Starting a property management company can be very profitable. With proper planning, execution and hard work, you can enjoy great success. Below you will learn the keys to launching a successful property management company.
Importantly, a critical step in starting a property management company is to complete your business plan. To help you out, you should download Growthink’s Ultimate Business Plan Template here.
15 Steps To Start a Property Management Company
- Choose the Name for Your Property Management Company
- Determine the Type of Property Management Company You Will Launch
- Develop Your Property Management Company Plan
- Choose the Legal Structure for Your Property Management Company
- Secure Startup Funding for Your Property Management Company (If Needed)
- Secure a Location for Your Business
- Register Your Property Management Company with the IRS
- Open a Business Bank Account
- Get a Business Credit Card
- Get the Required Business Licenses and Permits
- Get Business Insurance for Your Property Management Company
- Buy or Lease the Right Property Management Company Equipment
- Develop Your Property Management Company Marketing Materials
- Purchase and Setup the Software Needed to Run Your Property Management Company
- Open for Business
1. Choose the Name for Your Property Management Company
The first step to starting a property management company is to choose your business’ name.
This is a very important choice since your company name is your brand and will last for the lifetime of your business. Ideally you choose a name that is meaningful and memorable. Here are some tips for choosing a name for your property management company:
- Make sure the name is available: Check your desired name against trademark databases and your state’s list of registered business names to see if it’s available. Also check to see if a suitable domain name is available.
- Keep it simple: The best names are usually ones that are easy to remember, pronounce and spell.
- Think about marketing: Come up with a name that reflects the desired brand and/or focus of your property management company.
2. Determine the Type of Property Management Company You Will Launch
The next step is to determine the type of property management company you will launch. The four main types of property management companies are:
- Residential Property Management Companies: These companies specialize in managing residential properties such as single-family homes, apartments, and condominiums. They handle tasks like tenant screening, rent collection, property maintenance, and addressing tenant concerns.
- Commercial Property Management Companies: Focused on managing commercial properties like office buildings, retail centers, and industrial spaces. Their services often include lease negotiation, tenant retention strategies, maintenance coordination, and property value optimization.
- Vacation Rental Management Companies: These companies manage short-term rental properties, such as vacation homes and Airbnb listings. They handle guest bookings, property cleaning, maintenance, and ensuring a smooth guest experience.
- Condo/Homeowners Association (HOA) Management Companies: Specializing in managing properties within communities governed by homeowners associations. They oversee community amenities, enforce rules and regulations, collect HOA fees, and maintain common areas.
3. Develop Your Property Management Company Plan
One of the most important steps in starting a property management company is to develop your property management company business plan. The process of creating your plan ensures that you fully understand your market and your business strategy. The plan also provides you with a roadmap to follow and if needed, to present to funding sources to raise capital for your business.
Your business plan should include the following sections:
- Executive Summary: This section should summarize your entire business plan so readers can quickly understand the key details of your property management company.
- Company Overview: This section tells the reader about the history of your property management company and what type of property management company you operate. For instance, do you focus on residential property management, commercial property management, or a full spectrum of property management solutions.
- Industry Analysis: Here you will document key information about the property management industry. Conduct market research and document how big the industry is and what trends are affecting it.
- Customer Analysis: In this section, you will document who your ideal or target customers are and their demographics. For example, how old are they? Where do they live? What do they find important when purchasing services like the ones you will offer?
- Competitive Analysis: Here you will document the key direct and indirect competitors you will face and how you will build competitive advantage.
- Marketing Plan: Your marketing plan should address the 4Ps: Product, Price, Promotions and Place.
- Product: Determine and document what products/services you will offer
- Prices: Document the prices of your products/services
- Place: Where will your business be located and how will that location help you increase sales?
- Promotions: What promotional methods will you use to attract customers to your property management company? For example, you might decide to use pay-per-click advertising, public relations, search engine optimization and/or social media marketing.
- Operations Plan: Here you will determine the key processes you will need to run your day-to-day operations. You will also determine your staffing needs. Finally, in this section of your plan, you will create a projected growth timeline showing the milestones you hope to achieve in the coming years.
- Management Team: This section details the background of your company’s management team.
- Financial Plan: Finally, the financial plan answers questions including the following:
- What startup costs will you incur?
- How will your property management company make money?
- What are your projected sales and expenses for the next five years?
- Do you need to raise funding to launch your business?
4. Choose the Legal Structure for Your Property Management Company
Next you need to choose a legal structure for your property management company and register it and your business name with the Secretary of State in each state where you operate your business.
