Are you working in property management and thinking about being your own boss? Or would you like to get started as a property manager, with the goal of eventually having your own property management company?
In this article, we’ll discuss the state of opportunity in property management, the training and education you’ll need to be successful and the fundamentals of starting and growing your own property management company.
What is property management?
Many owners of single-family homes, apartments and commercial buildings need help from a property manager. The owner or real estate investor wants to preserve and grow the value of the home or apartment, but they don’t have time to be involved in the day-to-day tasks of being a landlord.
By hiring a manager, the owner can delegate four areas of major responsibility:
- Working with tenants: Meeting with prospective tenants to show them the property. Explaining the rules of occupancy, negotiating the lease, completing background checks and collecting deposits, monthly rents and fees.
- Management: Running the monthly budget for utilities, insurance, payroll and taxes. Selecting repair partners. Contracting for trash removal, landscaping and security. Hiring and managing staff. Keeping financial records and preparing reports.
- Maintenance: Inspecting the buildings, grounds and equipment on a regular basis. Repairing or upgrading HVAC or electrical systems. Handling preventive maintenance such as roofing, painting and pest control. Caring for a pool, tennis courts or other resident amenities.
- Contracts and compliance: Monitoring tenant compliance with the terms of the lease. Investigating complaints or disturbances. Responding to violations of resident rules. Ensuring compliance with federal anti-discrimination laws and local housing laws or building codes.
Property owners everywhere need to delegate these responsibilities to an expert who has the right training, experience and personal qualities. They need you!
Property Managers are in High Demand
From 2019 to 2020, the value of the property management market in North America grew almost eight percent. According to federal labor statistics, about 60 percent of working managers are employees, and 40 percent are independent property management business owners.
In 2020, the average wage for a property manager was $73,210, or about $36 per hour. The lowest paid 10 percent earned an average of $31,330 per year, and the highest paid 10 percent earned an average of $134,570 per year.
Property Management is a Local Business
While many businesses today can be operated remotely or can be entirely web-based, this will never be the case with property management. Consider the typical responsibilities we listed earlier. When you need to interview a tenant or conduct a move-out inspection, this is work that must be done in person.
For this reason, many managers either live onsite, as in an apartment complex, or they maintain a multi-site portfolio of clients in a defined geographic territory. When developing a business plan for a company, one of the first considerations is the availability of potential residential, commercial and industrial clients in your local market.
What kind of properties will you manage?
Its important to understand how property management specialists serve specific market segments, and exactly what managers do in each of these roles.
Although the subject of this article is How to Start a Property Management Company, some readers are already experienced in one or more property management specialties, while others will need more work experience in the industry before they can start a property management business. Accordingly, we will take a moment to discuss some of the market segments where on-the-job experience can be earned.
An onsite manager is usually responsible for only one apartment complex, shopping mall or commercial building. Onsite managers may have many of the same responsibilities as independent property managers, but they are often working as an employee, rather than as an independent contractor.
As the title suggests, an onsite manager must be available at all times for personal interaction, such as showing vacant units to prospective tenants, meeting with current tenants to address their concerns and meeting with suppliers and contractors to keep the buildings and grounds well-maintained.
The onsite manager also ensures that the terms of the lease are observed. Rents must be paid on time. Rules for pets, parking and use of the amenities must be fairly applied. Move out procedures must be followed, with any damage or amounts owing accounted for, and monthly reports of income and expense must be prepared.
Community Association Managers
A community association or HOA may hire a manager to maintain the communal property of homeowners in a neighborhood, a condominium complex or a co-op residence. Community associations typically have a volunteer board of directors that hires the manager and communicates the goals and preferences of the owners as a group.
The community association manager is responsible for the upkeep of the grounds and facilities that the homeowners share as an association. The community association manager is also responsible for collecting monthly maintenance fees, supervising contractors, managing budgets and preparing regular financial reports.
Somewhat like an apartment manager, the community association manager must also monitor observance of association rules to ensure fair application of regulations for pets, vehicles, use of amenities and many other matters that arise when grounds and services are shared by a large group.
Independent Property Managers
Independent property managers handle a portfolio of properties for multiple clients. The properties may be residential, such as single-family homes and apartments, or commercial, such as office or retail locations.
The manager acts in many respects as the agent of the owner, getting to know the tenants, supervising contractors and making sure that rents are collected and bills are paid on time.
The manager keeps the financial calendar, taking care of taxes, preparing financial statements, monitoring occupancy rates and renewing leases.
The manager also supports the owner with the benefit of added expertise — advertising vacancies, advising on local market rents and developing marketing plans to attract new tenants.
