Any Tips for Starting a Property Rental Business?

Question

Hello Everyone,

I was doing a bit of reading earlier this morning and read about a particular property rental company in the D.C. area. This company basically contacts landlords and, working on contingency, attempts to find a suitable renter for that home. Should the company find a renter, the landlord will pay the company a fair commission.

Does anyone have experience with these companies? Do you know how profitable they are? I imagine it can be quite lucrative depending on how much time and effort you put into it, especially in a large metropolitan area such as D.C.

Do you know what databases these companies use to find rentals and renters? If you were called up by one of these companies, what would make you want to use their services?

Since I live in the D.C. area, this seems like a decent enough opportunity to get my feet wet with real estate while learning the market at the same time. I am fresh out of college so buying a property in D.C. will take a bit of creativity. I figured I could possibly try this out in the mean time.

Let me know what you guys think! Thanks!

Brandon

Trevor K. · Answer

@Brandon Hall An investor is going to want the best person possible to get his unit rented.  Every day that an apartment sits empty, it is costing the investor money.  If you charge less, I'm sure you will get some business.  You will also have to do more volume to make enough money to live.

Most investors will also want the person leasing the unit to also manage it.  Experience, and reputation are going to be important to somebody turning over control of their property to a manager.

I'm not saying you couldn't do it, but let me ask  you.  What do you offer that an established PM company doesn't?  Why should an investor hire you?

Robert Williams · Answer

Hi Brandon,

I have a property management company in DC which provides leasing services (finding tenants for properties).  All of our leasing services business is through referrals from my real estate company.  To find renters, we advertise on Craigslist.  We basically charge one-month's rent for our leasing service (we have a tiered price structure, so pricing changes slightly based on the rental amount of the property).

The services we provide in exchange for our leasing fee include helping the homeowner prepare the property for market (suggesting neede repairs, painting, etc), marketing the property (taking photographs or hiring a professional photographer, putting together a compelling Craigslist ad), holding property tours, screening applicants, putting together the lease agreement, and moving in the new tenants.

For additional fees, we will help homeowners register their rental units with the DC government.

Rents in DC are really high so providing leasing services can be pretty profitable assuming you can generate enough business.

Hope this helps,

Rob

Brandon Hall · Answer

@Trevor K. My parents buy in NC so it wouldn't be feasible for me to manage their properties. I do however manage their financials and taxes. I am working toward my CPA and figured that would be great experience.

And don't worry about discouraging me. I tend to remain optimistic no matter what the odds!

Trevor K. · Answer

@Brandon Hall It doesn't hurt to try.  If you are motivated, and work hard, somebody may give you a chance to prove yourself.  You mentioned that your parents have rentals.  Have you asked them to let you lease/manage one?  I know in Illinois you only need a RE license if you are being paid for management.  You can gain experience in that way.

I don't want to discourage you to get started, but you need to be pragmatic.  Write a business plan.  Even if just for the practice.  It will probably open your eyes to some things you had not though of yet.

I bought my first house at 22, so I know how some people will treat you because of your age, and it can be frustrating.

Brandon Hall · Answer

@Robert Williams @Trevor K. Thanks for the info guys I do appreciate it. I work as a consultant leaving me little time during the week to do much of anything. Do either of you think it would be possible to get picked up by a prop. mgmt. company if I am really only available during the weekends? Even if I worked for free or next to free? I just want to learn the ropes.

Thanks!

Robert Williams · Answer

Hey Brandon...I really like your motivation and there's no reason not to pursue your business interest.  But, there is a significant risk to an investor in hiring someone completely inexperienced to rent their property.  The risk to an investor is having the place sit vacant if the person/company they hire fails to rent it out in a timely fashion.  If I have multi-unit with four apartments that need to be rented at $1000 each, I'm losing out on $4,000 per month in potential income for every month that a leasing company fails to find me tenants.

I don't know what all the legal requirements are to set up a property management company (I'm already a licensed agent so I didn't need to worry about that angle).  The rest is just setting up your business entity (an LLC in my case), etc.  If you go to DC.gov, they have a complete small business section that you can research for the exact requirements.

Brandon Hall · Answer

@Trevor K. An investor wouldn't hire me because I don't have the necessary experience. Other than my parents owning rentals and knowing what my age group looks for in rentals, I don't have anything else to offer. Except for the fact that I would work on contingency.

I guess in my mind, if someone called me and said "I'll get your property rented and you aren't out of pocket until someone signs a lease" I would be inclined to see what the kid could do. Even if I were still working with another company. There's just no risk for me in that scenario as an investor.

Maybe that's not how the world works though ;)

Brandon Hall · Answer

@Trevor K. working on contingency would mitigate the risk for the investor. The investor would only be out of pocket once the place was officially rented. Why wouldn't an investor agree to that?

Trevor K. · Answer

You should probably begin by getting a job with an existing property management company to learn the business.  I do not think many investors will want to hire a new company with no experience.

Brandon Hall · Answer

@Robert Williams Are there any legal requirements in the D.C. area? Would you mind explaining how you initially started up?

Any Tips for Starting a Property Rental Business?

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