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How to Start a Property Management Company & Business

By Guest Author

property management condo rentProperty management is a surprisingly easy and affordable field to enter, requiring minimal education or experience, and almost no small business start-up capital. That said, it is a multifaceted business that involves liaising with many different types of people (landlords, tenants, contractors), understanding local landlord-tenant laws, and creating protocols that are both efficient and effective. It’s definitely not for everyone. There are many issues and responsibilities that come with buying rental property and becoming a landlord, and starting a property management business is no different. In fact, it comes with its own set of challenges and risks.

However, if you understand everything going in and enjoy managing real estate, a property management business can be very rewarding. Here’s how you can start one up.

4 Steps to Starting a Property Management Company

Step 1: Setting Up Your Business
As with all businesses, you’ll need to go through the process of setting up a legal entity (most property management companies are limited liability companies or LLCs), setting up a fax system and email account, an office, business cards, and so on. The good news is that you can do most of these simply and inexpensively, until your business takes off enough for you to afford more costly services.

You can set up an LLC yourself, without hiring an attorney. Go to your state’s official website and look up the process of filing an LLC in your state; then download their free Articles of Organization template, and file it (filing fees typically range from $50-150).

Setting up an office can be as simple as setting aside a room in your home for business, and possibly setting up a post office box for correspondence if you don’t want to publicize your home address.

You’ll need a phone number, and a fax line. You can use your mobile phone for everything; if you prefer, you can set up a separate business phone number through a variety of online services, which will automatically forward calls to your mobile phone. Additionally, there are many online services that provide paperless faxing for as little as $10/month.

Here are some questions to ask when setting up a small business.

Step 2: Finding Clients
Real estate investors and landlords can be found in the most volume at local real estate investment clubs. Join as many as you can, and be aggressive in networking, as this base is your bread and butter. A directory of real estate investing clubs in all 50 states can be found at EZ Landlord Forms, to help you find investing clubs in your area. Here are some useful business networking tips to get you started.

You should also network with people who are likely to refer business your way. One great source of referrals is real estate agents who specialize in investment properties, because many of their clients are new to the business and will ask for recommendations for various services. Another great source for referrals, and for direct business, is local hard money lenders. Hard money lenders sometimes find themselves stuck with rental properties, and are not in the business of property management, so they tend to outsource it. Also check out these non-traditional places and events for networking opportunities.

Step 3: Filling the Rental Units
Finding tenants is relatively easy, but finding qualified tenants can be more of a challenge. The first thing to remember is that your target market might look for housing differently than you would; while your first impulse might be to jump on Craigslist, your tenant pool might look in the local daily or weekly newspaper, or might only read the local Spanish paper. Consider how your target tenants look for and find apartments for rent, and then focus on that medium.

Remember, you must adhere to the Fair Housing Act, which means not singling out one particular demographic group. Most critically, be sure your advertisement does not specify a certain type of tenant (e.g. “perfect for a single professional”), because these are considered discriminatory (in the above example, discrimination based on familial status). Read up on the Fair Housing Act before you start advertising units.

When showing rental properties to applicants, be sure to confirm the meeting an hour or two beforehand, to minimize time wasted due to no-shows, and bring a hefty stack of rental application forms with you (or better yet, leave a stack at the rental property). Once you’ve narrowed your tenant search to a few strong applicants, run their credit (using a service like Equifax Identity Report), criminal history, and eviction reports, because history almost always repeats itself.

Be sure to use a state-specific lease agreement, which includes all required addendums and disclosures. Most beginner property managers and landlords underestimate the importance of a strong lease agreement, but it is the first document the judge will ask for in any landlord-tenant dispute. You can find a free rental application, a variety of tenant-screening services, and state-specific lease agreement packages at EZ Landlord Forms.

