How to Start a Property Management Company in 2021

Posted on:
September 28, 2021
20 MIN READ

Property management industry is a competitive, yet growing industry in the US. By 2023 it is estimated to reach $22 billion, making it an appealing industry to begin your career in.

However, just like in any other industry, you need to educate yourself and conduct a thorough industry analysis, before starting a property management company.

This guide summarizes all the crucial steps you should consider before starting your career as a property manager, you can jump to each section from here:

How to Start a Property Management Company Step 1: Business Plan

Once you make up your mind to start a property management company you will need a solid business plan to convert your dreams into reality. A business plan acts as a blueprint for your property management company’s structure, financials, and long-term goals.

It will act as a document to guide you throughout the journey. If you are starting a property management company then you will need to pitch your idea to investors or secure a loan. An actionable and result-oriented property management business plan will help you in securing funds to start your property management company.

Here are some essential points for you to consider while writing a business plan before starting your property management company:

  • Long-term & Short-term Goals: Where do you want your property management business to be in 1,3, and 5 years?
  • Statement of Purpose: Why do you want to be in this business? What makes you the best fit for this job? Do you have any prior experience in the industry?
  • Market Analysis: How many properties do you currently own and want to own in the future? Who are your competitors?
  • Staffing Plan: Do you need additional team members? How will you delegate the tasks?
  • Financial Projections: What are your estimated financials? What is your expansion plan?
  • Funding Request: Do you have any loans or plans to add any loans in the future?
Licenses to start a property management company

How to Start a Property Management Company Step 2: Certification and Licenses

Most states in the US do require a real estate license to begin working as a property manager, or broker. It is pivotal that you research thoroughly regarding your state regulations and requirements beforehand.

All licenses require criminal background checks and a record of completion of minimum years of education. The two most common licenses required by the state are:

1. Real Estate Broker’s license

This is the most common type of accreditation required by most of the states for starting your property management company. For this license, you need to pass the broker’s exam, show proven experience in the field as a licensed salesperson and must have completed 10-100 hours of broker’s training courses.

2. Property Manager’s license

This license requires you to complete specific hours of coursework, pass the property manager’s exam and continue with the education classes.

States such as Montana, Oregon, and South Carolina accept property manager’s licenses rather than broker’s licenses. Whereas states such as Idaho, Maine, and Vermont require no license at all.

For the majority of the states, a Real Estate broker’s license is a mandatory requirement for property managers who are carrying out renting and leasing activities.

Important Certifications for Property Managers

With tough competition in the property management industry, getting a certification definitely pays off as a strong competitive edge.

It will also help you as a new property manager to attract investors and open more doors by bringing authenticity and credibility to your brand name. Here are the organizations that provide courses and licenses for Property Management:

  • IREM - Institute of Real Estate Management
  • NAA - National Apartment Association
  • NARPM - National Association of Residential Property Managers
  • NAR - National Association of Realtors

The courses teach you how to begin and structure a property management business, find owner leads while remaining compliant to existing laws. We have shortlisted the most trending and critical property management courses for your ease:

  • Certified Apartment Manager
  • Certified Property Manager
  • Residential Management Professional
  • Certified Manager of Community Associations
  • National Apartment Leasing Professionals
  • Credential for Green Property Management

How to Start a Property Management Company Step 3: Filing your Business

This is by far the most crucial decision, you as a new property manager need to make. Filing your property management business means choosing a legal entity – such as a Limited Liability Corporation (LLC) or an incorporated business (Inc.). Following are the three types of legal entity statuses you can get your business registered as:

C-Corp

As a C-Corp your property management business will be a separate legal entity from your ownership. You will be paid as an employee while your property management business will be owned by stockholders. This will protect your assets from debts or liabilities.

Your property management business will receive tax-free benefits such as insurance and retirement plan deductions. However, as a C-Corp both shareholder’s and your personal incomes will be taxed resulting in a double taxation problem.

S-Corp

S-Corp has similar benefits as that of a C-Corp, but without the risk of double taxation. The incomes are only taxed once at a personal level instead of at business income.

LLC

Most property managers begin their businesses as a Limited Liability Corporation. In an LLC, the business income will pass directly to you. You will also get liability protection for your personal assets along with special tax provisions.