Below are the five most common legal structures:
1) Sole proprietorship
A sole proprietorship is a business entity in which the owner of the property management company and the business are the same legal person. The owner of a sole proprietorship is responsible for all debts and obligations of the business. There are no formalities required to establish a sole proprietorship, and it is easy to set up and operate. The main advantage of a sole proprietorship is that it is simple and inexpensive to establish. The main disadvantage is that the owner is liable for all debts and obligations of the business.
2) Partnerships
A partnership is a legal structure that is popular among small businesses. It is an agreement between two or more people who want to start a property management company together. The partners share in the profits and losses of the business.
The advantages of a partnership are that it is easy to set up, and the partners share in the profits and losses of the business. The disadvantages of a partnership are that the partners are jointly liable for the debts of the business, and disagreements between partners can be difficult to resolve.
3) Limited Liability Company (LLC)
A limited liability company, or LLC, is a type of business entity that provides limited liability to its owners. This means that the owners of an LLC are not personally responsible for the debts and liabilities of the business. The advantages of an LLC for a property management company include flexibility in management, pass-through taxation (avoids double taxation as explained below), and limited personal liability. The disadvantages of an LLC include lack of availability in some states and self-employment taxes.
4) C Corporation
A C Corporation is a business entity that is separate from its owners. It has its own tax ID and can have shareholders. The main advantage of a C Corporation for a property management company is that it offers limited liability to its owners. This means that the owners are not personally responsible for the debts and liabilities of the business. The disadvantage is that C Corporations are subject to double taxation. This means that the corporation pays taxes on its profits, and the shareholders also pay taxes on their dividends.
5) S Corporation
An S Corporation is a type of corporation that provides its owners with limited liability protection and allows them to pass their business income through to their personal income tax returns, thus avoiding double taxation. There are several limitations on S Corporations including the number of shareholders they can have among others.
Once you register your property management company, your state will send you your official “Articles of Incorporation.” You will need this among other documentation when establishing your banking account (see below). We recommend that you consult an attorney in determining which legal structure is best suited for your company.
5. Secure Startup Funding for Your Property Management Company (If Needed)
In developing your property management company business plan, you might have determined that you need to raise funding to launch your business.
If so, the main sources of funding for a property management company to consider are personal savings, family and friends, credit card financing, bank loans, crowdfunding and angel investors. Angel investors are individuals who provide capital to early-stage businesses. Angel investors typically will invest in a property management company that they believe has high potential for growth.
6. Secure a Location for Your Business
Having the right space can be important for your property management company, particularly if you’d like to meet clients there.
To find the right space, consider:
- Exploring neighborhoods while keeping an eye out for “for lease” signs
- Getting in touch with a commercial real estate agent.
- Conducting online searches focused on commercial real estate options.
- Informing your network about your requirements to see if anyone can assist you in finding the perfect space.
7. Register Your Property Management Company with the IRS
Next, you need to register your business with the Internal Revenue Service (IRS) which will result in the IRS issuing you an Employer Identification Number (EIN).
Most banks will require you to have an EIN in order to open up an account. In addition, in order to hire employees, you will need an EIN since that is how the IRS tracks your payroll tax payments.
Note that if you are a sole proprietor without employees, you generally do not need to get an EIN. Rather, you would use your social security number (instead of your EIN) as your taxpayer identification number.
8. Open a Business Bank Account
It is important to establish a bank account in your property management company name. This process is fairly simple and involves the following steps:
- Identify and contact the bank you want to use
- Gather and present the required documents (generally include your company’s Articles of Incorporation, driver’s license or passport, and proof of address)
- Complete the bank’s application form and provide all relevant information
- Meet with a banker to discuss your business needs and establish a relationship with them
9. Get a Business Credit Card
You should get a business credit card for your property management company to help you separate personal and business expenses.
You can either apply for a business credit card through your bank or apply for one through a credit card company.
When you’re applying for a business credit card, you’ll need to provide some information about your business. This includes the name of your business, the address of your business, and the type of business you’re running. You’ll also need to provide some information about yourself, including your name, Social Security number, and date of birth.
Once you’ve been approved for a business credit card, you’ll be able to use it to make purchases for your business. You can also use it to build your credit history which could be very important in securing loans and getting credit lines for your business in the future.
10. Get the Required Business Licenses and Permits
To initiate a property management company, you typically need to acquire certain licenses and permits. The exact requirements can vary based on your location and the specific services you offer, but common licenses and permits include:
- Business license – A general license allowing you to operate a business within a specific jurisdiction.
- Real Estate Broker’s License – In some areas, property management activities may require a real estate broker’s license, especially if you’re involved in leasing or renting properties on behalf of owners.
- Property Management License – Some states or regions have specific licenses tailored for property management services. This may involve passing an exam or meeting certain educational criteria.
- Property Management Trust Account License – If you’ll be handling clients’ funds for rent collection or other purposes, you might need a trust account license to manage these funds properly and transparently.
