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Written by: Carolyn Young
Carolyn Young is a business writer who focuses on entrepreneurial concepts and the business formation. She has over 25 years of experience in business roles, and has authored several entrepreneurship textbooks.
Edited by: David Lepeska
David has been writing and learning about business, finance and globalization for a quarter-century, starting with a small New York consulting firm in the 1990s.
Published on March 10, 2022
Investment range
$3,050 - $7,100
Revenue potential
$48,000 - $180,000 p.a.
Time to build
3-6 months
Profit potential
$43,000 - $72,000 p.a.
Industry trend
Growing
Commitment
Flexible
Key considerations to keep in mind when opening your property management business:
You May Also Wonder:
Is a property management business profitable?
Yes, you can make between 8% and 12% of the total rent of all the properties you manage. You just need to offer great services both to the property owners and the tenants.
How can I find real estate investors to use my property management services?
You can connect with real estate investors on LinkedIn and message them directly. You can also network with realtors, some of whom may be investors or who know investors.
What types of properties can a property management business handle?
A property management business can handle various types of properties, including residential properties such as single-family homes, apartments, condominiums, and townhouses. Additionally, they can manage commercial properties like office buildings, retail spaces, industrial properties, and mixed-use developments.
How can I handle lease renewals and rental rate negotiations with tenants?
Handling lease renewals and rental rate negotiations with tenants requires effective communication and negotiation skills. Start the process in advance to allow ample time for discussions. Review market trends and comparable rental rates to determine a fair rental rate. Communicate the renewal terms and proposed rental rate clearly to the tenant. Listen to the tenant’s concerns and negotiate in good faith to reach a mutually beneficial agreement.
How can I handle property inspections and ensure tenant satisfaction?
Schedule regular inspections to assess the property’s maintenance, address any repair needs promptly, and ensure compliance with lease terms. Provide clear communication to tenants about inspection schedules and procedures.
Starting a property management company has pros and cons to consider before deciding if it’s right for you.
Trends in the property management industry include:
Challenges in the property management industry include:
Startup costs for a property management business range from $3,000 to $7,000. The main costs are for education and licensing, and a website.
Education and licensing requirements vary by state but can usually be completed in a few months for under $3,000. You can also become a certified property manager through the Institute of Real Estate Management. You must have three years of experience to become certified.
| Start-up Costs | Ballpark Range | Average |
|---|---|---|
| Setting up a business name and corporation | $150 - $200 | $175 |
| Business licenses and permits | $100 - $300 | $200 |
| Insurance | $100-$300 | $200 |
| Business cards and brochures | $200 - $300 | $250 |
| Website setup | $1,000 - $3,000 | $2,000 |
| Cost of propety management education and licensing | $1,500 - $3,000 | $2,250 |
| Total | $3,050 - $7,100 | $5,075 |
A property manager earns 10% of the rent collected. If you’re working by yourself from home, your profit margin should be about 90%.
In your first year or two, you could manage 40 units at $1,000 rent each, bringing in $480,000 in total rent. Your annual revenue would be 10% of this amount, or $48,000. This would mean more than $43,000 in profit, assuming that 90% margin. As you grow your client base, you could start managing 150 units at $1,000 rent. At this stage, you’d rent a commercial space and hire staff, reducing your profit margin to around 40%. With annual revenue of $180,000, you’d make a tidy profit of $72,000.
There are a few barriers to entry for a property management business. Your biggest challenges will be:
Now that you know what’s involved in starting a property management business, it’s a good idea to hone your concept in preparation to enter a competitive market.
Market research will give you the upper hand, even if you’re already positive that you have a perfect product or service. Conducting market research is important, because it can help you understand your customers better, who your competitors are, and your business landscape.
Research property management businesses in your area to examine their services, price points, and customer reviews. You’re looking for a market gap to fill. For instance, maybe the local market is missing a property management company that offers 24-hour maintenance.
You might consider targeting a niche market by specializing in a certain aspect of your industry, such as single-family rental management.
This could jumpstart your word-of-mouth marketing and attract clients right away.
