How to Start a Property Management Company
In April 2012 I started a property management company with two of my best friends. None of us had any actual experience in real estate apart from being interested in getting into it. We got the basic paperwork done to incorporate our business in California, and then the real work began. Here are some of the questions we had to answer pretty quickly when we got started:
What Property Management Fees Should You Charge?
The going rates in our area are from six to ten percent. We feel we can provide quality services at a competitive rate of 8.5% with a cap of $150 per unit. If the property rents out for a high amount, then we feel that we do not need to charge more than $150 to be able to manage the property. We want the property owner to keep the extra money.
How do we keep our expenses low?
- We kept our marketing expenses low
- We found a great location at a very reasonable price
- We kept our servicing area within a reasonable amount to keep gas costs low
- We use Buildium for many of our online services that we require
- We meet real estate brokers and salespeople in person
- We use banks that provide free accounts to us
How Do You Track Income and Expenses?
We break down the income and expense section within our policies to help give property managers an idea of how we view the two topics in a specific light. We define specific in-house financial words that directly affect profit:
Moneymaker vs. Asset: Anything that pays for itself is a moneymaking asset.
Product: A property that is positioned to be rented by a tenant is our product.
Money Drain vs. Liability: A property that is not bringing enough income to pay expenses is considered both a money drain and a liability.
Cash Flow: Cash flow is the way that the money moves.
Working Budget: A successful working budget is one that is satisfactory to the broker and to the client. A very successful working budget is one that is satisfactory to the broker and to the client and is increasing the profit generated by the unit or property over time.
How Many Properties Should a Property Manager Manage?
We also need to know how many units a property manager can handle. I have heard that a property manager can handle 30-40 units. I was told that if they manage 30, and if someone asks if we can take on a 30-unit complex, then we can say yes, because we can max the agents to 40, so one agent can solely manage the 30-unit complex. Afterwards, we can hire on someone else to take the extra load off of everyone, so the agents will go back down to managing 30 units.
How Much Should a Property Manager Get Paid?
Let us assume that the property manager take brings home 5% of the total collected rent each month, that the average property rents at $1,000 and the take-home pay is $50 a month per rental unit.
Can a property manager manage one hundred units? The take-home pay would then be $5,000 a month when using the assumed numbers. If the property manager is managing an apartment complex, then the rent could be lowered a bit, and reduce the property manager’s income, as according to the law. Otherwise, the rent could be reduced to help the property manager with cash flow, so he or she makes enough money to alleviate the property manager’s financial concerns, so he or she can manage the properties in the best possible way.
This post is written by guest contributor Nathanial Isaacson.
Nathanial Isaacson is the CEO/President of REPIC Management, a property management company in Visalia, California. A fuller version of this blog post appears on All Things Property Management.
Note: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinion or position of Zillow.