- Local Permits – Depending on your location, you might need specific permits such as a business operation permit or a home occupancy permit if you plan to operate from your residence.
- Property Insurance – While not a license or permit, property management companies often need insurance coverage to protect against potential liabilities.
- Zoning Approval – Ensure that the property you’re operating from is zoned for commercial use and that your business activities comply with local zoning regulations.
- Tax Registrations –You’ll likely need to register your business for federal, state, and local taxes. This might include an Employer Identification Number (EIN) from the IRS.
- Tenant Screening Compliance –If you plan to conduct tenant screening, you must adhere to fair housing laws and privacy regulations.
- Contracts and Agreements –While not licenses or permits, having well-drafted contracts and agreements with property owners and tenants is essential for legal protection.
It’s crucial to consult with legal counsel or a business advisor in your area to ensure you’re meeting all the necessary requirements for your specific location and the services you intend to offer.
11. Get Business Insurance for Your Property Management Company
Other business insurance policies that you should consider for your property management company include:
- General liability insurance – This insurance covers legal expenses and damages if someone is injured on a property you manage or if their property is damaged due to your business operations.
- Professional Liability Insurance (Errors and Omissions Insurance) – Also known as E&O insurance, this coverage is essential for property management companies. It protects you from claims of negligence, errors, or omissions in your professional services, such as mishandling tenant applications or mismanaging property.
- Property Insurance – Property management companies often handle properties owned by others. Property insurance covers damage to the properties themselves from events like fire, vandalism, or natural disasters.
- Business Interruption Insurance – If your business operations are disrupted due to covered events, this insurance can provide financial support to cover ongoing expenses during the interruption.
- Cyber Liability Insurance – If you store sensitive client or tenant information electronically, this insurance can protect you from data breaches and cyberattacks.
- Workers’ Compensation Insurance – If you have employees, this insurance is typically required by law. It covers medical expenses and lost wages if employees are injured while working.
- Umbrella Insurance – This provides additional liability coverage beyond the limits of your other policies. It can be crucial if you face a large liability claim that exceeds your primary policy limits.
- Tenant Discrimination Insurance – This insurance covers claims related to discrimination in tenant selection or management practices.
- Surety Bond – While not insurance, a surety bond can provide assurance to property owners that you will fulfill your obligations as a property manager.
The specific insurance needs of your property management company may vary based on factors like the size of your business, the types of properties you manage, and your location. It’s advisable to consult with an insurance professional who specializes in business insurance to determine the right coverage for your situation.
12. Buy or Lease the Right Property Management Company Equipment
Running a property management company requires various tools and equipment to effectively manage properties, communicate with clients and tenants, and maintain efficient operations. Here’s a list of essential equipment:
- Computer and Laptop – These are fundamental for managing accounts, tenant information, contracts, and communication.
- Mobile Devices – Smartphones and tablets allow you to stay connected on the go, respond to emails, and manage tasks remotely.
- Printer and Scanner – These are useful for printing contracts, agreements, and important documents, as well as scanning and digitizing paperwork.
- High-Speed Internet Connection – A reliable internet connection is essential for online research, communication, and accessing cloud-based tools.
- Security Cameras – If you manage properties with common areas, security cameras can help monitor for safety and security.
- Lockboxes – These are handy for secure key storage and providing access to properties when needed.
- Maintenance Tools – Basic tools like a toolkit, ladder, and basic repair supplies can be useful for addressing minor maintenance issues.
- Digital Camera or Smartphone – Use this to take photos of properties for marketing purposes and documenting conditions before tenant move-ins.
- Communication Tools – Invest in a dedicated business phone line and email address to maintain professional communication.
- Payment Processing Tools – Set up systems for accepting electronic rent payments from tenants.
- Legal Forms and Contracts – Stock up on lease agreements, rental applications, and other legal documents relevant to property management.
Remember that the specific equipment you need may vary based on the size of your company, the types of properties you manage, and the services you offer. It’s a good idea to start with the essentials and gradually expand based on your business’s needs.
13. Develop Your Property Management Company Marketing Materials
Marketing materials will be required to attract and retain customers to your property management company.
The key marketing materials you will need are as follows:
- Logo: Spend some time developing a good logo for your property management company. Your logo will be printed on company stationery, business cards, marketing materials and so forth. The right logo can increase customer trust and awareness of your brand.
- Website: Likewise, a professional property management company website provides potential customers with information about the services you offer, your company’s history, and contact information. Importantly, remember that the look and feel of your website will affect how customers perceive you.
- Social Media Accounts: Establish social media accounts in your company’s name. Accounts on Facebook, Twitter, LinkedIn and/or other social media networks will help customers and others find and interact with your property management company.
