Are you starting a property management company? We talk to property managers all the time who began their businesses for a variety of reasons. Sometimes they were investors and rental property owners that realized they were good at managing and maintaining their homes, or perhaps, after a number of years in real estate or development, they decided to focus on property management. It can also be something completely out of left field. We know successful property managers who used to be microbiologists and airplane pilots that have used their experiences to succeed in property management.
Whatever your story is, starting a property management company requires a bit of know-how that we are going to provide you with so you can tell your own story when it is all said and done. We’ll cover the basics to help you get started:
But first, let’s go into why property management is so sought after by the modern day entrepreneur.
4 Reasons Why It’s a Good Time to Start a Property Management Company
There’s no better time to start a property management company than now. We’ve tallied four reasons why property management makes sense for you:
The Millennial Generation Shifting What the American Dream Really Means
This fundamental shift in thinking is perhaps the biggest reason why it’s a good time to be a property manager. Instead of buying a house with a white picket fence in the suburbs, people want freedom and flexibility. They’re renting interesting homes in cities and communities all over the country.
Real Estate is the Industry to Be In
With thousands of rental properties being added to the inventory on a monthly basis, investors and owners are buying.
Our experience has taught us that it costs a property manager between $300 and $500 to acquire a new client in most cities. Many years down the road, if you want to sell your property management portfolio, you’ll have buyers ready to pay two to six times your customer acquisition cost. With such a low customer acquisition cost, you can get started and know that you are holding onto some valuable assets.
Technology Specifically for Fee-Based Property Managers
You have access to companies like Fourandhalf.com for marketing, LeadSimple.com for sales, PropertyManagerWebsites.com for websites, and Appfolio.com for software. All of these resources are purpose-built for the property management industry and will help you leverage the technology you need to make starting and growing your company efficient and effective. Just to put this into perspective, most of the current industry technology landscape wasn’t available to business owners five years ago.
Recurring Revenue Opportunities
It’s hard to find another industry with retention rates as good as they are in property management. You’ll keep your landlord clients on average for three to seven years.
Customer lifetime value can be determined by taking the annual value of your client and multiplying it by the number of years you plan to keep that client. Consider the average rent of $1,000. If you take 10% of the rent, multiply it by 12 (for months), and multiply that by however many years you plan on keeping that client, you can see just how the steady stream of income can pull off huge dividends for you as time goes on.
There’s also the opportunity for complementary business units. Some property management companies successfully run maintenance companies and real estate sales teams. This only increases your lifetime customer value.
Property management isn’t something that comes up top of mind for entrepreneurs, but it does have its benefits in a well-timed market. Your services are in demand, investors need you, and you have all the tools and technology available to help you build a smart and profitable business.
How to Choose A Name for Your Property Management Company
Most business owners will pick a name for their company that feels right to them. That’s important, but if you’re strategic about choosing a name, it can have a positive impact on your business. First, we’ll go over the don’ts of choosing a name:
How Not to Choose a Name for Your Property Management Company
1. Don’t Use Your Own Name.
You have no idea who else shares your name, even if it’s not a common one. You may want to sell the business someday, and it’s going to be a harder sell when the new owner has to re-name the company.
2. Don’t Have the Same Name as Another Company You Own.
Keep your property management company separate from other businesses you own, such as real estate or maintenance companies. One reputation won’t influence the other.
3. Don’t Use a Town Name.
We always encourage you to use a town name in your content, but with a company name, we suggest avoiding that. Say you want to expand into other areas. You may just lose customers based off of perception that you handle only that town.
4. Don’t make it hard to spell or understand.
At Fourandhalf, we have a unique story that explains the name of our company. However, it’s never fun having to correct people on how the company name is spelled and pronounced. Make it easy on your potential customers.
With the help of the Small Business Association, here are four questions to consider before naming your property management company:
What to Consider When Naming Your Company
1. How Will the Name Look?
Think about your logo, the signs in front of your building, and the advertising you do on behalf of your clients.
2. What Connotations Will it Bring Up for People?
Be professional and use a name that commands respect and trust. You will be handling a very serious asset; so do make sure your name reflects that.
3. Is the Name Unique?
When people hear your business name, they should only think of you. There are also legal issues that prevent you from using a name that another company is already using. Do some research before you choose a name and make sure your state doesn’t already have a company registered with that name.
4. Is the Name Available as a URL?
Your property management company’s URL is going to get a lot of use. If you plan to use your company’s business name as your URL, make sure it’s available as a .com.
If you don’t already have a name in mind, choose one wisely. It can be memorable and creative, as long as it doesn’t take time and potential business away from you.
Protecting Your Property Management Company Online
When you’re starting any business, you’re in a hurry to get everything you need up and running. It’s easy to forget which credit cards and email accounts you used to sign up for services and open new business accounts. That puts your company at risk. Recently, we had a client who needed to spend $5,000 to get back a domain name he forgot to renew. Here we have your guide to getting your affairs in order to avoid similar unforeseen circumstances. Here are the tips for protecting your business and its assets.
Your Domain Name
Make sure you know:
- when your domain name registration expires
- which email account you used to set it up
- and how to renew it automatically.
You won’t have a business email account yet when you’re setting up your website; so all the instructions and information will go to whatever Hotmail or Gmail address you use. It has to be an email account you check regularly.