Independent property management is the most suitable specialty for starting a property management company because it affords the opportunity to manage a portfolio of clients.
The independent manager can start with one client. Then, as the business grows, more of the same type of owners can be added or the type of properties can be changed, following the results and strategy of the business.
Real Estate Asset Managers
Rather than focusing on regular operations and maintenance, the real estate asset manager is more concerned with the long-term performance of a house or building as a real estate investment.
The asset manager has clients who are looking for opportunities to have their capital expertly applied to the purchase, development and sale of real estate as an asset.
The real estate asset manager is an expert in investment factors such as local market values, population growth, highway planning, zoning, taxes and the laws governing the purchase and sale of land and buildings.
When real estate asset managers identify a promising investment, they will prepare a proposal for the client. If the client agrees to buy the property, the asset manager takes charge of the transaction, negotiating the purchase on behalf of the client.
During the client’s subsequent ownership, the real estate asset manager is responsible for preserving, maintaining and growing the value of the asset — and for negotiating the sale of any properties that are under performing, or which have met the owner’s investment goals.
How to Break into Property Management
If you are already working in the industry and are primarily interested in reading about how to start a property management company of your own, bear with us a little longer while we advise less experienced readers on how to get started with a job in the business.
Property Management Education
You can get a job in property management with a high school diploma. However, you will find that the best property management companies are looking for candidates with a bachelor’s or master’s degree in business administration, accounting or marketing.
All candidates must take college-level training in real estate, as the world of property management is strongly influenced by the laws and principles that govern the real estate business. Local colleges typically offer classes that prepare the student to take state examinations to be licensed as a real estate agent or broker.
Whether or not you plan to sell real estate or take examinations for state licenses, these courses will provide a solid foundation in the concepts and terminology that will be required to work effectively in the property management business.
You may find it to your advantage to gain direct experience as a real estate agent before seeking a position in property management. With a track record of effective residential or commercial sales, you will be able to document for a building owner or property management company that you know the laws and standards that govern the business, and more importantly, that you have what it takes to show properties, negotiate terms and close deals.
Property management is regulated by all states because it involves some of the most important transactions in the financial lives of their citizens. State regulators seek to ensure that property managers are of good character, are trained in state laws and regulations, and are experienced enough to conduct their business with high professional standards.
The laws governing professional licensing are different in every state, so it is important to confirm local licensing requirements with your state department of professional regulation or real estate commission. Here are some of the most common licensing requirements:
- Real estate broker. The work responsibilities of a property manager are considered real estate activity in most states, so a real estate broker’s license is a common requirement. A broker’s license requires both advanced coursework in real estate laws and practices as well as work experience as a real estate agent.
- Real estate agent. In some cases, salespeople, leasing agents or assistant managers may be licensed to work in property management as real estate agents, working under a manager’s broker license.
- Licensed property manager. Some states will grant a license with training and examinations focusing on property management, rather than real estate. However, there are also some states that require both a real estate broker’s license and a separate property management license.
- Licensed leasing agent. In some states, a leasing agent who is sponsored and employed by a real estate broker can be licensed for residential lease activity. Again, the candidate for licensing must take relevant coursework and pass a state licensing examination.
In every state, candidates for real estate and property management licensing must pass a background check that does not find any reference to a felony conviction or indictment that would imply an untrustworthy character.
Membership in one or more property management associations will keep you current with the latest technology, legal trends and successful methods shared by your fellow professionals.
An association may specialize in single residential properties, apartment buildings or community associations. You can learn more about the focus of each association through these links:
- For property managers: National Association of Residential Property Managers, Institute of Real Estate Management, and National Apartment Association
- For community association managers: Community Associations Institute and Community Association Managers International Certification Board
- For building owners, corporate facility managers and real estate asset managers: Building Owners & Managers Association
In addition to training and experience that is directly related to real estate and property management, the aspiring business owner should learn as much as possible about other business and technical subjects that are required in the day-to-day work of property management. These subjects include:
- Insurance and risk management
- Business and real estate law
- Bookkeeping, accounting and finance
- HVAC and building mechanical systems
- Team leadership and human resources
- Sales, negotiation and entrepreneurship
Property Management Certifications
As you plan your property management business, one of the best ways to build your knowledge and stand out from the competition is with professional certifications. Get started with the certifications for individuals, and as your business grows, work toward the advanced certifications for your company and staff.
- For property managers: Residential Management Professional, offered by the National Association of Residential Property Managers, requires 18 hours of coursework, letters of recommendation from two current NARPM certificate holders and two years of experience. A high-level certification known as Master Property Manager certifies that the holder has completed further advanced coursework and has extensive experience, with an endorsed record of successful with your client owners.
