How to Start a Property Management Company

Detailed guide with helpful information on fees, costs, requirements, licenses, formation, marketing, and hiring. Also includes tips, FAQs, and a checklist.

Updated on November 26th, 2019

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A property management company is a business that maintains commercial properties that are used for long and short-term rentals. A property management company may manage everything from an office building to apartments to storage units.

While many property management companies do own their own properties, some simply provide their services to other property owners. Property managers keep up with the maintenance and oversee finances by accepting rent payments and paying utilities.

If you are thinking about starting a property management business, read through the steps below to find out how to run a successful property management company.

How to Start a Property Management Company – Checklist

Use this free checklist to help you follow each step as you set up your own property management company.

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How to Start a Property Management Company:

1. Choose a name.

Your property management company needs a name that is easily recognizable and memorable. As you begin creating your business, you need to decide on a name that will help you to stand out.

Pick a name that inspires confidence in people. Top property management companies like Pinnacle, Alliance Real Estate, and Lincoln Property Company have names that sound organized and professional. You want to choose a name that communicates a sense of trust.

Trademark your business name as soon as possible. If you have decided on a property management business name, make sure that you secure a trademark so that no one else takes it. You can register a trademark at www.uspto.gov.

For more information about naming your business, check out How to Name a Business.

Cost of Starting a Property Management Business:

Fee Description

Approximate Cost

Trademark

$225.00–$400.00

Incorporation

$50.00–$500.00 (depending on the state)

Insurance

$30.00–$85.00 /mo.

Office space

$1,000.00 /mo. +

Licensing

$25.00–$100.00 (depending on the state)

Website builder

$4.50–$74.00 /mo.

2. Create a business plan.

A business plan outlines the purpose of your business and any practical steps that you intend to take to establish and grow the business. Writing a plan for your property management business will help you to organize your strategy and present your vision to potential investors or stakeholders.

Your property management business plan should include the following:

  1. Executive summary.
  2. Company description.
  3. Products and services.
  4. Marketing plan.
  5. Operational plan.
  6. Management.
  7. Financial plan/projections.

Your business plan can be a point of reference as you launch your property management company. If necessary, you can adjust your management, marketing, or operational sections in response to new financial constraints.

Your property management business needs to be set up as a legal entity. The structure that you choose is important for tax purposes.

There are four basic business structures:

  • Sole Proprietorship: A business that is owned and operated by just one person. All taxes and liability issues are the personal responsibility of the sole proprietor, who will likely need to use a schedule C form to report profits and losses.
  • Partnership: Two or more partners who share the business's tax burden through individual tax returns.
  • Limited Liability Corporation (LLC): An entity that assumes liability but still passes taxes on to the owners. May use corporate tax rules in some situations.
  • Corporation: A distinct legal entity that assumes all liability and is taxed as a business at corporate tax rates. Has members and shareholders.

You can run your property management company using any one of these structures. However, there are distinct advantages to setting up a corporation. For one thing, you can avoid the hefty tax burden that you may encounter if you choose to operate as a partnership. Additionally, you may want to avoid any stucture that leaves you with personal liability.

Consult with a lawyer and a tax professional to determine which legal structure makes the most sense for your business.

4. Secure financing.

Starting a property management company is not cheap. Your property management company will need money for things like:

  • Office rent.
  • Payroll.
  • Supplies.
  • Building utilities.
  • Maintenance equipment.
  • Background check services.

Seek a variety of funding options when you are starting your property management business. You can meet with your local bank to find out more about small business loans, or you can find a qualified lender that offers SBA loans. As long as the interest rates aren't too high, loans can be an effective way of adding capital to your business so that you can purchase whatever you need to get your property management operations up and running.

Business credit cards are great for short-term cash flow. Interest rates for credit cards are high, but if you just need a short term injection of capital to pay bills, a business credit card or line of credit might be the best solution.

5. Obtain state licenses.

Your state probably has a license or permit that you will need to obtain for your property management business. For example, in the state of California, property management companies are required to obtain a real estate broker's license.

Find out what specific criteria you need to meet by visiting your state's small business website. Search the website for "property management" or "real estate" to find out if there are any special requirements that apply to your business. In most cases, you can apply and pay the licensing fee online.

