for you, as a property manager, to have a reliable team of contractors ready to service the properties you manage.
6. Advertising Your Business
One of the last (and most important) steps for launching your property management company is effective advertising and marketing.
There are various different methods for gaining exposure for your business. You should develop a specific marketing strategy catered to your company in order to grow your client base. When done correctly, your company's marketing strategy could kickstart your business and get some of your first clients.
What to Include in Your Marketing Strategy
Although there's no single, concrete marketing strategy that works for all businesses, property managers who are starting a property management company should make sure that their marketing strategy includes these factors:
- Search engine optimization (SEO)
- Social media marketing
- Content marketing
- Word of mouth
- Networking
Although most of the strategies listed are of the new age and involve the use of technology, the traditional word-of-mouth marketing method could also prove effective in the real estate industry. For example, you can approach a local real estate agent, inform them that you're a property manager, and ask about properties for rent and any contacts of people looking to rent.
Any combination of these, with the right determination, is sure to significantly increase exposure for your company.
7. Invest in Property Management Software
Managing properties, with or without a team, is a complete hassle involving numerous tasks that must be completed in a timely manner. It can get very difficult to handle all of these responsibilitiesby hand, so many property managers turn to property management software to ease some of the stress of having to handle it all themselves.
If you're not sure about what to look for as a property manager, we've outlined some of the most important features down below to help you begin with your search.
What to Look for in a Property Management Software
When looking into property management software, keep your business's needs in mind first. You want to look for property management services that cater to the tasks your business is responsible for completing to make sure you get the most out of your investment.
Here are some of the most important tools that come with property management software:
- Automating rent payments
- Property accounting
- Owner and tenant portal
- Work order management
- Marketing assistance
- Excellent customer service
These are all features that become very valuable for property managers and even more important for owners of property management companies. Although software is not required to complete all these tasks, one that does it all would really come in handy if you're someone wanting to start a property management company.
Which Property Management Software to Choose
If you find yourself unable to choose between the plethora of property management software choices available, that's completely normal. It can be tough to know exactly what you are investing in, and you always want to make sure you're making the correct choice.
To make your life easier, we've put together a list of the 15 best real estate software that you can use to ease the decision-making process. If you're a Canadian property manager, we have some resources on the best property management software in Canada as well.
If you're interested in an all-in-one property management software that offers all of the features mentioned above, and even more, check out DoorLoop. It starts at as little as $49/month for the first 20 units.
Bottom Line
Starting a business is nothing close to an easy task. It takes a special kind of person to build a successful property management company and stick with it while it grows over time.
Over time, however, you become an expert at managing your properties and advertising your business to more and more customers. If you put the work in and follow the procedures listed in this post, you'll find yourself surrounded by clients for a fully functioning real estate management company.
Frequently Asked Questions
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