14. Purchase and Setup the Software Needed to Run Your Property Management Company
Running a property management company efficiently requires the use of various software tools to manage tasks, communicate with clients and tenants, and streamline operations.
Here’s a list of essential software for a property management company:
- Property Management Software – Comprehensive property management software helps you manage leases, rent collection, maintenance requests, tenant communications, and more. Popular options include Buildium, AppFolio, and Propertyware.
- Accounting Software – Software like QuickBooks or Xero helps you manage finances, track income and expenses, generate reports, and handle payroll if you have employees.
- Customer Relationship Management (CRM) Software – CRM tools such as Salesforce or HubSpot assist in managing client relationships, leads, inquiries, and follow-ups.
- Communication and Email Software – Tools like Microsoft Outlook or Gmail help you stay organized with client and tenant communications.
- Document Management Software – Software like Google Workspace or Microsoft Office 365 provides document storage, collaboration, and sharing capabilities.
- Online Payment Processing Tools – Platforms like PayPal, Stripe, or dedicated property management software allow for online rent collection and payments.
- Lease Management Software – This helps you track lease terms, renewals, and important dates associated with property contracts.
- Maintenance Tracking Software – Tools like Maintenance Connection or UpKeep assist in managing and tracking maintenance requests, repairs, and inspections.
The specific software you need will depend on your business size, the types of properties you manage, and your preferred workflow. It’s recommended to research each software’s features, pricing, and reviews before making a decision.
15. Open for Business
You are now ready to open your property management company. If you followed the steps above, you should be in a great position to build a successful business. Below are answers to frequently asked questions that might further help you.
How Big is the Property Management industry?
According to IbisWorld, there are 239,987 property management company in the U.S., that generated $61.8 billion in revenue last year. This represents an annual growth rate of 1.6% over the past 5 years.
What are the Key Segments of the Property Management Industry?
The Property Management industry includes companies that primarily handle the maintenance of commercial, industrial and residential real estate. Residential property management is, by far, the largest source of revenue for the industry. This is followed by non-residential property management and a mix of other property management accounts for the remaining portion of revenue.
What External Factors affect the Property Management Industry?
A number of factors affect the performance of the property management industry. These drivers include:
Office rental vacancy: Office rental vacancy rates measure the extent to which office space is occupied. The office rental vacancy rate is expected to fall in the coming year, representing a potential opportunity for industry operators.
Rental vacancy rates: Rental vacancy rates measure the percentage of total US residential rental properties without tenants. When the residential vacancy rate is high, industry demand falls, and vice versa.
Per capita disposable income: As per capita disposable income falls, consumers tighten spending habits, discouraging businesses from expanding or causing them to close branches. This trend, in turn, reduces demand for the leasing of commercial space.
What are the Key Customer Segments in the Property Management Industry?
The largest customer segment in the property management industry are households, followed by commercial properties.
What are the Key Costs in the Property Management Industry?
Wages – Wages, are, by far the largest expense category for industry operators.
Purchases and marketing – Purchases estimated to account for 6.1% of revenue. Marketing costs are minimal and estimated to account for about 2.2%.
Rent, utilities and depreciation – Rent and utilities costs vary widely in the industry. Depreciation costs are low in the industry, as very little depreciable equipment is needed to run a property management company.
Other costs – The industry attracts a number of other costs. This includes interest expenses, agent and broker fees, and legal and insurance fees, though some of these costs are associated with purchases due to their necessity in managing property.
What are the Keys to Launching a new Property Management?
- Choose your niche – Some of the larger property management companies have a diverse portfolio, but if you’re just starting out, it is advisable to figure out which type of property you’d like to manage: residential (single family, multifamily), commercial (retail, office), or industrial
- Certification and Licensing Requirements – Most states do not require a Real Estate agent license, but there are a few that do. Find out if you are in one of those states. Also check with your local authorities to determine if there are other certification and license requirements.
- Set up your office – You need to have your own office – whether it is in your home or somewhere else – to meet with potential clients. Invest only in necessary office equipment, and upgrade or expand as your business grows. Establish office policies, like when the rent is due and how you’ll handle late payments.
- Network – Prospective clients will need to know you exist. One of the best ways to build your connections is by joining real estate or property management associations.Once you get established, you can expect referrals from those people in your network.
- Establish an online presence – One of the best way to market your business is by having a company website where prospects can find your services online.
What are the Typical Startup Costs for a new Property Management Company?
The cost of starting a property management business is dependent upon size and a host of other factors. Starting a property management business usually costs $2,000-$10,000.
Additional resources in the Property Management Industry
For additional information on the property management industry, consider these industry resources:
- National Property Management Association: www.npma.org
- National Association of Realtors: www.realtor.org
- The Federal Reserve: www.federalreserve.gov
- Property Mavericks: www.propertymavericks.com
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