How To Open a Property Management Company

Although not mandatory, an associate's or bachelor's degree in property management can increase your credibility as a property manager. Having a college degree in the field may help you land potential clients.

Most states require a real estate broker's license to manage properties, especially if you handle leases and collect rent payments. Licensing requirements vary by state, so contact your local Chamber of Commerce to confirm what you need.

Understanding Property Manager Responsibilities

Responsibilities of property managers include:

• Handling rent collection and following up with delinquent tenants
• Showing properties to prospective tenants
• Screening tenants and processing applications
• Performing credit or background checks
• Handling leases and lease renewals
• Resolving tenant complaints
• Repairing and maintaining leased premises
• Hiring repair workers and subcontractors
• Conducting move-in and move-out inspections

Launching a property management company may be a rewarding business venture if this sounds like you.

Real Estate Broker's License

To get a license, you'll first take a pre-license education course covering:

• Real estate and contract law
• Real estate finance
• Property management

Then, you'll take a written exam and apply to your state's real estate licensing board.

Certifications

Property managers don't need a property management certification. But a certified designation, such as CPM, may give you a competitive advantage. To become certified, you must complete certification classes and pass an exam. Some of the most reputable CPM programs include:

• Certified Property Manager (CPM) through the Institute of Real Estate Management (IREM) certifies property managers with at least three years of experience.
• Certified Apartment Leasing Professional (CALP) from the National Apartment Association (NAA) certifies on-site property managers of apartment complexes.
• Residential Property Manager (RPM), as issued by The National Association of Residential Property Managers (NARPM), certifies property managers of 100 units or more over two years.
• Master Property Manager (MPM) through NARPM offers the highest designation for property managers of 500 units or more over five years.

In addition to licenses and certifications, you should know state and federal property management laws. Fair housing and landlord-tenant laws are fundamental when dealing with rental properties. A real estate attorney is a great legal resource for your business. They can advise you on these laws.

Once licensed, it's time to create a business plan. Your business plan is your roadmap for strategizing your business and meeting goals. It will organize various aspects of your property management business, including marketing strategies, financial forecasts, and scalability.

The specifics of your business plan depend on the nature and scope of your business. But most sound business plans include:

• Business description
• Management team
• Target market
• Required skills
• Services offered
• Startup costs
• Services pricing
• Expected revenue
• Marketing plan

When writing your plan, determine your goals and challenges. For example, do you want to manage properties for real estate investors or handle a large complex of apartments?

It's also helpful to know your limitations. For example:

• How many properties can you handle?
• Who will manage the day-to-day of the business?
• Can you manage repairs and maintenance yourself or will you hire employees or subcontractors?

Answering these questions will help focus your business plan. Be as thorough as possible—you'll refer back to your plan as you start, operate, and grow your business. If you need more help, there are online templates that can guide you through your business plan. You may also be eligible for free or low-cost advising through the U.S. Small Business Administration (SBA).

The next step is to choose a business name for your property management company. Pick a name that's professional, memorable, and easy to spell. Your business name should resonate with your target audience and convey what you offer clearly. Also, consider how the name looks when abbreviated.

Additionally, be sure your name isn't already registered by another business or protected by a trademark. Your name also can't have confusing similarity to a registered trademark—meaning the average consumer could mistake your business name for someone else's intellectual property.

Most states' Secretary of State—Division of Corporations websites have searchable databases of registered business names. Use the U.S. Patent and Trademark Office's (USPTO) trademark database to check for federal trademarks.

There are several types of legal entities to choose from when starting a business. Certain structures offer advantages in liability protection and tax benefits.

Property management companies are often subject to lawsuits, especially for negligence or unlawful evictions. Because of this, most property management owners opt for business structures that protect their personal assets from business liabilities.

Sole Proprietorship

The most common business structure is a sole proprietorship. The benefit of a sole proprietorship is that all income or losses are part of your individual tax return. But you're personally responsible for any business debts or lawsuits.

Partnership

You can form a partnership if you have a partner or partners in your property management company. But this business structure lacks corporate protection. So, you and your partners are liable for the debts and claims against the business.

If you want protection from personal liability, consider forming a corporation or limited liability partnership to protect you from personal financial responsibility.

Limited Liability Company (LLC)

A limited liability corporation (LLC) has the advantages of both a corporation and a sole proprietorship. An LLC offers protection against personal liability like a corporation. It also allows the business owner to receive tax treatment similar to a sole proprietorship.

Corporation

A corporation is a separate entity from the business owner. All profits, losses, and liabilities are part of the corporation. This means the business owner is not personally responsible for any claims arising from business operations.

But traditional corporations (or C-Corps) are subject to double taxation. Double taxation occurs when you pay taxes on corporate income and your personal income tax return for corporate revenue. You can avoid double taxation by applying to the IRS for an S corporation (S-Corp).

Once you settle on your business name and legal structure, register your property management company with your state's corporation office. This is usually a secretary of state. It provides legal recognition for your business.

Each state has its own procedures, forms, and fees for business registration. Check with your secretary of state's office for specific business requirements.

After registration, apply for a federal Employment Identification Number (EIN) with the Internal Revenue Service (IRS). The IRS uses this number for tax and identification purposes. You'll use your EIN to file taxes, open bank accounts, and apply for business licenses.