- For apartment managers: National Apartment Leasing Professional, offered by the National Apartment Association, focuses on providing apartment professionals with the skills they need to be successful. For the onsite apartment manager, the Certified Apartment Manager designation is designed for the primary link between apartment residents and owners. Certified Apartment Portfolio Supervisor is earned by leasing professionals who manage a portfolio of apartment properties.
- For property management companies: As you build your property management company, strive to be recognized by earning the Certified Residential Management Company designation. To qualify, you will have to meet a high standard of performance, including 500 unit-years of experience and at least one staff member with the Master Property Manager certification. Property management companies that earn this certification will stand head and shoulders over the competition.
From Landing a Job to Starting a Property Management Company
For many in the industry, their first job is as the assistant to a senior manager. In a growing organization, successful employees in these roles are often able to advance to sole responsibility for a property.
If a role as an onsite manager in an apartment complex, commercial building or community association is suitable for your level of experience, do not hesitate to take such a position – while keeping up your education in real estate, business and the other recommended subjects.
With continued training – and patient attention to gaining more experience – your work will earn more responsibility and a broader range of duties. As you show your ability to handle more and larger properties, your autonomy (and paycheck) will grow until you feel confident that you know how to start a property management company.
Pay attention to the supporting roles that you encounter as a working property manager. When you build your own property management company, you will first handle everything as an entrepreneur, then you will hire what you need done from professional services, and finally you will add each needed function to your company staff.
These functions may include: associate managers to work with your properties, marketing and sales professionals to find new clients; a human resources manager to handle payroll; an administrator to keep the office humming; bookkeepers for accounts receivable and payable; associate leasing agents; an IT coordinator; and a maintenance services coordinator.
10 Essential Steps to Starting Your Property Management Company
Plan Your Fee Structure: Research your territory to determine the types of fees that are considered standard. You can offer your services based on recurring flat fees for standard services, percentage fees based on unique purchase costs and one-time fees for special services. Flat fees allow your clients to budget their monthly property management cost and know in advance how much you will charge for one-time services such as renewing a lease, handling an eviction or other common services. Percentage fees can be based on the monthly rent. Depending on the market, 10 percent is a typical fee percentage, although this should be researched in your local market for the types of properties you plan to manage in your portfolio.
Price Your Services: If you have been working as a property manager in a particular market, you already know the fees that are standard and the pricing levels that are considered competitive. If you are less experienced, here are some of typical price levels that your customers will expect to pay for property management services. Onboarding [Average $300]. This fee covers the initial cost of setting up a new client, executing the contract, documenting their account and establishing your service relationship. Leasing [Up to one month’s rent]. When you lease a vacant property or renew a lease, this fee compensates you for handling the listing, staging and showing the property, screening prospective tenants and processing the lease when a tenant is approved. In some markets, the leasing fee may be 50 percent of one month. A reduced fee may also be standard for renewal, such as a smaller percentage, or a flat fee of $200-$500. Monthly Management [five percent to 10 percent of monthly rental]. This recurring fee covers your monthly services such as collecting rent, handling repair issues and otherwise working with an owner’s property and tenants. When rent is delinquent, a portion of the late fee may be paid to the property manager for the service of collection. Repairs and Maintenance [15 percent – 20 percent of the cost of a repair]. A typical landlord has average annual maintenance expenses of about 12 percent of rental income, and these one-time fees compensate you for selecting and supervising a repair technician or a maintenance contractor.
Build Your Service Network: The level of customer service experienced by your tenants (and your owners) will be strongly dependent upon the quality and professionalism of the network of service providers that you select. Their skill, responsiveness and service attitude will help (or harm) the reputation of your property management company and your owners. Maintenance Services. Every tenant will regularly see and interact with your landscape, security, swimming pool cleaning and pest control services, as well as with occasional maintenance services such as carpet cleaning, pressure washing and painting. Repair Services. Relationships between owners and tenants are either made or broken according to what happens when a repair is needed. The key to a positive outcome is your carefully selected plumber, electrician, HVAC technician or general contractor. Professional Services. When you are setting up your business and at key points in your growth, take advantage of the guidance you can only get from relationships with a lawyer and an accountant. You need a lawyer with real estate experience to go over your contract, to advise you in any legal representation of your clients, to guide you during an eviction or a lawsuit, and to help you stay compliant with Federal housing laws and local codes. Your accountant will initially help you set up your books, advise you on budgets, loans and financial software, and each year-end will help you navigate tax time. Fees paid to these professionals are well worth the investment and will come back to you many times in money saved and earned.
