Starting a property management company could be lucrative if you have the right skill set to manage a business like that. The right skill set includes great marketing, sales, operations, and financial ability. It’s an area with growing market needs.Here are some things you should know about the market and unique aspects of this type of business:
- Property Management Market Size
- Property Management Company Financials
- Things you need to get started
Property Management Market Trends and Size
There are 49.5 million residential rental units in the US, according to the Better Business Bureau. The overall revenue generated is $84.73 Billion. There are roughly 300,000 property management companies. It is a highly fragmented industry with the top 7 companies generating only 10% of overall revenue.
There is great opportunity in this type of market for innovation and growth.
Property management firms tend to specialize in different types of properties and services, according to the Better Business Bureau:
Residential real estate is by far the biggest segment property management companies specialize in.
With the shortage in housing supply and the cost of housing increasing, there is a great number of renters, and rental housing supply is becoming a greater percentage of housing supply. These trends lead to good growth potential for property management companies.
The amount of renter-occupied housing continues to grow, according to the Federal Reserve Bank:
The property management industry is expected to experience 7.5% annual growth over the next five years, according to the Better Business Bureau.
How much do property management companies make?
The typical profit for a firm is 10.1%, and the biggest expense is labor costs, which average 43.7%:
According to the Bureau of Labor Statistics, there are ~285,000 people employed in property management making wages from $37,000 to $136,000.
Property Management Industry Revenue Breakdown
Just like any other business, you should do your due diligence before starting a property management company. Really look at your local conditions and unique needs to see if it’s viable for you.
Essential Steps to Launch a Property Management Company
If you decide to embark on starting a property management company, here are some things you should research and have set up, before you get your first customer:
- Property Management Licensing and Certifications Requirements
- Setting up company structure (such as LLC)
- Setting Up Trust Bank Account
- Creating a business plan with some key areas researched and planned
- Getting appropriate insurance to protect yourself
- Appropriate legal contracts: rental agreement, lease, property management agreement
- Getting office space
- Getting the Right Property Management Software
1) Property Management License – this can vary for each state. The majority of states require you to have a real estate broker license so that you are licensed to handle money in trust for other people. A few states require a specific property management license. Also, there are a few states that have no requirements.
* Oregon requires with real estate broker or property management license
2) Corporate Structure – An early decision you have to make is to determine what kind of structure for your business: LLC, S-Corp, C-corp? There are benefits and costs with each type of entity. It’s best to consult with your attorney and CPA prior to making this decision.
3) Business plan- this will serve as a plan for you to research and answer some key questions for your property management business. You can go to the Small Business Administration to see templates for a Business plan.
- What sets your company apart from existing competitors.
- How do you want to structure your organization – will you run it by yourself? Will you have an Office Manager? Leasing Manager? If not at the start how large does your business have to get before you start hiring?
- What services do you offer – Collecting Rent? Maintenance? Filling vacant units?
- What are your marketing channels to get clients?
- What kind of money do you need to start your business? Detail out what startup will be used for.
4) Trust bank account – Since you’ll be handling other people’s money, you have to set up a trust bank account. A trust bank account is a deposit account that can be opened by a trustee (the property manager) for the benefit of someone else (beneficiary); in our case, property owners and tenants. These bank accounts are protected during and after Grantor’s life.
Your State’s department of real estate will require you to account for this bank account by doing monthly bank reconciliation and if they audit you they’ll typically require a 3-way reconciliation to show your book, bank, and owner balances all match.
5) Insurance – Whenever you start a business, you should look into appropriate insurance to protect yourself from liability. Property Management is no different.
You should absolutely look into general liability insurance which protects you against damage to another person’s property while engaging in work. It also protects you from someone getting hurt while visiting your business.
If you will be hiring employees, worker compensation insurance is a good idea and, in some states, is a requirement that you should look into.
6) Legal contracts – You absolutely should have an attorney-approved, state-specific contract that is comprehensive and gives you legal protection, and also clearly spells out requirements for yourself and other parties that you’ll be signing a contract with. There are three main groups of people you’ll have to deal with and sign a contract with:
- Applicants for a vacant unit – Rental Application
- Tenants – Lease Agreement
- Owners – Property Management Agreement
7) Office Space – Even in this online enabled remote working environment, you may decide you need an office space for your office workers as well as tenants.
8) Property Management Software – It’s important to think about your business needs and evaluate property management software to make sure it meets your needs.
Here are some key things to consider:
- Tenant functionality: Rental Advertising, Rental Application, Tenant Screening, Leasing, Online Rent collection, Tenant Portal, Move In/Out
- Accounting functionality: that has NARPM approved Chart of Accounts, Bank Reconciliation, Transaction History and Audit Trail, CPA ready financial reports
- Owner functionality: Professional Owner Reports, Online Payment to Owners, Owner portals, 1099 E-filing
- Vendor functionality: Work Orders, Vendor Portal, Online Payments to Vendors, 1099 E-filing
- Bank functionality: Bank Download Feed, Bank Reconciliation, Deposit Slips
- Communication Capability – Ability to communicate to any individual (tenant, owner, vendor) or in bulk across all channels (email, SMS, phone) by web or mobile app.
These are some of the basic requirements, SimplifyEm provides these and many more features in an easy to use and cost effective manner.
Frequently Asked Questions – FAQs On Starting a Property Management Company
- What is a property management company?
A property management company oversees rental properties, handling tenant relations, maintenance, rent collection, and legal compliance on behalf of property owners. - Do I need a license to start a property management company?
Licensing requirements vary by state or country. Some places require a real estate broker’s license, while others may have different regulations. Check local laws before starting. - How do I find my first clients?
Start by networking with real estate investors, landlords, and homeowner associations. Utilize digital marketing, social media, and referrals to attract clients. - What are the startup costs for a property management company?
Startup costs include business registration, licensing, insurance, marketing, software, and office setup. Initial costs can range from a few thousand to tens of thousands of dollars. - How much can I charge for property management services?
Fees vary but typically range from 8% to 12% of monthly rent for residential properties. Additional fees may apply for leasing, maintenance coordination, and inspections. - What software is best for managing rental properties?
Property management software like SimplifyEm or AppFolio can help streamline operations, tenant tracking, and financial management. - How do I handle difficult tenants?
Have clear lease agreements, conduct thorough tenant screenings, and follow legal eviction procedures when necessary. Good communication helps resolve issues early. - Can I start a property management business from home?
Yes, many property managers start from home. However, as your business grows, you may need office space for employees and client meetings.
Sources:
https://www.bbb.org/all/industry-hub/property-management