6. Purchase insurance.

Property management companies operate in a space that is heavy with liability issues. Any group that is given the responsibility of maintaining a property must be aware that they are in the care of a valuable physical asset that could be destroyed or damaged by weather, fire, vandalism, or some other accident.

Your property management company should purchase several types of insurance, including:

Major business insurance providers like Liberty Mutual and The Hartford offer special real estate insurance packages that are designed for property management companies.

You can contact an insurance provider or broker to request a quote for your property management company. A representative will be able to give you more information based on the details that you provide them about your business.

Property Management Metrics:

Occupancy rate.

Property management companies need to maintain high occupancy rates in order to maximize their profits. Empty units or buildings represent an additional cost that is not offset by rental income. To calculate your occupancy rate, divide the number of units/properties you have leased or rented out by the total number of units or properties that you own.

Occupancy Rate = Units Rented Out / Total Units

For example, if you own 100 units, and 75 of them are rented out, you can calculate your occupancy rate using the formula:

Occupancy Rate = 75 / 100 Occupancy Rate = 0.75 or 75%

Tenant retention.

If a property management business has a steady turnover of tenants in commercial or residential units, it will be difficult for the business to have a steady, predictable stream of revenue. Your tenant retention rate shows you how well you are doing at retaining tenants. This rate can be calculated over a period of time, like a full calendar year.

(Current # of tenants / # at beginning of period) x 100 = Retention rate

For example, if you have 10 tenants at the start of the year, and there are 8 left at the end of the year, your retention rate looks like this:

Retention rate = (8 / 10) x 100 Retention rate = 80%

7. Find an office.

It might be possible to start a property management business in your home, but with photocopiers, phones, employees and records, you may find it easier to have a commercial office space. You can either purchase a building or rent an office. Most startups opt to lease space because it is more affordable and gives them flexibility if their needs change. WeWork offers a shared workplace solution that is worth considering.

Meet with a real estate agent or consult online listings to find out what is available. If you need an office that can be easily visited by customers, find a location that is in your local business district or town center. Property management companies are always dealing with tenants, utility companies, and tradespeople, so you will probably want an office that is easy for these parties to visit.

8. Advertise.

If you want to grow your property management business, advertising is key. You can use online advertising and other strategies to boost your presence.

  1. Create a company website. The first and most obvious step is to create a company website. Register a domain name and build a site that explains who you are and what you offer. Having a website increases your visibility and legitimacy. You can use a website builder to create your own website.
  2. Start social media accounts for your business. You can enhance your online presence by creating social media accounts for your property management company. Facebook and Twitter pages, in particular, will make it easier for people to engage with you.
  3. Join your local chamber of commerce. Membership in your local chamber will give you access to exclusive business events and business-to-business networking opportunities. You may also be able to access local business services at a discounted price as a chamber member.

Tech Tools for Property Management Companies:

1. Property Management Software.

Businesses can use property management software to organize billing, schedule meetings with tenants, store building information, and more. We recommend Hemlane and PropertyVista.

2. Accounting Software.

Accounting software can be used to manage expenses, run payroll, track revenue, and generate financial reports. We recommend Xero and FreshBooks for property management companies.

3. Maintenance Management Software.

Property managers are always dealing with building maintenance, so they can use maintenance management software to schedule repairs and track renovations. We recommend UpKeep and Maintenance Pro.

4. Hiring Software.

Property management companies need to hire more employees as they grow, so hiring software is very useful. We recommend Betterteam and BambooHR.

9. Hire employees.

A growing property management business needs employees in order to keep up with services and continue to scale. Possible property management positions include:

  • Resident manager.
  • Maintenance coordinator.
  • Payroll administrator.
  • Office secretary.
  • Sales representative.
  • Property manager.

You can use hiring software to help you streamline the process of posting jobs, accepting applications, scheduling job interviews, and sending out final job offers.

Expert Advice on Starting a Property Management Company:

Source

Advice

Nathan G. - biggerpockets.com

"I recommend getting licensed and working for a property manager for at least a year before you try breaking off on your own. This will give you the training and experience, plus you'll find out if you even like it. If not, move over to sales and count your blessings. If you do like it, then you can put a plan in place to start your own company. Keep in mind, you typically have to have a Broker's license to open your own company and those take two years or more to earn. The other option is to be a licensed PM and work under another Broker, but then you have to share some of your spoils."

amach3 - wallstreetoasis.com

"I started a property management company and from my experience it is easiest to manage your own assets first. Think about your property management and investment side separately. Either way, someone has to manage your investment properties so it might as well be yourself. Once you have somewhat of an infrastructure in place, it becomes a lot easier to sell and get new clients. You can point to buildings/units you currently manage and show that you have at least some experience. If I am an investor, why would I hire some no name startup when there's tons of established prop mgt companies with system in place? Think of ways to answer that question."

