A lot of people are attracted to property management. It seems relatively low-risk and it is certainly among the lower cost business ideas. And it can be a natural extension for those who are already involved in some aspect of real estate full-time or a side hustle.
Also, property management can become a solid source of income, if you can acquire enough properties to manage and select the right management model for your business. You cannot go in blind, though, and you need to take a good long look at all that is involved before you leap in. That’s the kind of advice you’ll find in this post.
What is Property Management?
Let’s unpack the term first. Property management typically entails operation, control, and oversight of real estate on behalf of the actual owner. In a nutshell, your job is to ensure that the property entrusted to you generates a good income, is well-maintained and respected by the tenants.
Main Rental Property Management Tasks and Responsibilities
Finding and Approving Tenants: This involves marketing vacant properties for rent, showing them to potential tenants, screening those applicants, finalizing lease agreements, and collecting security deposits
Managing Tenants: Firstly, you’ll be responsible for handling all financial transactions with the tenants – collecting security deposits, monthly rental payments, reimbursements, etc. As well, you’ll likely be the one dealing with possible tenant complaints, issues, emergencies, and requests for repair.
Managing Move-outs: When tenants are leaving, you will be responsible for setting up that exit inspection, assessing any damage, and organizing clean up.
Dealing with Evictions: This is one of the thorniest issues for property managers. When tenants are not paying their rent or violating their lease agreement, you will have to deal with that tenant in writing. You may provide a “notice to fix” the problem and give the tenant a period of time to do this. Once that period of time is up, though, you will have to send an eviction notice (often called a “Notice to Quit”), providing a deadline for moving out. An eviction process can involve the court system, so be prepared for this eventuality.
Property Maintenance: The amount of property maintenance you will be required to do will depend on your agreement with the property owner. It can include such things as lawn/yard, exterior damage, painting, flooring, appliance repair/replacement, HVAC issues, plumbing, etc. If these things all fall under your responsibility, you will obviously have to have a cadre of repair/maintenance people you can call upon for these tasks. Of course, the owner will pay for these, but it is your responsibility to get them done as quickly as possible.
The 4 Types of Property Management Companies You Can Start
One of the things you will have to decide upfront is the type(s) of property you want to manage. There are basically three major types and one rather minor one.
Single Family Residential Management involves managing homes for one or several owners. Properties may be in a variety of neighborhoods and rather widespread geographically.
Multi-Family Unit Management means that you specialize in managing condos and apartment buildings that can host multiple separate families. The advantage here is that “all your problems are under the same roof” and you don’t need to travel miles between different properties.
Commercial Property Management can include anything from a single office building to the entire industrial park. It takes a lot of time to manage the commercial property well, and a common mistake is spreading yourself too thin by taking on too many properties – then none are done well. If you choose this type of management, start small with one building and work up from there.
HOA Property Management is a newer form of management. Newer neighborhoods and condos typically have a homeowners’ association with a board. They exist to make decisions about the “rules,” establish fees, etc. When HOA’s have a lot of properties, they often hire an overseeing manager to take care of a variety of things – maintenance of common ground, pools, community centers, etc. In the case of condominium complexes, this will also involve exterior building maintenance.
How to Start a Property Management Company in 5 Steps
Getting set up for property management is not that difficult, even if it’s your first business ever. In most cases, all you need to do is complete the next five steps.
1. Get Incorporated
Getting set up as a sole proprietor may seem like an attractive option for a new small business. But not in the real estate industry. Due to the legal liabilities involved in property management, you don’t want to be sued or fined personally if things go awry.
A better option is to set up a limited liability company for your business as it reduces your personal liability for any mishaps. However, do seek professional legal advice before you proceed with any type of incorporation.
2. Determine if You Need a License
Some states require a real estate broker’s license in order to go into property management. Others are more lax about this. Again, check your state laws and get some good advice from a real estate attorney.
3. Develop Your Business Model
This will be the most complex and time-consuming part of your business set-up. Figuring out the operational facets of your business will require solid research, especially in terms of your fee structure, invoicing schedule and payment terms . You want to pay yourself well, but you also need to be competitive in the marketplace. Check out how much property management companies charge in your area and in the type of management you are going into.
4. Determine Your Operational Practices
As a new property manager, you’ll have a lot of spinning plates to deal with. In particular, you’ll have to:
- Develop sample contracts for potential clients
- Decide if you need to rent an office
- Figure out if you want to have full-time employees or contract workers
- Purchase all the software/hardware you may need.
Do not scrimp on the latter. The more business processes you can automate – the easier your job will be.
5. Think Through Your Marketing
How are you going to get clients? If you are already in the real estate business, networking and word-of-mouth marketing will probably be your primary source of new business. If not, it’s never too late to start. Join local homeowners association or business networking groups to make some early intros.
Also, don’t underestimate the digital space. Set up a website. Get on social media platforms and join groups within those platforms, specifically related to real estate and property management.
Do some direct marketing too. This can involve contacting potential clients through “cold calling,” but also paying for advertising in local real estate publications and journals. Develop relationships with local real estate companies, so that you can obtain referrals.
Rinse and repeat what’s working best in your particular case.
Is Property Management Right For You?
Once you dip your toes in this domain, you’ll realize that real property management is not as simple as it may look at first. While it does not involve the startup costs that many other small businesses do, you will have to do a lot of upfront research and preparation. As well, securing those first few clients may be quite challenging without any prior affiliations and experience.
To understand if property management is the right type of business for you, honestly answer the next questions:
How Assertive are You?
When tenants are not paying or when lease agreement elements are being violated, can you confront those tenants in an assertive and yet diplomatic fashion? And when you have to “lover the boom,” can you be tough enough? If you shy away from confrontations, this business may not be for you.
Are you Ready to Handle Emergencies?
Property managers can receive a fair share of late-night phone calls from tenants urging them to deal with emergencies (no heat, fire, other natural disasters, etc.). Are you up for that and do you have processes in place to deal with these?
If a crisis hits at 3:00 a.m., are you willing to respond immediately, provide for temporary housing for tenants, and then deal with insurance companies, etc.? Do you have access to 24-hour repair and maintenance providers? Be prepared to lose sleep at times.
Can You Be Assertive and Yet Diplomatic With Your Clients?
It is not unusual for property owners to contact you and assume that you will do more than the contract calls for. When this happens, you may need to get firm with your replies. Remind that their request is beyond the contract scope. This means that you’ll have to amend the contract to accommodate their “ask”. Also, mention that your gees will increase in this case. You cannot be a “pushover” and provide extra services for free. If you do this, you are setting a dangerous precedent with that client.
How Outgoing are You?
Introverts do not do well in this business. If you are an extrovert, gregarious, and enjoy constant interactions with a wide variety of people, you have the right personality for this business. Remember, clients and tenants can come from all walks of life, and you have to be able to meet them on their “turf,” not always on yours.
You can make a good living as a property manager. Just be certain you understand upfront what’s involved in this business.
Photo by Stephan Bechert