How Do I Start a Management Company?

Question

Broad question, right? Yes, I know. But lets get specific. I'll try to be as concise as possible.

I and a partner (Paul) own 6 rental properties. Our company has teamed up with another investor (he owns 35 more with various partners or solo) to buy 14 more SFRs. His name is Brent.  For those scoring at home, that is a total of 55 houses, all self managed.

We also have friends with properties in need of management and a lack of management companies in the area.....

So....logic would say there is a business opportunity there. Brent has a crew, a warehouse, gobs of tools, and a steady stream of people calling for rentals, work done at their rentals, and people dropping off cabinets, toilets etc (warehouse is next to recycling center... sweet huh?). Brent is also too busy to handle office work, menial tasks etc. I happen to love menial tasks and organizing, paperwork etc.

So, where would people recommend we go from here?

Form an LLC to handle management duties?

Start pounding the pavement building a portfolio of properties to manage?

How do we set fees?

Can we "hire" our new company to manage our existing rentals?

Any other suggestions?

Brent and I would be the only ones involved in this, all others are passive investors.

Christian Hansen · Answer

Hi,  @Jeff S.

I started a PM co. last year from scratch and had to do the RE Lic. part as well. Sounds like you have that under control. The other important things to nail down are, what SW will you use? I like Propertyware but there are others. Make sure it allows tenants to pay rent online, that saves time, and that it is web based so your data isn't lost of the computer crashes. Also, make sure you are properly insured! Savvy owners will want to know you can take a hit from tenants who might sue you. Talk to a knowledgeable insurance agent. Also make sure you know a good attorney who you can call if needed.

Best of luck, let me know if you have any other Q's.

Tiffany Buoni · Answer

You need a real estate broker license to open your property management business in my state also. Definitely check what the requirements are in Michigan, Jeff. Good luck!

Shawn Mcenteer · Answer

Hi @Jeff S. Check your local regulations for legally being able to manage properties.  In my state it is a requirement to have a broker license with in the property management company, I believe an owners is required to have it.

Gabe Lopez · Answer

Hi @Jeff S.,You definitely need a broker involved.  In Michigan, a real estate license is required for anyone who "leases or offers or rents or offers for rent real estate or the improvements on the real estate for others, as a whole or partial vocation; who engages in property management as a whole or partial vocation;" (http://legislature.mi.gov/doc.aspx?mcl-339-2501).

So, to be a property manager, you must be a broker or a licensed salesperson working under a broker.  An unlicensed person could interact with tenants after a property has been leased (i.e to collect rent, perform maintenance, etc.), but they cannot negotiate a lease or sign it.

Regarding what separates a good from bad property management company, Account Closed is definitely correct.  I think that providing excellent service to your tenants is one of the best things you can do for your owners.  Tenant turn-over is very expensive.  Good communication with owners also goes a long way.I know that one of the things that concerns owners new to property management the most is the leasing fee.  It is a conflict of interest - the more tenant turn-over there is, the more money the management company makes.  Finding ways to help mitigate this concern is something that I think is important to think about and address.

If you have any more detailed questions, let me know and I can run them by the broker who owns the property management company I work for.

Jeff S. · Answer

Thank you for the reply and the info. Is their an advantage to us "hiring" ourselves to manage our current properties? Of course the focus would be to pick up new clients, but I'm just wondering if there are any tax implications or things I'm not thinking of.

Account Closed · Answer

In michigan, you do need to be a licensed broker. The broker only has to do the licensing for the pm firm. They do not have to be involved unless they want to be. The good ones put their owners and tenants first and have an a+ maintenance team to help secure and maintain their owners investments. If you have any specific questions, feel free to ask and I will answer if I can.

Kevin

Jeff S. · Answer

Thank you for the reply. I kind of figured that. We do know a few brokers we could get involved, do you know to what extent they need to be included? Does small percentage of ownership suffice? Do you have any experience dealing with prop management companies? What in your mind separates the good from the bad?

Jeff S. · Answer

Thank you for the reply. I kind of figured that. We do know a few brokers we could get involved, do you know to what extent they need to be included? Does small percentage of ownership suffice? Do you have any experience dealing with prop management companies? What in your mind separates the good from the bad?

How Do I Start a Management Company?

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