By further researching each type of business entity, you can decide which entity status is right for your business plan. Once you’ve selected a business entity, file your documentation through a business filing and licensing provider.

How to Start a Property Management Company Step 4: Pricing Structure

Pricing your services strategically is another crucial step in starting a property management company. You will want to make sure that you don’t lose leads to competitors while not charging too high for your services

The best way to decide a fair price is by calling up other property management companies in your area and getting a quote for their charges.

A one-size-fits-all pricing approach will fail to generate profits for your property management business right from the beginning. Here are the most common fees you should consider:

1. Ongoing Management Fee

This fee includes your day-to-day activities, such as communicating with tenants, handling maintenance requests, responding to inquiries, rent collections, and acting as a liaison between renters and owners. You can charge a flat fee or a percentage-based fee which is usually between 8% - 12%.

2. Setup Fee

This onboarding fee is a one-time fee charged to landlords for setting up an account with your property management company. This also includes initial property inspections and typically is around $300 or less.

3. Leasing Fee

Every time a unit goes vacant, all costs related to finding the new renters and getting them move-in, is counted in the leasing fee. This fee normally includes listing properties, showing costs, screening costs, writing applications, and preparing the lease. It is mostly equivalent to a month’s rent or cost for about 50-75% of the rent.

4. Lease Renewal Fee

This fee covers lease renewals for existing residents and is charged for around $200 or less.

5. Maintenance Fee

Most property managers use maintenance fees as a revenue generation model if they have a huge portfolio. Owners are usually charged 10-20% more on top of a repair cost.

6. Eviction Fee

Eviction costs more than just litigation costs, it also includes your role as a property manager to bear the burden of hearings and changing regulations. It mainly includes all the legal costs for filing an eviction and getting things moving in the court.  

7. Late Fee

Make sure this fee is indicated on your leasing agreement beforehand, it charges for any missed or late rental payments.

Lastly, you must do all of the necessary due diligence before setting up a pricing structure for every individual client.

How to Start a Property Management Company Step 5: Automation

If you are starting as a one or two-person property management company, you will be needing automation to save loads of your time.

There are many solutions including switching to property management software or using other apps for automating your daily operations.

As a beginner you only have limited funds to invest in expensive property management software, that’s why free tools on the internet will help you to get started. Here are a few of them:

  • DocuSign – for signing rental applications and tracking them
  • Quickbooks or SmartSheet – for managing profit & losses, accounting, and reconciliations
  • MailChimp – for automating marketing-related emails
  • Calendly – for scheduling showings in your calendar
  • Google Docs – for creating important standard notices and documents

Apart from these tools, you will also need to register for a rental listing site to advertise your properties. Once you figure that out for your property management business, renter leads will start inquiring about the properties you listed.

While you are self-managing everything, scheduling showings and pre-screening tenants can become a huge hassle for you. You can easily automate your leasing workflow by switching to smarter tools.

A smart leasing assistant can perform these tasks in milliseconds without requiring you to do anything. From responding to inquiries, qualifying them, to booking tours – these smart assistants can help you save 70% of your time spent on monotonous tasks. You can spend this time growing your portfolio and strengthening relations with property owners.

Having a high technology automation platform also helps you with your sales pitch to the owners. They will see how your company values tenant well-being, responsiveness, and better reporting.

How to Start a Property Management Company Step 6: Agreements & Contracts

Having a detailed, and well-thought agreement beforehand sets the expectations and the tone of relationship you are going to have with the property owners. A well-planned agreement contract spells out every single detail of your responsibilities, and also clearly excludes the ones you won’t be taking care of.

This will not only help you as a new property manager to focus on diversifying your business but will also give property owners a clear idea of your credibility and what to expect from you.

Here are some critical factors your property management contract should touch upon:

  • Management fees: Make sure you include extra or additional services with an explanation of how they are charged. Also include a clause for excluded services, that you will not perform no matter what circumstances are.
  • Off-duty coverage
  • Work hours and vacation time
  • Budgeting for maintenance and repair works
  • On-site or off-site property management
  • Duration of the contract
  • Liability insurance clause
  • Emergency funds
  • Equal Opportunity Housing: Having this section ensures that your property management company is compliant with the state and federal fair housing laws in your area.
  • Termination Clause: Clearly state the fees of early termination and obligations owners will need to face in case of termination. Also, mention your policy for dispute management.