It's free to get your EIN from the IRS. Be sure to apply on the official IRS website—some similar-looking commercial sites charge a fee for an EIN.

Once you have your EIN, open a separate bank account for your company. Also, consider applying for a business credit card. This can help build your business credit and cover operating costs when needed.

Some state laws require you to keep tenant security deposits in a separate, income-bearing account.

Use your business accounts for all your company's transactions. This helps prevent commingling of funds. Keeping your personal and business financials separate further reduces your potential for personal liability. It also builds creditability with clients, vendors, and other partners.

The costs for starting a property management company can range from $2,000 to over $10,000. Startup costs vary depending on the size and scope of your business. For example, a one-person venture using a shared or free office space needs little money. But if you're launching a new office space with several employees, you'll likely need outside financing for your business.

Your financing will need to cover:

• Business formation filing and any necessary legal fees
• Professional website and branding materials
• Commercial office space
• Office equipment and furniture
• Staffing and payroll
• Business insurance
• Tools and equipment for repairs (if you'll be completing these on your own)
• Property management software

Research features and reviews of property management software programs before you purchase. A good software program should allow you to automate all aspects of your company and generate reports for your clients. Specifically, it should be able to:

• Track rental income
• Manage your accounting
• Track lease renewals
• Coordinate property maintenance requests

A critical aspect of your business setting up a competitive and profitable fee structure. Property management companies make money by charging fees to the property owner and sometimes potential renters. A typical fee pricing structure might include:

• Ongoing management fees: Range from 7-10% of the collected rent
• Tenant acquisition or leasing fees: One-time payment equal to one month's rent
• Lease renewal fees: One-time payment equivalent to one month's rent
• Application fees: Generally $25-50
• Maintenance fees: Vary depending on repairs and upkeep
• Eviction fees: Vary depending on legal fees

Your property owners pay most of these fees. Prospective tenants often pay for background checks and application processing.

You can work from your home office or lease a small, shared space if you're a one-person operation. This is an option if you don't have clients come to your office.

As you expand, you may need a brick-and-mortar property management office. First, check if any zoning laws in the area will affect your business. Then, consider other factors when leasing commercial property, like adequate parking and accessibility for your customers.

In addition to having a real estate broker's license, you may need other business licenses or permits to operate in your city or state.

States and local governments oversee most business licensing requirements. Check with your jurisdiction's business license departments to see what permits and licensing you need for your property management business.

Find out what business insurance you need for your operations. At a minimum, you should purchase general liability insurance for your property management company. This covers property damage, theft, personal injury claims, and more.

If you have employees, your state likely requires you to carry workers' compensation insurance.

Some property management companies also carry tenant discrimination and errors and omission insurance:

• Tenant discrimination insurance protects you from discrimination claims by tenants or potential tenants.
• Errors and omission insurance covers accidental mistakes that cause injury to a third party.

Consider your business's risks and liabilities to determine adequate coverage. It can also help to work with an insurance broker with experience in property management companies.

You'll likely need to hire staff to handle some of the day-to-day operations of managing properties. The specific type and number of employees depends on the scope of your business. But most property management companies need:

• Maintenance staff and groundskeepers
• Leasing agents
• Administrative assistants

When scouting talent, look for candidates who can provide support and customer service to residents. Your team should be able to quickly respond to tenant inquiries and issues while maintaining order and efficiency. Managing tenant relations is a key part of your business. If tenants aren't happy, neither is your client (or property owner).

You may consider using independent contractors instead of employees for certain roles. An advantage of using contractors is that you don't have to pay employment taxes, benefits, or worker's compensation. But contractors may have other clients and jobs. If you need a dedicated on-site maintenance employee, you must hire an employee.

There are many legal aspects to hiring employees and contractors, including:

• Differentiating employees and contractors correctly
• Verifying employee identity and eligibility to work in the U.S.
• Avoiding illegal questions in a job interview
• Following OSHA and workplace safety

Post your well-written (and legal) job descriptions on online job boards and LinkedIn. If any positions have a rotating “on call" requirement (like emergency maintenance or tenant issues), be sure to state that in the job description.

Investors and property owners may look for property managers in your area to manage their rentals. But they won't know about your business if you don't have a solid marketing plan.

Successful property management companies often combine a strong online presence with content marketing and local advertising. Some digital strategies to consider include:

• Setting up a user-friendly, accessible website detailing your property management services
• Maintaining a social media presence with timely, consistent, and engaging content
• Writing a blog for your website, incorporating keyword-rich content that's helpful to your audience
• Leveraging search engine optimization (SEO) strategies
• Using email marketing, like an e-newsletter

Traditional channels are still effective, too. Contact local investment property and apartment owners to introduce yourself and your business. Also, consider sending direct mail about your company. Request mailing lists from property management trade associations or your local board of realtors.

Word-of-mouth advertising is essential in the real estate industry. Contact real estate agents in your area and tell them about your services. Also, join property manager referral networks so potential clients can find you. Always carry business cards if you meet a potential client or partner.

Local advertisements can also be a powerful way to get the word out about your new business.

Before launching your marketing campaign, review applicable advertising and marketing laws. For example, email marketing comes with specific regulations. You also must adhere to truth-in-advertising guidelines.