Property management businesses work with tenants or potential tenants in place of the property owner. Handling negotiations, maintenance and repairs, rent collection, and tenants' needs, a property management company is in charge of a laundry list of duties. What makes it worth getting into? The projected growth.
By 2023, the property management market in the U.S. is projected to reach around $22 billion. This can be attributed to a decline in homeownership. Although highly competitive, this area of business is projected to grow in the coming years.
It's no wonder you want to start a property management business of your own. In this guide, we'll break down all you need to know to build your own property management business.
Become a Certified Property Manager or Get a Real Estate License
According to the U.S. Bureau of Labor Statistics (BLS), property managers with a college degree or certification have the most job opportunities. Although a college degree can be helpful when dealing with finances and contract management, there's no official level of education required to enter the field.
However, there are laws regarding licenses and certifications. In some states, property managers are required to have real estate licenses. Moreover, if you manage any subsidized public housing by the federal government, you are required to be certified.
Not all states have the same laws for property management companies. Depending on where your business is located, you might need a real estate broker's license. To receive this licensing, you must be at least 18 years old, although some states require real estate agents to be at least 21 years of age. Next, you will likely need your high school diploma and be able to pass a test.
In some states, like Florida, you will be subject to specific licensing requirements or other professional credentials if you want to open your own property management company.
Aside from education, certification, and a property management license, there are skills you can improve on your own to succeed in the real estate industry. The BLS suggests property managers have great communication, customer service, and interpersonal skills to work closely with staff, tenants, and the property owner. Additionally, you should have sharp listening skills, be highly organized, and be able to problem-solve to mediate disputes.
Planning Your Property Management Business
In this next portion of the guide, we'll break down the first steps you will need to take to start your business.
Decide How Much to Charge
Deciding on a pricing structure can be a challenging thing for many business owners. You don't want to price your services too low or too high so that you can stay competitive within your market. For first-time real estate investors or potential clients, property management fees can be overwhelming, which is why it's important to fully explain the costs of your services and price reasonably.
- Your setup fee is a one-time fee to account for the initial account setup for the real estate investor. This fee covers some of the initial inspections that will teach you about the current state of the property.
- Your management fee is one that the property owner will pay you each month for the day-to-day management of the property, such as drafting lease agreements, getting security deposits, providing eviction notices, etc. Since rates vary by market, there isn't a set fee you should be charging. Research prices in your area to get a better picture of what your competition is charging for their ongoing management fee.
- Although not every rental property manager charges a leasing fee, the vast majority of them do. This fee covers showing potential tenants the property, advertising for the rental, and screening applicants. Many property management companies charge the equivalent of one month's rent or a percentage of it.
- Likewise, the lease-renewal fee is usually a percentage of the rent, covering adjustments to the lease of an existing tenant.
- Lastly, many property management companies charge maintenance fees, which would cover any maintenance requests that might arise during the lease.
Get Insurance for Your New Business
Regardless of whether you choose to manage residential or commercial buildings, property managers are at risk of lawsuits. Even if you're on top of things and care greatly for the property, things can still go wrong - making insurance incredibly important.
As a property manager, you're at risk for:
- Lack of appropriate property insurance can result in the loss of the property for the owner
- Legal actions due to wrongful or negligent evictions
- Claims about violating duties in your contract
- Tenant claims about discrimination
Given the nature of the profession, legal risks are everywhere. Luckily, you can get liability insurance for your business. In addition, you may want to consider a business owner's policy, which is a type of insurance policy bundle designed for small businesses. This type of policy covers liability coverage, business income insurance, and property coverage.
Create a Business Plan for Your Property Management Company
A business plan is a written document that guides you through the process of starting and managing your property management business. It acts as a guideline, detailing the structure of the business, how it will run, and the plans in place to grow the business down the line.
Before you take legal steps to form your property management firm, you should draft this document so that you can have written guidelines about how to proceed. The U.S. Small Business Administration (SBA) provides aspiring business owners with a business plan template.
Once drafted, the business plan usually includes:
- An executive summary that explains your company
- A detailed company description, which provides specific details regarding potential clients, the solutions your business solves, etc.
- Your understanding of the industry outlook by providing a market analysis (this should highlight what your competition is doing to be successful in the property management industry)
- The internal structure of your company in a section titled "Organization and Management" (this section should also detail the legal structure of your business)
- The services you plan to offer and what benefits you'll provide to property owners/investors
- Any funding requests
- Financial projections
- An appendix to provide supporting documents or materials
Formally Start Your Property Management Business
Once you've completed the initial planning, you're ready to start the legal process of starting your business. This next section explains what you need to know to start your business.
Choose Your Business Structure and Formalize Your Business
Next, you will need to choose a business structure for your property management company. Depending on the structure you choose, the amount you will pay in taxes, the paperwork needed to file, and personal liability will all be impacted, which is why it's so important to choose carefully.
The SBA provides potential business owners with an overview and comparison of common business structures:
- Sole proprietorship
- Limited liability company (LLC)
- Corporation (such as a C corp or S corp)
Before you choose your business structure, ensure that you fully understand the tax requirements, regulations, and additional certifications and licensing you might need per your state's guidelines.
After you've chosen the structure of your property management business, it's time to register your business. By registering your business, you are finalizing the process of your business becoming a distinct legal entity from you. Note that depending on the business structure you chose, the process to register your business can vary. To avoid any legal repercussions, ensure your business name is unique and doesn't infringe on any state and/or federal trademarks.
Market Your Business
Picking a unique business name is not only important for legal reasons but also to make your property management business stand out and develop an online presence. You'll want to create a website for your business that has a domain name relating to your business name so that customers can easily find it. Ensure that your website has a clear purpose and explains your business strategy and what makes it unique.
With your website created, it's time to develop a marketing strategy for your new property management business and share it on social media. Popular platforms like LinkedIn, Instagram, Facebook, and Twitter are great tools to increase your audience and target real estate investors. One social media marketing tip is to post on social media when you update your website. Additionally, try to balance promotional business content with engaging, non-promotional content. This helps keep your audience engaged and following your content.
In today's digitalized world, word of mouth is no longer enough. For this reason, it's recommended to invest in creating a search engine optimization (SEO) strategy. By inserting relevant keywords into your website, major search engines will pick up on this and direct potential clients to your website.
For example, your property management business may choose to have an "About Us" page with a section highlighting "Property Management Services." This section obviously applies to your business but can also help bring traffic and referrals to your site due to SEO.
Streamline Business Processes
Property managers handle a multitude of duties each day. As your business grows, you'll need to improve your workflow to meet those demands. In some cases, this might mean hiring additional property managers under your company or focusing on improving your business processes.
Let's face it, not all of us are accountants. Becoming a business owner requires constant clerical work, which can get in the way of your true passions. Skynova was specifically designed with small business owners like you in mind. With 37 online software modules and easy-to-use business templates, we've improved the bookkeeping side of owning a small business.
Here's Your Path to Business Success
Deciding to start your own property management business is no easy feat, but it can be incredibly rewarding. Straying from the beaten path and starting your own business can be both rewarding and time-consuming. How can you cut back on those hours without impacting your business? Use the right software.
Skynova has simplified the financial aspect of running a small business by providing 14 business templates and all the basic software you need. Whether you need to draft a quote, business proposal, or deposit request, you can create it in minutes with our customizable templates.