How to Start a Property Management Company Step 7: Accounting

Smart property managers keep a keen eye on their finances right from the start. As a beginner entering the property management industry, you should be vigilant of what’s coming in and going out of your company.

The first step to do your finances is to open a separate trust account. Here’s how you can do it:

How to Open a Trust Account For Property Management

The best way to keep your finances structured and accurate is by opening a trust account that is completely separate from your personal or business accounts.

Trust accounting varies from state to state, so you should pay close attention to your state’s regulations to stay compliant.

Trust accounts are important for collecting tenant deposits, rent payments, or security deposits on an owner’s rental property. It also includes rent collected on behalf of someone else or any other transaction carried out on behalf of another. These trust funds are called client or property owner funds.

A single trust account for multiple clients might create a mess as well. However, by depositing the receipts within 48 hours you can keep your finances in order.

Accounting Reporting

You should regularly maintain your books and record every transaction. Your expenses will mostly include:

  • Staff Costs: This will include salaries for your permanent and contractual employees, along with what your vendors will charge you for maintenance.
  • Association Fees: If you are a member of any association then include that fee as well.
  • Overheads: This will include supplies, rent, and utilities.
  • Automation/Software Fee: Costs you are paying for any automation software.

You can easily forecast your revenue from estimated growth in the number of doors (year-on-year), the maintenance cost, and the management fees you will charge.

How to Start a Property Management Company Step 8: Owner Leads

Now that you have completed all the previous steps, it’s time to get into the field and start attracting property owners to your company. Here are a few ways that will help you with the property management lead generation process:

1. Property management website

The first and foremost step is to create a property management website for your company. It is the first touchpoint where your potential clients will connect with your brand. Your website should be optimized with your brand colors and should explain your services in greater detail.

2. Referral Programs

Referral programs are the most common and effective option for beginning property managers. You can offer monetary benefits to brokers and other real estate investors if they refer more clients.

3. Search Engine Optimization

Many property managers still don’t think SEO results into monetary results. However, the key is to be patient and continue optimizing your property management website with keywords. Most owners begin their search for a property management company on Google, so your presence matters.

Download our FREE e-book to get started with modern SEO strategies and attract owner leads!

4. Google My Business Listing & Review Sites

For better reach on Google, you should list your property management business on GMB as it helps with local SEO and boosts your chances of appearing on Google's first page.

Along with GMB, you should also get yourself listed on review sites of your area. This will increase the credibility of your company when owners search for your services.

5. Paid Ads

PPC is costly but also an effective medium of getting clients to click through to your website. Bid on certain search keywords that are closest related to your services and attract owner leads to your site.

6. Content Marketing

Once you get owners to reach your website, now you would want them to spend more time navigating your site. Good quality published content can help you with that. It creates an image of you as an expert in the field which further assists owners in choosing you over your competitors.

7. Social Media

During COVID the consumption of social media significantly increased. Not just tenants but property owners are also hanging on these Facebook Groups or Reddit threads. That’s why you should be present on all social media channels and engage with your target audience.

8. Testimonials

Testimonials play a huge role in any consumer’s decision-making journey, and your clients are no exception. You can install widgets on your sites, that will synchronize new reviews directly to your site.

Other than these you can also cultivate relationships with your clients by networking with them in investor meetups or different conferences related to property management. You can also advertise your company by sending brochures to real estate investors and brokers as well.

State-wise Regulations for Starting a Property Management Company

Starting a property management company requires national as well as state-wise requirements to be fulfilled. Here are the most common FAQs you might encounter when starting a property management company:

How to start a property management company in California

If you plan to buy or sell apartment buildings or other residential property in California, you’ll need a real estate broker’s license from the California Department of Real Estate. If you’ll solely manage the property, the license isn’t necessary.

California doesn’t let two companies have the same name so before you settle on a name, check the California Secretary of State website to see if the name you want is available.

To get a property management company up and running in California, start by registering your property management business. To register an LLC, California property management business owners must file articles of organization and pay a $70 filing fee.