First of all, you can decide whether you want to be a residential property manager or a commercial property manager. Either way, you should offer a full range of property management services to be competitive in the market. These services include:
Property managers make between 8% and 12% of rents collected, for an average of 10%. You should check the prices of property management companies in your area to make sure that your prices are competitive. When working by yourself, you should aim for a profit margin of 90%.
Once you know your costs, you can use this Step By Step profit margin calculator to determine your mark-up and final price points. Remember, the prices you use at launch should be subject to change if warranted by the market.
Your target market will be developers and property owners. Your best bet is to find them on LinkedIn. Once you have partner properties, your target market will be potential tenants. You can spread out your marketing to include sites like TikTok, Instagram, and Facebook.
In the early stages, you may want to run your business from home to keep costs low. But as your business grows, you’ll likely need to hire workers for various roles and may need to rent out an office. You can find commercial space to rent in your area on sites such as Craigslist, Crexi, and Instant Offices.
When choosing a commercial space, you may want to follow these rules of thumb:
Here are some ideas for brainstorming your business name:
Once you’ve got a list of potential names, visit the website of the US Patent and Trademark Office to make sure they are available for registration and check the availability of related domain names using our Domain Name Search tool. Using “.com” or “.org” sharply increases credibility, so it’s best to focus on these.
Finally, make your choice among the names that pass this screening and go ahead with domain registration and social media account creation. Your business name is one of the key differentiators that set your business apart. Once you pick your company name, and start with the branding, it is hard to change the business name. Therefore, it’s important to carefully consider your choice before you start a business entity.
Here are the key components of a business plan:
If you’ve never created a business plan, it can be an intimidating task. You might consider hiring a business plan specialist to create a top-notch business plan for you.
Registering your business is an absolutely crucial step — it’s the prerequisite to paying taxes, raising capital, opening a bank account, and other guideposts on the road to getting a business up and running.
Plus, registration is exciting because it makes the entire process official. Once it’s complete, you’ll have your own business!
Your business location is important because it can affect taxes, legal requirements, and revenue. Most people will register their business in the state where they live, but if you’re planning to expand, you might consider looking elsewhere, as some states could offer real advantages when it comes to property management businesses.
If you’re willing to move, you could really maximize your business! Keep in mind, it’s relatively easy to transfer your business to another state.
Business entities come in several varieties, each with its pros and cons. The legal structure you choose for your property management business will shape your taxes, personal liability, and business registration requirements, so choose wisely.
Here are the main options:
We recommend that new business owners choose LLC as it offers liability protection and pass-through taxation while being simpler to form than a corporation. You can form an LLC in as little as five minutes using an online LLC formation service. They will check that your business name is available before filing, submit your articles of organization, and answer any questions you might have.
Choose Your State
The final step before you’re able to pay taxes is getting an Employer Identification Number, or EIN. You can file for your EIN online or by mail or fax: visit the IRS website to learn more. Keep in mind, if you’ve chosen to be a sole proprietorship you can simply use your social security number as your EIN.
Once you have your EIN, you’ll need to choose your tax year. Financially speaking, your business will operate in a calendar year (January–December) or a fiscal year, a 12-month period that can start in any month. This will determine your tax cycle, while your business structure will determine which taxes you’ll pay.
The IRS website also offers a tax-payers checklist, and taxes can be filed online.
It is important to consult an accountant or other professional to help you with your taxes to ensure you’re completing them correctly.
Securing financing is your next step and there are plenty of ways to raise capital:
Bank and SBA loans are probably the best options, other than friends and family, for funding a property management business.
Starting a property management business requires obtaining a number of licenses and permits from local, state, and federal governments.
You will either need a real estate broker’s license or a property management license. Check with your state for requirements.
Federal regulations, licenses, and permits associated with starting your business include doing business as (DBA), health licenses and permits from the Occupational Safety and Health Administration (OSHA), trademarks, copyrights, patents, and other intellectual properties, as well as industry-specific licenses and permits.
You may also need state-level and local county or city-based licenses and permits. The license requirements and how to obtain them vary, so check the websites of your state, city, and county governments or contact the appropriate person to learn more.
