Property Management 6 mins read

How To Start A Property Management Business in 5 Steps

By March 8, 2019 April 19th, 2021 No Comments
How to Boost Your Holiday Rental Bookings with a Guest Welcome Basket

Becoming your own boss by starting a small business may offer a number of benefits, including high pay and the ability to create one’s own schedule. Property management is an option for individuals interested in creating a business that doesn’t require extensive experience to run or a significant amount of money to start.

There are a few steps to starting a property management business. The first one revolves around actually registering a  business. Surprisingly, the steps aren’t too difficult or time-consuming. However, the art of excellent property management may take a little time to hone. Here are those steps.

Create the business name and legal form

One of the benefits of running a property management business is that it doesn’t require an office rental. The mobile nature of the job means a company may exist in name only with a home office or a few pieces of common office equipment like a computer, phone, fax machine, and some business cards.

Running a business means creating a business entity in the state where the property management company is to be based. Each state will usually have their pertinent business forms online. For example, a California resident would choose the Articles of Organization form from the official website of the secretary of state. Similarly, a resident of New Hampshire would fill out a Certificate of Formation form from the state’s repository of Domestic (N.H.) Limited Liability Company Forms website.

The CEO/Founder of TurboTenant, Sarnen Steinbarth urges to pay close attention to the licensing and other state requirements. “If a license is required, determine what type is needed. Next, you will need to take the state-required courses and required education for the jurisdictions you plan to manage property in.”

It’s also important to know what kind of business to register.

Nathanial Isaacson, the CEO/President of REPIC Management writes in his blog for Buildium “If you have a sole proprietorship, a general partnership, or even a limited partnership (where the general partner is not a corporation), then I suggest creating a corporation.” He notes that an LLC may not have enough decisions to protect your assets in the long run. He also strongly suggests “hiring a good accountant.”

Spirepoint real estate website also mentions the importance of hiring trained accounting. “For the property manager, if they don’t have accurate financial reports for their business, they cannot manage their own business correctly. Most importantly, they can’t foresee cash flow problems before they occur.”

Learn property management law and recordkeeping

One of the most important steps a property management company can take is creating a system for recordkeeping in such a way that the entity is protected from legal challenges. Lawsuits are always a possibility with property management and most professions connected to the real estate industry. A property management company must understand their fiduciary duty to their clients and keep records to ensure transparency and honesty.

Each state has property management laws that a manager must know before commencing management activities. For example, an Illinois property manager would consult with the Illinois Housing Development Authority. A Georgia resident would check with the Georgia Real Estate Commission.

Another important issue you should address early on is liability. “Liability (and coverage for it) will be a key to protect a property manager (and perhaps their clients) from what they know, think they know, and don’t know.”, said Jerry Grodesky, a management broker from Farm and Lake Houses.

Set prices and attract clients

An ideal place to find clients is within local investment and real estate clubs. It’s essential to conduct some heavy networking at the start of your new career. Creating connections with real estate agents, as well as lenders who have come into a property through repossession are excellent options for finding contracts.

Stenibarth listed “creating the right management fee structure” as his top building block when it comes to your property managing business. We agree. Before securing any contracts, it’s essential to choose a pricing strategy that will offer sustainable income and lure clients with competitive prices. The easiest way to set prices is to do market research by calling property management companies in the area and making inquiries about their rates.

Find tenants and fill rentals

Finding good tenants who will pay their rent on time and remain tenants through the duration of their lease is important, and gaining a reputation for filling apartments, houses, or units quickly may lead to additional contracts and networking opportunities. Filling a rental unit means finding the target market and marketing in a way that makes sense. For example, a single-family rental home might find a renter quickly through a major real estate website like Zillow, but a 4-unit apartment community might benefit from a listing on Craigslist.

Tory from Yardi Systems says one of the most important things is to keep your tenants happy. Giving them the tools to solve their issues and keep them happy. If they are happy, Tory noted “They will stay in your apartment or community for longer. When the tenants are happy, your occupancy stays up and cash flow comes in.”

Continue networking and growing the business

A property management company may begin with nothing more than a few business cards, a single property, and just a few tenants. Growing the business to include additional properties is the best way to realize healthy income, and it requires continuous effort in finding new clients. Connections for new clients may come from all sorts of sources like real estate clubs, building contractors, and current clients who know other property owners in need of property management services.

Building these relationships can be time-consuming and difficult at the beginning, but if you’re right for the job, it will quickly become your second nature.

Dustin Heiner, Founder of MasterPassiveIncome.com says property managers are his favorite people. He gives some advice on how to keep and expand your network, but the bottom line is simple. “A property manager must have integrity, be honest, and communicate to their landlords. Remember that your landlords are your customers. Keep them happy and you will have a successful business.“

Figuring out how to start a property management business is only the beginning. A truly successful property management business requires dedication to learning the ins and outs of the industry, as well as a commitment to handling tenants in an honest, proactive, and responsive manner.