Starting a Property Management Company to Service Your Rentals

[Kyle W.]

I can't seem to find much information on this. I'm curious what you guys think. Is it a good idea to own more of the real estate business by having your own property management company to service your rentals?

Ex. - Start out with 3 or more rental properties and do everything yourself as the owner and sole employee of your property management company. Then, as you increase your rental properties, hire more help until you have a property management company that works to service your rental properties.

Perhaps you could decide to open yourself to other people's rentals, or you could sell the company pnce you've built a name for yourself if you want to move onto bigger/better things.

[Ricardo R.]

@Kyle W. in no way am I trying to turn you away from starting a PMC, heck that is how we got started. Just that there a A LOT of factors to consider when trying to do it 'part time'. It's not illogical for an investor or landlord to connect the dots and think that it wouldn't be a far stretch from managing say... your own 40+ doors and managing 40+ for other owners but how wrong of an assumption that would be.... 

1) Realize that most owners with 2+ self-managed properties consider themselves 'the best manager' - although coincidentally most owners have never attended any continuing education i.e. management courses, laws, fair housing, etc. etc. nor have managed properties they haven't had an ownership interest in. 

2) Realize that most owners will just not understand how to run a property effectively. 

3) Realize that most owners will focus on price first and foremost instead of services rendered

Although on the surface it may not seem that there is much to it... when starting a PMC there a lot of factors and is probable one of the most complicated businesses out there. There is a lot of prep that goes into it, all things which you may not necessarily do now as a LL or investor: 

1 - You NEED to be an entity (LLC, etc.) for liability, for taxes, for validity - $500

2 - You NEED an abundance of insurance E&O, buiss. liability, umbrella, etc. - $2,000

3 - You need to be licensed (depending on state) - $1,200+

4 - You need to set up special dedicated bank accounts escrow, operational, etc.- $200 (<-- your time and effort)

5 - You need to draft or send your existing documents leases, agreements, etc. for attorney review - $500+ (<-- even if you don't you'll have to modify them/ time and effort)

6 - You certainly need to establish your Tenant approval criteria and get attorney approval - $200

7 - Property management software... no not excel, or cozy... serious software that allows you to have owner portals, tenant portals, maintenance, 'pull' funds from tenants bank accounts, send 1099's to owners, etc. -------- $600 - $3,000/yr. (you can do without out, but the time and effort you spend will equate to the same)

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So far... this is all before you even take on ONE client and as you can see I'm way undervaluing the amount of $$$, time and effort spent to get the above all ironed out and jiving smoothly. Then you have everything that goes with acquiring accounts and standing up a professional business and appearance - because, lets face it... no one trusts a guy with a spread sheet and a note pad. 

Once you get going... you'll have owners that are not like you... they may not care about their properties, which looks bad on you since you are the managing entity or you may have owners that are emotionally attached and don't realize it's an investment property and will ask you to do things like 'inspect my property and tenants every two weeks', which will expose you to liability and wasted time and effort. On pricing, you'll have owners that wonder why it's not 'all inclusive' and why you're not stopping by the property every week, paying their bills, coordinating lawn maintenance, coordinating plowing, scheduling maintenance while their property is vacant and refuse to understand that it all takes time and effort from you and your time is not free but will still ask to do all of it even though their amazing all incentivizing $80 month in management fees is not being charged while vacant. 

It really is something to think about. Through the years we have learned to be WAY more selective on which owners we take on. We continue to invest in properties all the time and keep a good track record both with owners and driving investments to their max... but our philosophy has defensively grown to what it currently is now... 'We know what we're doing, we own and manage a multitude of rental properties, you hired us to manage your property, please get out of our way so that we can make it cash-flow for you, protect your property and make you happy" --- any owners that are not okay with that and instead want or need to be involved in all aspects of our system or abandon their owner responsibilities to the property - we certainly stay away from. 

These are some of the things to consider which are different when taking on other people's properties.