Step 4: Property Management
Good property management companies strive to minimize risk (namely the risk of litigation and damage to rental units) and maximize clients’ profits (by slashing vacancy rates and maintenance/repair costs). One of the ways you can do this is by offering incentives to the tenants under your management (RentedSpaces recently published a great case study of an effective incentive program), which can range from simple offers like lower rent for tenants who agree to longer-term lease agreements, to complex point-based systems for redeemable rewards. It’s critical that property managers are both proactive and reactive when dealing with tenants, because most issues can be cleared up easily if addressed immediately, but when left to fester they can result in lawsuits, damaged rental properties, and payment defaults.

Lastly, property managers will need several contractors on call to perform maintenance and repairs. These should range from inexpensive handymen up to fully licensed contractors to tackle the more serious repairs. Competent yet affordable contractors are difficult to come by, but by trying out many different ones, and getting referrals from trusted colleagues, property management companies should establish close, long-term ties with several quality contractors. Angie’s List may be a good place to look for quialified contractors as well.

Final Word

Property management is not for everyone, and requires both a love of working with people and a willingness to move swiftly and firmly when tenants break their lease agreements. It’s a business that can be started with almost no up-front capital, since it is primarily a people-oriented service, and requires no physical office space, merchandise, or equipment.

This is a guest article by Brian Davis of ezLandlordForms.com.

(photo credit: Shutterstock)

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  • http://www.propertymanagementbusinessplan.com Patrick

    I agree, property management is one of the best businesses to start here in 2010 and 2011. The property management industry is booming and people who start a property management business and do it right have the ability to make a lot of money today.

  • http://www.dohardmoneyloansvirginia.com/ Veronika Hudson

    hey one more thing is passion and enthusiasm must require while staring or entering in new thing …to be successful

  • Grey Manoti

    how do u decide on the percentage to levy on the property or the estate one is managing?

    • Woodsy

      Usually a per unit cost or a percentage of gross income for the properties.

  • Steven

    One of the worst articles ever written in the history of the planet. The author missed the step just after # 3, go to jail for practicing without a real estate license, a felony in most states.

  • MIi

    Dont u need a real estate broker license to mamage multiple owners unit?

    • Munchkin29902

      You need to find a broker in charge to hang you property management license. However it is different for each state. You might want to look into what your state requires.

  • Elfsca

    The business is a LLC. The owners of the residential properties in which the LLC manages are also the owners of the business. They are looking to sell their homes to the LLC for tax sheltering versus losing out on repairs and tax reporting on individual taxes. Is selling their homes to the LLC a better approach from a practical matter for taxation, writing off repairs and labor, and property taxes as well as homeowner’s insurance OR is it best to keep the homes separate from the LLC and only ‘manage’ the homes as part of the primary business purpose of property management?

  • http://www.am-luck.com AM-Luck

    This is a great starter article but before anyone quits their day job. Remember there are much more things to consider. for example liability insurance (E&O), knowledge of tenant screening, evictions, fair housing laws, accounting and bookkeeping, etc. and yes in most states you must be a broker or have a real estate license which is placed with a broker. There is a good reason for this, as the liability of this business is high. One mistake in mishandling of the funds and bye bye business. ( A degree in business or accounting would come in real handy) As with any business the higher the liability the sweeter the profits.

  • Fred

    We own 9 rental properties managed by a real estate property manager. We
    do all the repairs. What I want to do is create a LLC to manage and
    rent the properties and pass the payment to us monthly just like the
    present company does. If we create the LLC to be the property manager
    and collect rent would we then have to pay social security tax? We don’t
    pay SS tax now on the rent and other payments.

    Or we could use the LLC to just rent the property and have all rent or
    other payments made directly to use instead of the LLC. This way the LLC
    would never have any income. I do not have a real estate license.

    Any thoughts on this is appreciated.

    • Redbird222

      I don’t know about your state but, usually you don’t need a real estate license to manage your own property and you could do it under an LLC or just as an individual without an LLC. If you plan on managing other people’s property, sadly the article does not say, in some states you must be a licensed real estate agent to manage other peoples property. As long as you are not providing a service to others, you don’t need to pay any SS/FICA tax on rents from your own property… but of course the government wants their cut of your income.

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