How to Start a Property Management Company: Beginner's Guide

Starting a property management company takes hard work and knowledge to succeed.

The property management industry is projected to experience significant growth, making it an appealing field to enter.

When you decide to start your own property management company, you’re committing to spending countless hours dedicated to managing and growing a business. Although there are endless success-driven individuals who are willing to put in the work necessary for this endeavor, you may not know where to begin.

If this sounds like you, you’ve come to the right place. This beginner’s guide outlines the process. We also included some general information and tools that could benefit you along the way.

What Is a Property Management Company?

One of the first things you should know is what does a property management company do? 

In simple terms, a property management company is responsible for assisting property owners with various day-to-day tasks of real estate management. The company allows the property owner to not have to worry much about the everyday responsibilities.

Now, different companies may provide different services, but most property management companies revolve around similar basic services:

• Marketing and advertising
• Tenant screening and background checks
• Rent collection
• Accounting
• Maintenance requests

Overall, your property management company could be responsible for all of these services, and maybe even more. These are only the basic responsibilities you'd have to deal with, until you find a reliable property management company.

How to Start a Property Management Company

Starting a property management company requires a clear plan and execution. These are the basic steps:

1. Licensing and Certifications: Obtain necessary licenses and certifications.
2. Business Plan: Outline your business model, target market, and financial projections.
3. Legal Structure: Choose a business structure and register your company.
4. Obtain Necessary Legal Documents: Acquire contracts, agreements, and other legal paperwork.
5. Register with State Agencies: Ensure compliance by registering with the necessary state agencies.
6. Plan Your Finances: Secure funding, budget for expenses, and manage cash flow.
7. Learn About Applicable Laws and Regulations: Familiarize yourself with local, state, and federal property management laws.
8. Hire a Team: Recruit qualified staff to help run your business.
9. Marketing Strategy: Develop a marketing plan to attract clients.
10. Invest in Property Management Software: Property management companies use property management software to shoulder most of the daily operations and accounting tasks.

1. Get Licensed (If Needed)

In most states, it's required that individuals involved in real estate complete a formal education or certification before beginning.   

State Licenses

Many states require property management companies to hold a real estate broker’s license or a property management license. A real estate broker's license is often a specific requirement for providing property management services. These licenses typically require education, experience, and passing a licensing exam.

Local Permits

Your local government may require additional permits, such as a business license or a zoning permit, to legally operate your property management company.

As a property manager, an important license to obtain before starting your business is the Real Estate Property Management License. This license provides specific training on how to act as a middleman between the property owners and the tenants effectively.

Another license that may be useful to obtain before starting your property management company is a Real Estate Broker's License. This license, along with the coursework and exam, covers various topics like property management, insurance, leases, and many more.

There are only a handful of states that do not require such certification to become a property manager, so make sure that you're up-to-date with your state's requirements.

2. Write a Business Plan

Now that you've completed the homework for your business, it's time to actually start thinking about the functionality and framework of your company. This is a crucial step when starting up your business, as this is where you are going to describe every single aspect of it, from marketing strategies to a potential customer base and your short-term and long-term goals.

Along with writing a property management business plan, it is important that you determine where you are going to conduct business.

• Understand the Local Market: Study the local market to determine competitive pricing for your services by checking competitors' websites or contacting them.

You should also set up a business bank account after choosing the legal structure of your company.

A very important aspect of your business plan is the legal structure of your company. There are several types of business structures to choose from.

3. Legal Structure

When choosing your business structure, consider factors such as liability protection, tax implications, and ease of operation. It’s important to consult with a legal professional to determine which business structure is right for your property management company.

One suitable option is a limited liability corporation, which offers benefits such as protecting personal assets and providing favorable tax implications compared to other business entities.

Here’s the most common types of business structures:

Sole Proprietorship

A sole proprietorship is the simplest and most common form of business structure. It involves one individual who owns and operates the business. As a sole proprietor, you are personally responsible for all debts and liabilities of the business.

Partnership

A partnership involves two or more individuals who share ownership of the business. In a general partnership, all partners are equally responsible for the debts and liabilities of the business.

In a limited partnership, there are general partners who are responsible for the debts and liabilities of the business, and limited partners who are only liable for their investment in the business.

Limited Liability Company (LLC)

A limited liability company (LLC) is a hybrid business structure that combines the liability protection and tax benefits of a corporation while being easier to manage similar to a sole proprietorship.

As an LLC, the owners are not personally responsible for the debts and liabilities of the business.

Corporation

A corporation is a separate legal entity from its owners and is responsible for its own debts and liabilities. The owners, or shareholders, are not personally responsible for the debts and liabilities of the business.

4. Obtain Necessary Legal Documents

You need to obtain the necessary legal documents to ensure your business operates smoothly and legally. Here are the steps you need to follow to obtain these documents.

Draft Your Company's Articles of Incorporation or Organization

The articles of incorporation or organization are legal documents that establish your business as a separate entity from yourself. They outline the basic structure of your company, including the type of business you will conduct, who will run the business, and how it will be managed.

This document is typically filed with your Secretary of State's office. When drafting your articles of incorporation or organization, you may want to consider hiring a lawyer to ensure that everything is done correctly. If you decide to do it yourself, be sure to research your state's laws and requirements for the document.

Obtain a Federal Tax Identification Number (TIN)

A Federal Tax Identification Number, also known as an Employer Identification Number (EIN), is a unique nine-digit number issued by the Internal Revenue Service (IRS).

You will need this number to pay taxes, open a bank account, and hire employees. You can apply for an EIN online through the IRS website.

Register with the Appropriate Government Agencies

Check with your state's business registration office to determine which agencies you need to register with and what forms you need to file.

