Owning property is not a simple thing; it comes with significant responsibilities, liabilities, and concerns, especially if you don’t live in or near your property. Here we are talking about just one flat or house; imagine how difficult it is for those businesses and individuals who own many properties in different cities. This is one of the reasons why property management companies are growing in popularity. Property management has become an easy and cost-effective industry to start your business. It requires no experience and educational qualification, and almost nil start-up capital.
Property management business can be very rewarding, and if you are interested in this business, this guide will help you set up the foundation for it.
What is Property Management Business All About?
Property management is a multi-faceted business; however, in simple terms, the business is all about taking care of or managing businesses’ and individual’s properties, including physical maintenance, support, selling, renting, leasing, controlling, acquisition and accounts maintenance. Does the business seem right for you? Read on. The business will mainly deal with three or four types of people, namely the landlords, the tenants, the buyers, the brokers, and the contractors. As a property management business owner, you have to get accustomed to the local landlord vs. tenants laws and come up with effective and efficient protocols.
Your Role as a Property Manager
You will be responsible for the management of one or more residential, housing, and commercial properties. You will be doing the work of a real estate manager as well, such as connecting the owners and renters, showing properties to right clients, collecting rent, getting lease documents signed, collecting applications, dealing with sales documentation, conducting move-in and move-out inspection, and even marketing unoccupied properties.
You can start a property management business with cost as low as $2,000 as the barriers to entry is very low. Although a background in real estate will be helpful, it is not entirely necessary.
What Skills Do You need to Have?
Most of your day-to-day tasks will involve talking to property owners, dealing with tenants and buyers, and connecting with contractors and real estate managers. Communication and leadership skills are quite essential to be successful in this field. You might also want to refine your organization and problem-solving skills as well. You have to play the part of an owner and should possess a working knowledge of local, state, and federal housing laws and regulations. You will only have to think from the owner’s perspective and consider their benefit more than others.
How to Start a Property Management Business
This should be an easy business to start. However, like with any start-up business, property management also comes with many issues and responsibilities, and you have to gear up for the challenges and risks.
Step 1: Establish Your Company
Your first step should be to establish your company as a legal entity. Once your business is a legal entity, it will be easier for you to mitigate risks and promote growth. Most of the property management companies are Limited Liability Companies or LLCs. Forming an LLC has many advantages, such as you will be able to separate your personal assets from your business assets, and if your business faces a legal issue, your family and personal assets will not face any danger.
Although you can start an LLC without consulting an attorney, we suggest that you hire a lawyer for your legal purposes to be sound about the business proceedings. If not an LLC, you can also establish a sole proprietorship company, a general partnership company, or a corporation.
Contact your state corporation authorities to find out the procedure of filing an LLC in your state. You can also look up their official website to get an idea about the process. It would not cost you much to file the legal documentation, probably between $100 and $200.
Set-up Your Office
Once you have established your company as a legal entity, and have obtained the required licenses and permits to run the business, start setting-up your office. If you want to be extremely cautious with your finances, you can start a property management company from your home itself. You can set up a home office and get a post office box for correspondence if you don’t want your home address to be stalked with emails and letters.
You can also rent a one-room space for your office in a more established market to gain a quick business name. Make sure the location you choose is thriving with existing businesses so that you get more customers upfront.
Once you set the location, you have to get the basics right, including
- A separate bank account
- A fax system
- Email account
- Phone number
- Internet connection
- Business cards
We recommend that you have a separate phone line, bank account, and mailing address for your business so that you find it easier to track your business and your personal expenses separately.
Step 2: Marketing Business and Finding Clients
Marketing as a property manager is little different from other business marketing. Most real estate investors, property owners, and homeowners network in local real estate clubs and events. We suggest that you join as many clubs as you can and attend as many events as possible. Networking is the key here.
Get in touch with real estate agents who specialize in property investment, and build a rapport with them. Most clients connect with real estate managers for property management due to lack of knowledge. If you have a good point of contact, you will more likely be recommended for your services.
Since this is the age of digitalization; we recommend you to develop and launch a website for your business and promote it on different social media platforms. Wherever applicable and relevant, link your website page. However, ensure your website is active and contains the necessary information, such as services rendered, company profile, address, contact details, and quick form fill-up link.
Local hard moneylenders can also be an excellent source for a referral. They are good for direct business too. Hard money lenders are generally not in the business of property management, yet they get stuck with rental properties quite often. And, when they do get stuck, they mostly outsource such requirements to property managers. So, you may want to network with them too for growth opportunities.
Step 3: Find Tenants for Customers
You will be qualified as a successful property manager when you start filling in tenants for your clients. However, finding qualified tenants is not as easy as it seems. You have to find them where they are searching for you. Your place of advertisement and their place of search should be one. If you use newspaper as your medium and if they use Facebook to search for rentals, you will never be able to connect with them. Consider how your target customers look for you (or your owners) and then advertise on that medium.
When showing rental properties to clients, make sure you conform to the Fair Housing Act, which means not being partial to a particular demographic. Do not write any discriminatory content in your advertisement, such as specifying a certain type of tenants (e.g. only married, no singles allowed). And once you shortlist your tenant applicants, check their credit history to be sure there is no criminal record or eviction report.
Finding tenants is not tough, but finding the right, trustworthy and reliable tenant can be a challenge. That is why it is important that you use a state-specific lease agreement and bind the relationship in a contract. If in case any dispute arises between the owner (indirectly you) and the tenant, you will have a legal document to fight the case.
Ensure that you follow the rules and regulations laid by the housing act, such as serving the notice period if you ask the tenant to vacate the house before lease term is over and vice-versa, or abiding by the current rental norms.
Step 4: Property Management
Finding tenants and filling in properties is not the only job criteria. While that is important, you will also solely be responsible for minimizing risk and maximizing your client’s profit. You can also reduce risks by avoiding legal issues and damage to rental properties and can maximize profits by cutting down maintenance and repair costs and decreasing the rate of vacancy.
You can balance both factors excellently by being both reactive and proactive when dealing with tenants. However, if you offer incentive programs to tenants, such as lower rents for those who stay long in the lease agreement or who keep the interiors neat and clean, then you may stand a greater chance of retaining reliable and profit giving tenants. If any dispute arises, it will be better if you react immediately and take proactive actions before the incident escalates into a legal issue.
As a property manager, you will also have to hire or call upon several contractors for repair and maintenance work, such as carpenter, electrician, plumber, and other inexpensive handymen to tackle different property related jobs.
Property management is a business that can be started immediately with almost no capital. Since the business is more people and service oriented, it is considered one of the best start-up businesses for amateur entrepreneurs. Just go by it if you are passionate and confident enough. However, don’t forget to share your experience in the comments below.