A lot of real estate investors dream of taking the next step and starting a property management company. However, many lack the knowledge of what to do to get started. To that end, below is your guide to this process. Follow these steps to learn everything you need to do before you start managing your first rental unit. Armed with this knowledge, you should be able to build a solid foundation for success.
Step 1: Obtaining the necessary licenses and certifications
Depending on where you live, there's a good chance that you have to complete some education requirements before you can start working in the property management industry. In truth, each state has its own requirements that must be met in order to offer these services, so it's a good idea to look up your state's requirements before doing anything else.
That said, most states require that you get at least one of the following certifications or licenses:
- Real estate broker's license: This license allows you to buy and sell real estate. However, property management topics are often touched upon during the course work and licensing exam.
- Real estate property manager license: Meanwhile, this license offers more specific training on how to act as the middleman between a property owner and their potential tenant.
While it's generally not a requirement, you can also expand your education by obtaining one of the following specialized certifications:
- Certified Community Association Manager
- Certified Apartment Manager (CAM)
- Residential Management Professional (RPM)
- Certified Property Manager
Step 2: Drawing up a business plan
Once you have your broker's license or property management license, you can move on to the next step, which is crafting your property management business plan. Put simply, a business plan works as a roadmap for your new business. it will help you get clear on your goals as well as what steps you need to take to achieve them. However, this document can also be used to help bring on investors.
While every real estate business plan will be a little bit different, in general, you should include the following subsections:
- Executive summary
- Company description
- Market analysis
- Competitive analysis
- Team summary
- Breakdown of products and services
- Marketing plan
- Sales strategy
- Financial projections
Step 3: Determining your legal structure
Next, it's time to determine the legal structure of your business. Doing so determines the type of regulatory paperwork you have to file, the amount of personal liability you'll take on with your investment properties, and how you'll file your taxes. While this may seem like a lot of work, it's important to separate your business and personal finances in order to protect your personal assets.
in particular, this process has a couple of steps:
- Determining what type of legal entity your business will be: Generally, a real estate property management business will file as an LLC or an S corp. However, there are pluses and minuses to both, so it's important to go over the decision with a financial professional.
- Filing for an EIN Number: Your financial professional can help you with this paperwork as well.
- Obtaining a business license: Again, different states will have different requirements for what type of licensing you'll need, so you'll want to be sure to verify that you're meeting any requirements.
- Opening a business bank account: This is the last step in separating your business and personal finances. It usually occurs once you're a legal entity and have an EIN number.
Step 4: Setting up your services and pricing structure
After that, the next step is to determine your services and pricing structure. The good news is that as a business owner, you're free to offer any services that you wish. However, in order to remain competitive with the other property management companies in your area, you're going to need to keep your pricing in line with market rates.
Get clear on your service offerings
To help you get started thinking, below is a list of potential management services a property management company might offer.
- Marketing listings for rent.
- Conducting showings of each rental unit.
- Screening any potential tenant.
- Lease agreement signing and renewal.
- Conducting an inspection of the investment property upon tenant move-in and move-out.
- Collecting rents and the tenant's security deposit.
- Providing ongoing customer service to tenants.
- Dealing with problem tenants and evictions.
Set up your pricing structure
Along with your list of services, you also need to determine your pricing. In this case, there are three ways you can price each of your services:
- Percentage-based fee: With this pricing model, you take a percentage of the rent that the landlord charges each month in exchange for your services. This is usually an ongoing charge.
- Flat fee: Flat fees are usually collected up front in exchange for services and can be one-time charges or ongoing.
- Per-project fee: Here, you'll charge each landlord a la carte pricing for each service they select from your menu of offerings.
As far as knowing what to charge, it can be helpful to look at your competitors' websites in order to get a sense of the going rates in your real estate market.
Step 5: Hiring your team members
Then, once you're clear on what services you want to provide, the next step is to hire a team of qualified professionals. The team members you need to hire will depend on what services you offer. However, here's a general list to help you get started:
- Real estate accountant: A great accountant is essential for a real estate property management company. They will be able to manage your income and expenses, help you file the paperwork for setting up your business, and help you file taxes each year.
- Real estate lawyer: A real estate lawyer can help you draw up the contracts that you'll use for your business. As you grow and gain clients, they can also give you advice on how to mitigate liability and help you understand your fiduciary responsibilities..
- Contractors: Lastly, you’ll want to have a team of contractors on hand to help you with any maintenance. It can be helpful to have an electrician, a plumber, a painter, an HVAC repair contractor, and a general contractor on call for when you need them.
- Other property managers: Most of the time, when you're just starting out, you should be able to handle most of the leasing and tenant management duties on your own. That said, as you grow, you may want to bring on other property managers to help you deal with business.
Step 6: Investing in the right property management software
Truthfully, there are many property management software options out there and you'll have to play around with what system works the best for you. However, we've listed the different types of software you should consider investing in below.
- CRM system: Simply put, a CRM system helps you manage your clients. There are many property management CRM systems out there, but you'll want to look for one that lets you store signed paperwork as well as track maintenance requests.
- Financial management: Next, you'll need financial management software that helps you track rents, invoice, and generate financial reports.
- Document signing: Then, you'll need to find a program that allows you to electronically sign leases and other paperwork.
- Tenant screening: As a property manager, it's important to invest in programs that help you to conduct tenant background and credit checks.
- Rent collection: Finally, though it's not a requirement, most property management companies have a system that allows tenants to pay rent online.
Step 7: Marketing your business
Once you have all those pieces in place, the last step is to market your business. In truth, there are many different ways to get your new business out there to interested landlords in your area. It will likely benefit you to use multiple strategies when trying to market your property management company. With that in mind, below are a few ways to source potential clients.
- Create your website: At a minimum, your website should give potential clients information about your business, the services you offer, and how to get in contact with you.
- Network with professionals in the real estate industry: Sometimes nothing replaces a word-of-mouth referral when trying to create a steady stream of business. If possible, do your best to network with professionals in the real estate industry and to find ways you can help each other out.
- Start a blog: One way to drive traffic to your website is through creating a blog. By giving people actionable information about property management, you'll begin to position yourself as an industry expert. Over time, your readers will turn to you for services.
- Get active on social media: Another option is to build a social media presence. By creating content, sharing relevant information, and answering questions from your followers, you'll be able to put your business and your brand in the spotlight.
- Use paid search ads: If you can find the search terms and keywords that your potential customer is using, you can use paid ads to ensure that you show up first in search results.
- Try direct marketing: Lastly, direct marketing involves sending a piece of promotional material directly to your target consumer.
The bottom line
Over time, if you continue to hone your marketing strategy, you should be able to find clients and grow the portfolio of properties. After that, it's just a matter of using the information and skills you've learned during your education to properly manage those properties and, before you know it, you'll have grown a fully-functioning business from the ground up.
However, until you get to that point, use this guide to learn how to start your own property management business. This guidance will help you put all the pieces in place to ensure your success.