Natural Disaster Preparedness
Use a hosted provider instead of older computer systems like Outlook and Exchange. If there’s a flood or a fire in your office, you could lose valuable materials and information. Try Google Apps, which can take care of everything and allow you to access anything you need from other computers, tablets, and phones. Use Google or Microsoft 365 to backup your information automatically.
Online Storage of Important Files
So many cloud storage systems are available now through companies like:
This keeps your information safe, and you don’t have to worry about losing anything or not being able to access what you need. Logos and corporate documents, spreadsheets with your password information, inspection photos, videos, leases – all of these things can be kept on the cloud.
Best Practices With Emails and Credit Cards
You’ll probably use your own email address to sign up for different services when you’re starting your property management company. However, at some point you’re going to want staff members to access those resources and sites. When you’re signing up, use an email address other than the one you use for everyday business. That way you don’t have to share your credentials with your employees. Do the same thing with payment methods. Use one specific credit card to pay for all subscriptions and other services. That way, if the card is compromised, you only need to change that one credit card.
Property Management Organizational Structure
Hear from Keith Becker, Owner of DeDe’s Rentals and NARPM Regional Vice President, on the two main structures new property managers can go with when building their company: departmental and portfolio.
With a departmental property management company, you have staff that handles each area of the work you do. For example, for one property you might have a broker, a bookkeeper, a person dedicated to tenant relations, and a maintenance specialist who schedules all the repairs for the properties you manage. With this system, each department takes care of their own specific tasks across all the properties your company manages. Several different people will play a role in managing one property.
Under a portfolio structure, you have one person or property manager who is responsible for everything pertaining to a property. Instead of dividing up the responsibilities among departments, the manager will handle rent collection, tenant placement, security deposits, and repairs. The perceived value of this method is that clients will have a single point of contact, which means a more seamless process for landlords and property owners and a lot less confusion.
Which Should I Choose?
The main difference in these structures is how the work is distributed among your team members. You may start as a departmental company and then grow into a portfolio company. It depends on how many people you have hired and how many properties you manage. One is not necessarily better or more profitable than the other; you need to structure your business to meet your client needs.
While these are the two main types of property management companies, some successful business owners think outside of the box and set up their businesses in different ways. Maybe you’ll want to be a sole proprietor without any employees and limit the number of properties you manage, or you could hire 1099 contractors instead of employees and task them with bringing in business and managing their own portfolios. Whatever you do to set up your company, take note of what’s working and what presents a challenge. You’ll want to be well structured but flexible enough to change course based on the needs of your business.
How to Price Your Property Management Services
When we had questions about pricing structures for your property management company, we turned to The Property Management Coach – Kathleen Richards.
Flat Fee and Percentage Pricing Models
There are really two ways to charge your clients. You can charge a flat fee, which means you collect one lump sum as a management fee every month, or you could charge a percentage of the rent that’s collected. We have seen property managers create a hybrid where you charge a percentage of the monthly rent for your management fee and then include other costs that match value-added services, however, this set of pricing is not as common.
Pricing Tips to Consider
- If you’re buying an existing property management company that already has a pricing structure in place, don’t change or raise the rates right away. Get to know your clients and, once you’ve demonstrated what you do differently, you can raise the prices to match the service.
- Consider tiered service levels. You could offer a Classic/Deluxe/Premium pricing model where the services you offer match the price that’s paid. Budget-conscious clients can choose the basic services while investors who want you to handle everything can opt for the premium choice.
- When you increase your rates, add a free value-added service that validates your higher fee.
- Upsell when you can by educating your clients about additional services that might interest them. Offer seasonal inspections that go beyond your normal scope of work. Try a pet program where pet inspections are required for tenants who have pets. Those inspections can be paid for by the tenants.
The most important thing you can do when establishing a price structure is to instill trust in your clients that your services are worth the money they’re paying you. Keep them informed about what you’re doing for them and show them how your work adds value to their property and the return they earn.
Choosing a Property Management Software
To successfully start and run a property management company, you’ll need a software system that’s innovative, intuitive, and able to meet your needs. Some property managers feel like QuickBooks will give them everything they need. This might be a good introductory way to keep yourself organized, but if you want to grow into a serious company, you’ll need a system that can manage trust accounting.
Consider some of the affordable and reliable alternatives out there. We talked to our property management clients who are happy with what they’re using.
Smaller Companies – Buildium
If you only manage a handful of properties right now but still need a platform that allows you to collect security deposits and disburse rent payments, try Buildium or a company like it. You can do all the accounting you need to do on behalf of your clients while keeping your own business funds separate.
Larger Portfolios – Buildium, AppFolio, Propertyware
When you have 50 properties or more, you need a software system that can keep up. The most popular property management software systems right now are Buildium, AppFolio and Propertyware. These platforms help you streamline your systems and develop processes for your company. They are great options for anyone trying to start and grow a property management company.
These are some basic tips that we wanted to provide for anyone starting a property management company. Once you have yourself established and your systems are in place, you’ll need to start thinking about sales, marketing, and reputation so that you can build your company into something really successful. For all marketing advice, check out our comprehensive “Property Management Marketing 101 Guide.” If you would like to discuss firsthand with an expert, contact us at Fourandhalf. We’ll be able to get you going.