Starting your own property management company is a big decision, and there are many things you must take into consideration before getting started. Learn how to start a property management company, including the requirements and key steps.
What Does a Property Management Company Do?
The exact responsibilities of any property manager will vary based on the specific contract he or she signs with the client. There are general roles a property manager can take on, including:
- Tenant acquisition: A property manager can be responsible for all aspects of tenant acquisition, including marketing a vacancy, showing vacant units, screening prospective tenants, signing lease agreements, and collecting security deposits.
- Tenant management: This includes collecting rent and dealing with tenant issues and complaints.
- Tenant move out: A property manager can be responsible for move out inspections, apartment turnover, and returning a tenant’s security deposit.
- Evictions: If a tenant is not paying their rent or otherwise breaching their lease agreement, the manager is responsible for sending the tenant the appropriate Notice to Quit, and then going through with the eviction process if necessary.
- Maintenance: A property manager is responsible for performing or overseeing preventative and necessary maintenance and repairs.
- Account keeping: A property manager may be responsible for managing all income and expenses, and keeping the appropriate records.
- Vacant properties: A manager could be hired to manage a vacant property.
- Managing other employees: Managers may have to oversee other employees, such as contractors.
- Knowledge of landlord-tenant law: A property manager must understand and follow the specific landlord-tenant law in their state.
The majority of states require a property manager to have a real estate broker’s license in order to lease out and manage properties or a property management license to manage properties. Six states, including Massachusetts and Maryland, do not require a manager to be licensed at all. Obtaining a license involves a combination of taking a class, passing an exam and a certain amount of real-life experience in the real estate field.
The average salary for a property manager in the United States is slightly over $55,850 a year. The low-end salary for a property manager is $29,700 and the high end is $126,000 a year.
Plan Your Business
What Property Management Roles Will You Perform?
You need to determine the property management activities you are comfortable performing. Do you only want to handle tenant management and building maintenance? Or are you okay with filling vacancies, evicting tenants and the financial responsibilities?
What Is Your Fee Structure?
You need to determine how you will get paid. You may decide to charge a flat monthly management fee, which is a percentage of the rental income collected. Or, you could charge additional fees for specific responsibilities, such as a setup fee of a few hundred dollars to set up a new account with a property. You could also charge a leasing fee as a percentage of the rent to fill a vacancy, as well as an eviction fee.
Where Will Your Business Be Located?
Will you be working from home or renting out office space? It’s cheaper to work from home, especially when you are first starting out, but you must make sure you have all the necessary office equipment, such as phone line, computer, fax, and printer.
Will You Have Employees?
Are you planning on starting out on your own or will you be hiring other property managers or maintenance staff to work with you? Hiring others will change your insurance requirements and your taxes. This includes paying state unemployment taxes, submitting employee tax withholdings to the IRS, paying into Medicare and Social Security and getting workers’ compensation insurance.
What Will You Name Your Business?
You need to name your company. When you set up your company with the state, they will provide you with several resources, such as the U.S. Patent and Trademark Commission, where you can check to make sure the business name you have selected does not already exist.
To begin a company, you must first submit the appropriate legal documentation. Limited Liability Companies, or LLCs, are a common way to structure this type of company, but you may decide that another type of business structure, such as an incorporated company, works best for you.
Each state will have specific requirements for setting up a business. For example, here is the state of Washington’s business licensing service. In general, you will need to draft and fill out the appropriate legal forms, which you may feel comfortable doing yourself or you may want to hire a third party attorney or legal website to do so. You must then submit these forms to your state and pay the necessary filing and or registration fee.
Draft a Contract
A strong, legal contract is an important part of any successful business. Again, you may feel comfortable drafting this contract yourself or may want to hire a third party attorney to make sure it meets all legal requirements in your state.
A property management contract should clearly define:
- Contract term
- Who the contract is between
- What the property manager is responsible for
- What the property manager is not responsible for
- Breakdown of fees
- Responsibilities of the property owner
- Hold harmless clause
- Termination clause
- Create a Website: You need to create a website for your company. There are endless sites that allow you to easily create and manage your own website for a minimal fee including Wix and Duda.
- Network: You need to network within the real estate industry to find potential clients. Contact real estate agents and hard money lenders who work with property investors. You should also join property management organizations such as the National Association of Residential Property Managers or the National Apartment Association.
Freelance or Own?
You may decide you do not want the responsibility of owning your own property management company. You can still be in the field of property management as a freelance manager at a larger property management company. You will still get paid your salary but will have significantly less risk and responsibility.
Starting a property management company takes careful consideration and planning. Due to its low cost of entry, with the proper planning, execution and daily management, it can be a very successful venture for the right individual.