Refine Your Standard Agreement: If you have been working as a property manager, you may have copies of existing client agreements. However, you should research best practices for property management agreements in your state, and you should have your lawyer help you refine an agreement that is best suited for your company and your business model. A comprehensive property management agreement should include the following elements:
- The parties: your company and your client.
- Legal status of the property manager as an independent contractor.
- Duties and responsibilities of the manager.
- Supervision of employees and contractors.
- Compliance with laws, regulations and codes.
- Budgeting, expenses and monthly property reports.
- Leasing practices to be followed under the contract.
- Rent collection, repairs, maintenance and capital improvements.
- Service contracts, supplies and equipment.
- Handling of mortgages, loans and taxes.
- Hazard, liability, and property manager’s insurance.
- Contractors and sub-contractors insurance.
- Record keeping, financial reporting and audits.
- Operating bank account, security deposits, escrow and interest.
- Compensation, resolution of conflicts or discrepancies.
- Termination and final accounting.
Market Your Property Management Business: Once you have defined your geographic territory, your mission is to build a network of contacts and become known throughout the market as an assertive, competitive provider of property management services. Join the Chamber of Commerce. Evaluate membership in all local clubs, service organizations and charity groups. Cultivate good relations with bankers, investment groups, real estate brokers and top performing real estate agents.
Focus your marketing tools to appeal to both tenants and owners. To develop a compelling brand and identity, get help from a digital marketing agency. In addition to your website layout, they can help with content marketing, social media, paid search and online reviews. Use quid pro quo. Many property managers will pay a referral fee to realtors or investors who can provide contacts that lead to a property management contract. Relationships with realtors can also be fostered with commitments to recommend them when your clients want to sell a property.
Choose Your Business Structure: Many independent property managers use the Limited Liability Corporation LLC designation, which allows pass-through income to be taxed on their individual return. Others choose the S-corporation or C-corporation forms, which tax the owner as an employee, but may open company earnings to double taxation. Work with your attorney and accountant to determine which structure will be the most advantageous.
Obtain Federal and State Tax IDs: As soon as you incorporate or form your LLC, you will need both federal and state tax IDs. A Federal Employer Identification Number (EIN) and state tax ID will be required to open a bank account, apply for a business license and take other steps as the business entity, rather than as an individual. The U.S. Small Business Administration has excellent instructions for getting both types of tax IDs.
Open Your Bank Accounts: As soon as you have income or expenses for the new business, you will need separate bank accounts. Plan on having three bank accounts: one for your company operations; one for tenant security deposits; and a third account for your owners’ property transactions. Real estate laws in your state may specify the types of accounts that are required, as well as rules for handling deposits or funds in escrow. Your attorney and accountant can confirm these details.
Does Your Property Management Business Need an Office? You will not need an office until…you need one. Get started with your phone, laptop, business cards, website, and an all-in-one printer which provides printer, fax and scanning. Property management requires all parties to print, sign, share and store many documents, so the fax and scanner will see lots of use. Get the Microsoft Office suite, if you can afford it. If not, you can get excellent results with Google Docs or Open Office. Talk to your accountant about setting up your regular bookkeeping on QuickBooks, and start learning about the features of property management software. Get to know the features of property management software such as PropertyWare and Buildium. When you need it, you will know which one to choose.
Ready? Go Land Your First Client! Let your email list know that you have launched, and don’t make them guess what you want – ask for referrals. If your network includes property owners who are signed up with other property managers, competition is fair game, so ask them what service improvements would prompt them to consider switching. Make sure every realtor in your territory knows that you will pay a finder’s fee for referrals. Step up your community involvement. People do business with the people they know and like. But don’t wear everyone out with your sales pitch. Concentrate on getting to know your fellow volunteers or committee members, and the business leads will come. Your competitors can be colleagues. Get to know the top performers in your market and tell them you are interested in collaborating. Your best competitors will have more business than they can handle, and they could be persuaded to refer owners who are not quite a perfect fit.
Don’t like the idea of taking a competitor’s rejects? Keep building your business, and look forward to the day when your property management company will be the one who can pick and choose clients.
Work with your digital marketing advisor to sharpen up your SEO and website tools. If you are a good speaker or writer, share your knowledge with local organizations and publications. There is always a willing audience for good content, and among that audience will be good prospects for clients.
Step up your social media profile. Post on LinkedIn, Twitter and other social media, especially on local forums. Don’t make it all about your launch. Post some relevant content about property management and leads will follow.
It won’t be long before one lead becomes a prospect, and then signs on as client #1 of your property management company. As your company and income grows, so will your business insurance needs. Higginbotham makes this process simple. Talk to a specialist today.