5. Register with the Appropriate State Agencies

After obtaining the necessary licenses and permits, you'll need to register your property management company with the appropriate state agencies. The specific agencies and requirements may vary depending on your state.

Some common agencies to register with include:

Secretary of State

You'll need to register your property management company with the Secretary of State in the state where your company is located. This registration typically involves filing articles of incorporation or organization.

Department of Revenue

You'll need to register your property management company with the Department of Revenue to obtain a tax identification number and pay any necessary state taxes.

Department of Labor

If you plan to hire employees for your property management company, you'll need to register with the Department of Labor to obtain an employer identification number and of course, comply with state labor laws.

6. Plan Your Finances

Although this should be included in your business plan, it’s important to continuously monitor every single cent that comes in and out of that business, starting from the very beginning. Apart from recording your company’s expenses, you should have an efficient method in place for keeping track of all of your client’s property expenses as well.

The COVID-19 crisis has significantly impacted the real estate industry, leading to a meteoric rise in house prices and an increased demand for property managers.

Some of the most common expenses that a property management company faces include:

• Overhead expenses, which are ongoing expenses that exist when operating the business, like rent and utilities for physical offices or locations.
• Salary expenses, which include the salary for yourself (ongoing management fee(s) and more) and your employees.
• Third-party fees, which include the costs of software for your company as well contractors and outside workers that charge for their services.

Apart from planning your expenses, you should determine what your future goals are in terms of profit and form an effective pricing structure to compete with local real estate companies.

For a property management business, there aren’t a lot of upfront costs to begin managing properties, so a property manager could break even soon after starting the business. After that, it’s all about making your business as efficient as possible and setting realistic financial goals to make sure the company continues to be profitable.

If you struggle to keep up with these goals, or you lose track of your company’s expenses or profits, you may be interested in some sort of real estate accounting software to help you stay on top of your business’s finances.

7. Learn About Applicable Laws and Regulations

This is important information you should become familiar with. In every state, there's a long list of laws that must be followed to avoid any legal conflicts with your business.

Comply with Fair Housing Laws

The Fair Housing Act is a federal law that prohibits discrimination in the sale, rental, or financing of housing based on:

• Race
• Color
• Religion
• Sex
• National origin
• Familial status
• Disability

As a property management company, you must comply with these laws to avoid legal issues. Make sure you understand the fair housing laws and implement them in your business practices.

Understand Landlord-Tenant Laws

Landlord-tenant laws are state-specific, and you must understand the laws in your state to comply with them.

These laws govern the relationship between landlords and tenants and cover areas such as security deposits, evictions, lease agreements, and property maintenance.

Make sure you have a thorough understanding of the landlord-tenant laws in your state to avoid legal issues.

Follow Proper Human Resource Practices

Managing employees can be challenging, and following proper human resource practices is key to avoid legal issues. Here are some things to consider:

Comply with Labor Laws

As an employer, you must comply with federal and state labor laws, including minimum wage laws, overtime laws, and employee classification laws. Make sure you understand the labor laws in your state and comply with them.

Maintain Employee Records

Keeping accurate employee records is crucial to avoid legal issues. Keep track of employee information such as hours worked, wages, and tax withholdings. This information will come in handy when filing taxes or in case of legal disputes.

Navigating the legal requirements is an essential aspect of setting up and running a property management company. Make sure you comply with fair housing laws, understand landlord-tenant laws, maintain accurate accounting records, and follow proper human resource practices.

By doing so, you can avoid legal issues and focus on growing your business.

8. Hire a Team

Once you've established your business foundation, consider the people you need on your team. This team doesn't have to be full-time employees. You might manage properties solo but still require external support for specific tasks. These people do not have to be part of your payroll, or even part of your company, but they can provide services that could become very useful in certain situations. For instance, a real estate lawyer can protect your company from legal risks and provide guidance on state laws and regulations. This helps safeguard your assets and prevent lawsuits.

Additionally, you should have reliable contractors, like plumbers or painters, ready to address maintenance needs. A dependable network of contractors ensures you can efficiently manage property repairs and upkeep.

9. Advertise Your Business

One of the last (and most important) steps for launching your property management company is effective advertising and marketing.

There are various different methods for gaining exposure for your business. You should develop a specific marketing strategy catered to your company in order to grow your client base. When done correctly, your company’s marketing strategy could kickstart your business and get some of your first clients.

What to Include in Your Marketing Strategy

Although there's no single, concrete marketing strategy that works for all businesses, property managers who are starting a property management company should make sure that their marketing strategy includes these factors:

• Search engine optimization (SEO)
• Paid media
• Social media marketing
• Content marketing
• Word of mouth
• Networking

While modern strategies often rely on technology, traditional word-of-mouth marketing remains effective in real estate. For instance, you can connect with local real estate agents, inform them of your property management services, and ask about rental properties and potential clients.

Combining this approach with other strategies, along with determination, will significantly boost your company's exposure.

10. Invest in Property Management Software

Managing properties involves numerous tasks that must be completed promptly. Handling all these responsibilities manually can be overwhelming, which is why many property managers use property management software to ease the burden.

If you're unsure what to look for, here are some essential features to consider:

• Automation: Simplifies repetitive tasks and saves time.
• Tenant Management: Streamlines communication and rent collection.
• Maintenance Tracking: Organizes and schedules property repairs.
• Accounting Integration: Manages finances and generates reports.

To learn more about how DoorLoop can help your property management company, schedule a demo.

Bottom Line

Starting a property management company is challenging and requires dedication. Building a successful business takes time and persistence.

As you gain experience, you'll become an expert at managing properties and attracting clients. By following the steps outlined here, you'll be well on your way to running a thriving real estate management company.