You could also check this SBA guide for your state’s requirements, but we recommend using MyCorporation’s Business License Compliance Package. They will research the exact forms you need for your business and state and provide them to ensure you’re fully compliant.
This is not a step to be taken lightly, as failing to comply with legal requirements can result in hefty penalties.
If you feel overwhelmed by this step or don’t know how to begin, it might be a good idea to hire a professional to help you check all the legal boxes.
Before you start making money, you’ll need a place to keep it, and that requires opening a bank account.
Keeping your business finances separate from your personal account makes it easy to file taxes and track your company’s income, so it’s worth doing even if you’re running your property management business as a sole proprietorship. Opening a business bank account is quite simple, and similar to opening a personal one. Most major banks offer accounts tailored for businesses — just inquire at your preferred bank to learn about their rates and features.
Banks vary in terms of offerings, so it’s a good idea to examine your options and select the best plan for you. Once you choose your bank, bring in your EIN (or Social Security Number if you decide on a sole proprietorship), articles of incorporation, and other legal documents and open your new account.
Business insurance is an area that often gets overlooked yet it can be vital to your success as an entrepreneur. Insurance protects you from unexpected events that can have a devastating impact on your business.
Here are some types of insurance to consider:
As opening day nears, prepare for launch by reviewing and improving some key elements of your business.
Being an entrepreneur often means wearing many hats, from marketing to sales to accounting, which can be overwhelming. Fortunately, many websites and digital tools are available to help simplify many business tasks.
You may want to use industry-specific software, such as appfolio, Buildium, or Property Matrix, to manage your portfolio, payments, scheduling, application, and leases.
Website development is crucial because your site is your online presence and needs to convince prospective clients of your expertise and professionalism.
You can create your own website using services like WordPress, Wix, or Squarespace. This route is very affordable, but figuring out how to build a website can be time-consuming. If you lack tech-savvy, you can hire a web designer or developer to create a custom website for your business.
They are unlikely to find your website, however, unless you follow Search Engine Optimization (SEO) practices. These are steps that help pages rank higher in the results of top search engines like Google.
Here are some powerful marketing strategies for your future business:
Unique selling propositions, or USPs, are the characteristics of a product or service that set it apart from the competition. Customers today are inundated with buying options, so you’ll have a real advantage if they are able to quickly grasp how your property management business meets their needs or wishes. It’s wise to do all you can to ensure your USPs stand out on your website and in your marketing and promotional materials, stimulating buyer desire.
Global pizza chain Domino’s is renowned for its USP: “Hot pizza in 30 minutes or less, guaranteed.” Signature USPs for your property management business could be:
You may not like to network or use personal connections for business gain. But your personal and professional networks likely offer considerable untapped business potential. Maybe that Facebook friend you met in college is now running a property management business, or a LinkedIn contact of yours is connected to dozens of potential clients. Maybe your cousin or neighbor has been working in property management for years and can offer invaluable insight and industry connections.
The possibilities are endless, so it’s a good idea to review your personal and professional networks and reach out to those with possible links to or interest in property management. You’ll probably generate new customers or find companies with which you could establish a partnership.
If you’re starting out small from a home office, you may not need any employees. But as your business grows, you will likely need workers to fill various roles. Potential positions for a property management business include:
At some point, you may need to hire all of these positions or simply a few, depending on the size and needs of your business. You might also hire multiple workers for a single role or a single worker for multiple roles, again depending on need.
Free-of-charge methods to recruit employees include posting ads on popular platforms such as LinkedIn, Facebook, or Jobs.com. You might also consider a premium recruitment option, such as advertising on Indeed, Glassdoor, or ZipRecruiter. Further, if you have the resources, you could consider hiring a recruitment agency to help you find talent.
Property management is a booming industry, and fairly easy to get into. You just need to get the appropriate licenses and start finding real estate investors who need management services. You can start from home as a solopreneur, and work your way up from there, building a big portfolio of properties under your care. Having great networking skills would come in handy for this type of business, so be sure to brush up on those.
You’ve got all the information you need, so now it’s time to launch your new property management company and start your lucrative career!
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