Small Business Brief

Real Estate

5 Essential Tips on How to Start a Property Management Company

Wondering how to start a property management company?

According to the latest census, approximately 43 million homes are occupied by renters. That means renters occupy 36% of the homes across the US. That’s 1 out of every 3 homes.

If you were wondering whether there’s a need for property managers, you can see the numbers for yourself. We’ll let you do the number crunching in your own city for yourself.

There are more people renting now than at any point in the last 50 years. If you’ve ever considering setting up a property management company, now is the time. But where do you begin?

Well, that’s what this article is all about. When you’re ready to overcome your fears and discover the process of creating your own property management business, read on.

How to Start a Property Management Company 101

Starting any business begins with research. It doesn’t matter whether you’re developing the next Facebook or opening a hot dog stand. It all begins by understanding your market and your target audience.

For property management, that means examining the location in which you’d like to work. The more you narrow the scope of your search, the easier it’ll make your job later.

For example, you may decide to manage only apartment rentals or perhaps only rentals on the west side of your city. By narrowing the scope now, you cut back on the variety of responsibilities your job requires thereby decreasing your workload later.

Once you refine your parameters, research how much renters pay in rent each month. Then, examine how many rental agencies or property management firms already service your target audience. Look for holes in the market which you can fill.

If your niche is oversaturated, move on to another. The market itself is under-saturated, so there’s more than enough room for you. If that isn’t convincing enough, think about the following.

You’re guaranteed a higher paycheck every year you work in the industry.

You see, rent increases each year according to the Consumer Price Index for Shelter. It’s approximately 3.5% on average, though it may vary slightly according to your location. That means you can count on each property you manage to increase in rental value by approximately 3.5% each year.

What you may not realize is that this increase translates to a bigger paycheck for you. Why? Because your paycheck is based on a percentage of the rental fees you collect.

The national average for your cut is about 15%.

Handle the Legal Paperwork

For most owners, hiring a property manager means relinquishing responsibilities of physical and legal duties to the property management company. If you, as a property manager, haven’t filed the proper paperwork, you can’t fulfill half of those duties. Only a licensed business can complete the legal tasks.

So, when you start a property management company, you need to create a legitimate legal entity. You can create your small business as a sole proprietor, a partnership, or a corporation. Almost all new property management companies begin as a limited liability company (LLC).

Becoming an LLC gives you legal protection if you’re ever unfortunate enough to be sued by one of your clients. A sole proprietorship doesn’t come with this kind of protection. With a sole proprietorship, if you were sued, your personal assets wouldn’t be protected.

Corporations, on the other hand, are large entities that include shareholders and a board of directors. You need $10,000 just to file as a corporation.

LLCs, on the other hand, cost a meager $50 to $150 in filing fees, depending on your location. You’ll also need to pay an additional fee through your local chamber of commerce. It’s a permit to operate your business within the city limits, and it also typically runs from $50 to $150.

Establishing Your Office

Though not essential, finding an office space is advantageous. It lends your business an air of legitimacy and authority. It also gives you a place to hold your business meetings.

If you’re determined to have a home office or stay virtual, you can also rent meeting rooms by the hour. Run a web search that includes the name of your city and the phrase “book a meeting room.”

Another option is to check with your local business development center. Not only are they an unparalleled resource for those starting small businesses but also offer visitors the use of small private rooms. At least one of these rooms is usually a conference room, and free to use if you make an appointment.

Approaching Clients

So, how do you find clients? Well, fortunately, you’ve already done half the work during your research phase.

You know who to approach. Now you just have to figure out how to approach them.

You can find landlords and real estate investors in your local real estate investment clubs. We recommend you join as many as you can. After you test the waters, limit your participation to those best suited to your niche.

Then it’s time to get aggressive: network, network, network. This is your bread and butter.

Also, connect with others who might be likely to send business your way. Some professions provide a seemingly endless pool of referrals. They’re usually in service-oriented industries such as cosmetology, massage therapy, or real estate.

Marketing is paramount to any successful property management company. Ensure it is front-and-center in your business plan.

Filling Rental Units

Now it’s time to find renters. When you find qualified tenants, you satisfy your clients and save yourself time. Qualified tenants tend to stay longer, pay rent on time, and act responsibly.

Experienced managers often use the following identifiers to weed out poor candidates:

  • Credit Report Score
  • 3 of the Most Recent Pay Stubs
  • 3 Rental References
  • 3 Personal References

These factors will give you a good picture of your prospective tenants’ job and rental histories. Both are good indicators of the reliability of your tenants.

Most people use digital mediums to attract prospects. You can choose free services, like Craigslist, or you can choose paid services, like They’re quick, reliable, and full of visitors.

Wherever you post your ads, be certain to use language in accordance with the Fair Housing Act. It protects the rights of renters and sets standards for property managers and landlords.

What’s Next?

Now that you know how to start a property management company, you can see that it’s not such a daunting task after all. Start with the research. It’s free, and it’ll give you a ten-thousand-foot view of the market in your area.

If you’d like additional helpful hints, come browse the rest of our vast library full of small business articles. So long and good luck!