California has a series of health, safety, and building codes you must follow. Brush up on these codes and use landlord resources written by the state, like the Guide to Landlords’ Rights and Responsibilities.

How to start a property management company in Florida

Property management licensing varies from state to state and property management laws in Florida require you to have a real estate broker's license when managing properties for others for pay. You do not need a real estate broker's license when managing property you personally own.

To get a real estate broker's license in Florida the first step is to complete at least 24 months as an active real estate agent within the five year period immediately preceding your application. If your experience is from somewhere other than Florida, you must include a certification of your real estate license history.

In addition, you have do the following:

  • Complete a 72-hour pre-licensing course approved by the Florida Real Estate Commission (FREC)
  • Submit an application, with an application fee of $91.75 and fingerprints to the state
  • Pass the Florida Real Estate Broker Examination with a grade of 75 or higher
  • Complete Form DBPR RE 13 (Broker Transaction Form) to activate the initial license
  • Complete a 60-hour FRED-approved post-licensing course for brokers before the expiration of the initial license

How to start a property management company in Texas

Property management businesses in Texas are required to have an active real estate broker’s license. This is because leasing and renting, which are critical components of property management, are considered real estate activities by current Texas real estate licensing laws.

The only exception being that salaried employees of property management business owners need not have a real estate license for managing or leasing property owner by his or her employer.

The requirements to start a Licensed Property Management Company in Texas

  • 18 years of age or older
  • US Citizenship or lawfully admitted alien
  • A legal resident of Texas
  • Must complete 270 classroom hours of core real estate classes
  • Must show an additional 630 hours in related courses acceptable to the Commission (a bachelor’s degree or higher from an accredited college/university will satisfy this)
  • Must demonstrate qualifying experience per Commission guidelines and have at least four years of experience in Texas as a licensed real estate salesperson or broker during the five years preceding filing the application.
  • Application fee of $375.50
  • Recovery Trust Account fee of $10
  • Fingerprint submission and background check

License renewal is prohibited if a licensee has defaulted on a student loan guaranteed by the Texas Guaranteed Student Loan Corporation.

In conclusion when it comes to starting a property management business in California, Florida or Texas always make sure you are licensed appropriately.

Way Forward

Once you have got your property management company up and running you need to make sure that your property management business remains compliant with the ever-changing housing rules and regulations. You will also have to conduct regular maintenance checks and stay on top of day-to-day repairs.

You should also join several Facebook groups centered around property management and interact with other budding property managers as well.

Property management, that too single-handedly, is not everyone’s cup of tea for sure. A major chunk of your job will be building relationships with clients and tenants. It can also get very overwhelming for beginners.

The trick is to delegate tasks, hire the right people at the right time, and deploy automation tools for tasks that are repetitive and take too much of your time, as you keep growing.

Recieve the latest news in your mailbox
Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.
Enjoying your read?
Never miss a post.
Get the latest post in your email
Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.
Stay Ahead of
Your Game
Get fresh tips, how-tos, and expert advice straight to your inbox 1/wk.
P.S. We won't spam, promise :)
Tags
Property Management Business Plan
Property Management Marketing
Property Management Tools
Property management leads

Get Started with LetHub Today

Get Started Now

See similar blogs

resources

Top 10 Best Property Management Software for Landlords and Property Managers

May 21, 2021
5-7 minutes

A good property management software automates important tasks related to accounting, leasing, tenant management, managing maintenance requests, and marketing your properties. It reduces costs and streamlines operations. We have listed some of the best and most popular real estate property management software for your convenience:

resources

How to Maintain a High Rental Occupancy Rate for Your Properties?

January 19, 2021
7 MIN READ

Why spend five times more money finding new tenants when you can retain the old ones who are 70% more likely to stay? Read and implement our expert advice for better tenant retention and a high rental occupancy rate.

resources

How can Property Managers Leverage Automation to Avoid No Shows?

May 21, 2021
8 MIN READ

Appointments are crucial for property managers. They mark both the beginning and the end of transactions, sales, rentals, and other agreements. Therefore, it is of utmost importance that these appointments occur right on time and as expected with a very low risk of cancellation or no shows.