Jody Foster - quora.com

"If you have been working as a property manager for a couple of years already then you should have a rough idea about what you need as you will have been using those tools every day. If you haven't worked as a property manager, then that's the place to start and learn as much as you can on the job."

Property Management Licenses by State:

State

License Required

Alabama

Real Estate Broker License

Alaska

Real Estate Broker License

Arizona

Real Estate Broker License

Arkansas

Real Estate Broker License

California

Real Estate Broker License

Colorado

Real Estate Broker License

Connecticut

Real Estate Broker License

Delaware

Real Estate Broker License

District of Columbia

Property Management License

Florida

Real Estate Broker License

Georgia

Real Estate Broker License

Hawaii

Real Estate Broker License

Idaho

None

Illinois

Real Estate Broker License

Indiana

Real Estate Broker License

Iowa

Real Estate Broker License

Kansas

None for residential

Kentucky

Real Estate Broker License

Louisiana

Real Estate Broker License

Maine

None

Maryland

None

Massachusetts

None

Michigan

Real Estate Broker License

Minnesota

Real Estate Broker License

Mississippi

Real Estate Broker License

Missouri

Real Estate Broker License

Montana

Property Management License

Nebraska

Real Estate Broker License

Nevada

Real Estate Broker License

New Hampshire

Real Estate Broker License

New Jersey

Real Estate Broker License

New Mexico

Real Estate Broker License

New York

Real Estate Broker License

North Carolina

Real Estate Broker License

North Dakota

Real Estate Broker License

Ohio

Real Estate Broker License

Oklahoma

Real Estate Broker License

Oregon

Property Management License or Broker License

Pennsylvania

Real Estate Broker License

Rhode Island

Real Estate Broker License

South Carolina

Property Management License

South Dakota

Property Management License

Tennessee

Real Estate Broker License

Texas

Real Estate Broker License

Utah

Real Estate Broker License

Vermont

None

Virginia

Real Estate Broker License

Washington

Real Estate Broker License

West Virginia

Real Estate Broker License

Wisconsin

Real Estate Broker License

Wyoming

Real Estate Broker License

Final Thoughts:

Property management is a challenging but rewarding business. You can use these steps to guide you as you set out on your property management adventure.

For more information about starting your own business, check out How to Start a Business.

FAQs:

How much do property managers make?

How much do property managers make?

Property managers make between $47,000 and $72,000 per year, according to our research. Property managers generally make more money as their years of experience increase.

Best Books to Read Before Starting a Property Management Company

What are the best books to read before starting a property management company?

  • "Property Management Kit For Dummies" by Robert S. Griswold.
  • "Build a Rental Property Empire" by Mark Ferguson and Lynda Pelissier.
  • "The ABCs of Property Management" by Ken McElroy.
  • "The Landlord Entrepreneur" by Bryan M. Chavis.
  • "Property Management Start-up Business Book" by Brian Mahoney.
How much does it cost to start a property management company?

How much does it cost to start a property management company?

At a minimum, it costs approximately $3,000.00 to start a property management company when you consider legal fees, office space, insurance, licensing, and basic advertising expenses.

Local SEM for Property Management Companies

What are some local SEM essentials for property management companies?

  • Register for Google My Business.
  • Optimize your website with local keywords.
  • Create Facebook and Twitter accounts.
  • Buy pay-per-click ads.
  • Upload images of the properties you manage.

Are there any tools that I can use to automate property management tasks?

There are many different property management software solutions on the market that you can use to simplify the management of a property or properties.

Do you need a real estate license to own a property management company?

It depends on what state you are doing business in. In some cases, the person who is responsible for managing properties and collecting rent must have a license. Consult your state's business website for more information.

What do I need to do to start a property management company in Florida?

You can consult our detailed guide if you need information on how to start a property management company. For information on how to start a business in Florida, specifically, you can read our step-by-step manual.