Whether you’re a landlord with experience managing properties or you simply enjoy the real estate industry and are looking for a way to get involved, owning a property management company could prove to be a potentially lucrative opportunity. But like any financial venture, it requires a little bit of business acumen.
Property management can be lucrative and rewarding, but it can also end up being stressful and deflating if you don’t know what you’re doing. While everyone has their own way of doing things, here are a few helpful tips for building a profitable and stable property management company that will produce results over a long period of time.
What is property management?
Before you set out to start your own property management company, be sure it’s right for you. Property management companies are hired to manage rental properties and handle a variety of day-to-day tasks.
As a property manager, you’re not just focused on the property. You’re also dealing with people and handling issues like marketing, tenant acquisition, contracts and lease agreements, repairs and maintenance, rent collection, and possibly even evictions. If you aren’t comfortable with the hands-on nature of property management, there might be something else out there for you.
You also need to be familiar with the local market. What are current rents for a one-bedroom? A commercial property? Residential property managers need to know what kind of monthly rental income can a duplex owner expect, for example. This is essential to pricing your properties accurately and ensuring your clients are happy.
Property managers typically charge the property owner a monthly fee for property management services ranging from 8% to 12% of the property’s monthly rent amount. So, if you manage a property renting for $1,000 a month, you could charge a management fee of $80 to $120 per month. That can add up quickly if you manage multiple properties.
How to start your own property management company
You will need to have the proper paperwork in order and licenses secured before you start work as a property manager. Most states require licensing for property managers, including a real estate broker’s license and/or a property manager’s license. Both of these licenses require coursework and an exam covering topics in property management and real estate. Check the license requirements for your state—and make sure you keep these licenses up to date so you can continue practicing property management.
For tax reasons, you also need to set up your property management company as an incorporated business. Consider a limited liability corporation (LLC), S corp, or C corp. While most property management companies are set up as LLCs, any of these legal entities will work.
Don’t forget the business plan, too! This helps potential investors understand your projected income and any other hurdles your company may be facing.
More on property management from BiggerPockets
Organizing your corporate finances and accounting
Unless you happen to have a bunch of cash sitting around, you’re going to need some capital to get your property management business up and running. A small business loan may be a good funding option.
These types of loans are preferred for their leniency and flexibility. For instance, smaller lenders may offer a lower interest rate and longer repayment periods—which works to the borrower’s advantage.
To keep track of finances once you’re up and running, consider using software to keep the process as easy and streamlined as possible. There are several great programs out there for property managers, including Avail and Innago.
Creating your business teams
Unfortunately, this is one of the trickiest parts of building up a property management company. No real estate investor will trust you with their property if you don’t have a good reputation in the area. You need clients to build a reputation, but clients want you to have a reputation before agreeing to do business with you.
One of the best ways to build up a personal reputation is to work with another property management company for a period. During this time, you can network with other people in the industry and start to build connections. Then, once you go off on your own, you have a personal reputation upon which you can stake your brand’s reputation.
As you grow, you may need to hire additional employees to take some of the workload off your shoulders. After all, you can’t run a huge business on your own. You’re eventually going to need some employees to help you scale up. The key here is to hire the right people. Warm bodies won’t suffice. Consider hiring:
- Maintenance managers
- Leasing agents
- Additional property managers
- Marketing specialists
As you interview candidates, look for people who are motivated and ambitious. “Employers should be looking for employees who want the job, and candidates who follow up demonstrate their enthusiasm for the opportunity,” says Mike Steinitz, executive director for Accountemps.
You’ll also need to develop a network of trusted service providers, including plumbers, electricians, real estate agents, and contractors. Before you hire them, make sure they are appropriately licensed and have relevant experience. Once you develop a positive relationship with them, you’ll know exactly who to call in an emergency.
Being a landlord can be fun—if you do it right
No matter how great you are at finding good rental property deals, you could lose everything if you don’t manage your properties correctly. Being a landlord doesn’t have to mean middle-of-the-night phone calls, costly evictions, or daily frustrations with ungrateful tenants.
Marketing your property management company
To gain clients (and make more money), you’ll need to market your property management company. Effective advertising is key to scaling up your property management business.
Create a website to serve as your company’s digital storefront. If you’re computer savvy, you can build it yourself. If not, don’t worry—there are plenty of professionals out there who can get the job done for you. Hiring one may be cost-effective for your business in the long run. A freelance SEO strategist can help your website show up at the top of the Google search results.
Make sure your website includes the properties you manage and is usable for both property owners and residents. Your website is essentially the face of your company to newcomers, so use it to make a good first impression.
You should also create social media pages for important social media sites like Facebook and LinkedIn so people can find out more about your company. Include branding similar to your website to make everything look seamless and give your page a professional look. Post about your endeavors as often as you can, and be sure to engage with commenters and other property management pages to obtain and retain followers.
Networking will also help you enormously with marketing your business. Attend local business events, especially real estate industry events, and bring a stack of business cards with your company’s name and contact information on them. Word of mouth is a great way to get business.
Using property management software can also help you generate leads. Programs like Zillow allow you to advertise a listing and find potential tenants with one click.
Managing your properties
After setting up your property management company and securing a few clients, it’s time to manage your properties. It can be a tough job with multiple responsibilities, so it’s crucial to stay organized. Property managers are responsible for a number of services, which may include:
- Managing renter applications
- Completing background checks
- Maintaining leases and collecting lease renewal fees
- Charging eviction fees
- Obtaining security deposits
- Collecting rent
- Completing maintenance and repairs
- Completing inspections
Far too many real estate investors and wealthy individuals think property management is as easy as putting up some money and watching everything fall into place. In most cases, these are the folks who fail rather swiftly. If you want to find success in the property management field, you must take a businesslike approach from start to finish. There’s no other way around it.