So, You Want to Start a Property Management Company? (Part 2)

In Part One of this article, I detailed out some of the major cornerstones of the things that I was completely naive about when starting a management company. In summary, the top three things come down to this:

Property management is a hard business model with low margins and high opportunity costs. You are forced to scale, and then scale more. Along the way you will invariably end up dealing with Owner clients that are far worse than any tenant and you will curse yourself for ever taking on that client's property in the first place.

I'm going to assume you understand these points and are now a bit more cautious than cavalier. So, let's move on to the nitty gritty so that you can get on your way to creating and scaling a successful, and profitable property management company.

Listed below in no particular order are my DO's and DON'T's:

• DO Focus on a close geographical area. You are going to need to rent the place at some point in time, and a 2 hour drive time represents either a 4 hour trip to the property for yourself, or for someone you are paying to go there. It also helps to stay close geographically so that you can know values and develop an expertise in the area.

• DO Invest in your systems. Don't be cheap and think that Buildium's $40/month or Appfolio's $200/month software systems are too expensive. These software systems are going to save you when it comes to record keeping, rental marketing, bookkeeping, tenant/owner communication, tenant screening, lease signing, and much more. Pony up the money, learn how to work the software, and pat yourself on the back for the sage decision. 

• DON'T compete on price as a growth strategy. There are far too many companies out there that think their only path to capturing market share is by undercutting prices. This, however, is completely short-sighted because in order to provide the quality of services you (and your clients) desire, as well as scale your systems in order to handle capacity, you are going to need more revenue. We tell all our prospective Owner clients upfront, "We're not the cheapest in town, but we are the best. If you want to select a management company based on price, then have fun watching your property get managed into the ground." (Remember in the first article when I said that a great property manager will actually increase the value of the property? This is further proof. We also stand by this statement and routinely have Owners come back to us month's or years later when the cheaper management company alternative backfired.)

Another word of wisdom under this topic is to understand where most of your energy goes during the normal course of operations. I originally did not charge a lease-up fee, thinking that Owner clients wouldn't like this because it incentivizes the managers to place tenants that will move every 12 months. First off, it is incredibly time and energy consuming to complete a turnover....coordination with the vacating tenant, punch lists, walk throughs, vendor scheduling/coordination/invoice payments, marketing, tours, screening, lease signing, move-in inspection, key cutting...get the picture? In my opinion, you'll run yourself ragged if you don't charge leasing fees.

• DO be aware of regulatory and policy changes. I was originally a huge short term rental advocate. I didn't care if it was nightly furnished vacation rentals or monthly furnished corporate rentals, it was almost a no brainer because of the cash flow. That is until Portland changed their regulations and overnight our short-term rentals became illegal. Operating under the radar is not fun, even worse is getting caught and being fined a lot of money (and then figuring out what to do with a ton of furniture that won't fit in your house or storage). Then you have to watch cash flow on those properties dry up to a trickle compared to where it once was..

• DO hire competent people. This should be obvious, but I once hired a leasing agent that turned out not to like people. Needless to say that relationship didn't withstand the test of time.

• DO hire a real estate agent for your team (or become one yourself). Property management positions yourself nicely to help Owner clients and tenants buy real, sell, or exchange real estate. We've brokered deals between Owner clients, helped buyers 1031 exchange into our market and then gotten the management contract, helped tenants avoid lease break fees by helping them purchase their first (or next home), and helped sell properties on the market when the Owner was ready to move on. Providing this service is also a great way to generate more revenue, which can then in turn enable your buy and hold investing even future.

• DO great marketing. I want our rental listing to look the same as a For Sale listing, minus the staged furniture for your average rental unit. High quality photographs, edited and curated copy, online applications, online payment processing, etc. All this helps to increase demand for your space and secure quality tenants.

• DO remember that you are a professional It is hard to match the insights and competency of a skilled professional that knows investing, knows rental rates, real estate values, contractors, vendors, lenders, insurance agents, mortgage brokers, real estate agents, lawyers, accountants, and other real estate company owners. This knowledge can be transferred to your staff, your clients, and your tenants to help them better their lives and investing careers. It is a self-enriching prophecy by helping others with their goals.

• DO continue to invest in real estate. Simply because you are reading this on BiggerPockets means you most likely are interested in real estate investing. It is paramount to practice what you preach. You're expertise will grow as a result, and the services you provide will only be better because of your investing experience. Furthermore, your investing will be enhanced by the skills you learn from the management company. 

There is plenty more where this came from, but most will you will simply pick up along the way. I'll end it with this, the purpose should be to create a profitable business as a result of providing valuable services. If you provide bad service, you will not be in business long. If you do provide good service, do not underestimate your worth. You are the minority in this business.

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Feel free to use our company as an open-book example of how we have come setup our fee structure, screening criteria, and marketing materials. I created Latitude Property Management to help people lead full, intentional lives, particularly for other entrepreneurs out there that have a passion for real estate and lifestyle design. You can also reach out to me directly at [email protected] if you have anymore questions on starting your own successful and profitable property management company.