You need about $70,000 to start a property management company (Medium Scale). Here is a detailed cost analysis for starting a property management business and raising finance.
In this business, there are two main ways to improve profitability; increase revenue and lower costs. Lowering costs can be quite challenging as businesses are constantly battling with fixed and unexpected costs, so hard decisions and a little flexibility will be key to lowering costs.
Property management businesses are always advised to take a critical look at their operation, and determine what and where they can save money.
Estimated Cost Breakdown for Starting a Property Management Company
- The Total Fee for incorporating the Business: $750.
- The budget for Liability insurance, permits and license: $2,500
- The Amount needed to acquire a suitable Office facility with enough space for 6 months (Re – Construction of the facility inclusive): $40,000.
- The Cost for equipping the office (computers, printers, fax machines, furniture, telephones, filing cabins, safety gadgets and electronics et al): $5,000
- The Cost of Launching your official Website: $600
- Budget for paying at least two employees for 3 months and utility bills : $10,000
- Additional Expenditure (Business cards, Signage, Adverts and Promotions et al): $2,500
- Miscellaneous: $1,000
Going by the report from the research and feasibility studies, you will need about $70,000 to set up a medium scale property management company in the united states of America
If you want to settle for a small scale –neighborhood property Management Company, then you can as well operate from your home or share office with a friend or rent a virtual office. Also you can run the business alone thereby eliminating the cost of paying employees.
With that you can spend less than $12,000. But if you are considering launching a large scale property management company, then you should be ready to spend well over $150,000.
Although not everyone would consider taking this job, property management is surprisingly an easy and affordable field to enter. Here are the major factors that will influence the cost of starting property Management Company in the United States.
Factors That Determine the Cost of Opening a Property Management Business
Table of Content
A property management company is like many other service businesses. And like any business, a property management company will need a place to work and all the equipment that goes along with running an effective modern operation. To keep costs down, many new owners start out working from home, and when their business outgrows that setup, they look at renting commercial office space and hiring additional property managers.
Every new property management company will have to determine what type of legal entity they want to do business as; usually a Limited Liability Corporation (LLC) or an incorporated business (S – Corp or C – Corp). Generally, fees usually run around $150 – $200 for the legal document, and registration fees with your state’s Attorney General’s office range from as low as $10 up to several hundred dollars.
Note there are pro’s and con’s to each type of corporation including different tax implications. They also have different processes and cost of formation.
Licenses and Permits
Each state in the US has specific licensing requirements that you must know before starting a property management company. In most states, you need to obtain a Real Estate Broker’s License which allows conducting both property management and real estate sale activities.
Also note that some states mandate a Property Management License which limits you to property management activities only. Only six states do not require any kind of licensing for managing real estate properties. As these requirements and their costs vary according to states, it’s advisable you contact your state Real Estate Commission.
Number of Employees
Most small property management companies start with just the owner and maybe a few contracted staff for bookkeeping and the rest. However, the number of employees needed or employed at a property management company will decide the cost of the business startup.
Nonetheless, it is still recommend that a new property management company hire certain professionals when starting this type of career. Clients prefer to hire managers who have a team that includes:
- An Accountant
- A Real Estate Lawyer
- Contractors: electricians, painters, HVAC services, landscapers, home inspectors, locksmiths, pest and termite control, plumbers, pool services, roof inspectors, etc.
Aside normal office equipment which can include a desktop or laptop computer, copier, scanner, and fax machine, technology is one step a property management company can’t skip. We live in a technological age, so finding ways to leverage automation solutions and different tools in the real estate industry is incredibly important and they come with their own costs.
Property management companies need technology to help manage financial records, market properties, find tenants for the rental properties, track rents, handle maintenance requests, lease management, etc.
If a property management company manages short – term rentals, like vacation homes listed on Airbnb or similar sites, they need vacation rental software to advertise listings, manage calendars, keep track of check – ins and check – outs, oversee cleaning and maintenance, etc.
Some also need something that integrates the day-to-day tasks of a property manager with the software needed to operate a company. There are several companies that offer such software and their costs will impact the cost of opening the business.
When starting a business venture, every entrepreneur needs to remember that customers don’t just appear. Every successful business needs to search for them and attract them. So, the marketing strategy and plan any property management company leverages to get clients will affect the overall startup and ongoing costs.
In this business, when you’re just starting out and have no clients, traditional marketing methods such as word of mouth and a referral payment program can be great for advertising your business. A real estate investment club is also a wonderful place to find landlords and investors whom you can turn into clients for your management.
Creating a website is also a great strategy for marketing and advertising your property management company and it comes with its own cost. Some also use Google ads and pay – per – click advertising to drive potential clients to their website.
Another marketing strategy property manager’s use is content and email marketing. All these have their cost and any method a business chooses will impact the startup and overhead cost.
Financing Your Property Management Business
If you choose to start your property management business on a small scale, you might not need loads of money to launch the business, but if you decide to start on a large scale, you will sure need to raise the required start – up capital to launch the business.
If you are starting your property management company on a large scale, you will need a decent office space, office equipment and furniture, and money budgeted for the payment of salaries and utility bills for at least a period of 3 months. In essence you are expected to generate your start – up capital.
When it comes to financing a business, one of the first thing and perhaps the major factors that you should consider is to write a good business plan.
If you have a good and workable business plan in place, you may not have to labor yourself before convincing your band, investors and your friends to invest in your business. Here are some of the options you can explore when sourcing for start – up capital for your property management business;
- Raising money from personal savings and sale of personal stocks and properties
- Raising money from investors and business partners
- Applying for Loan from your Bank / banks
- Pitching your business idea and applying for business grants and seed funding from donor organizations and angel investors
- Source for soft loans from your family members and your friends.
The good news is that the startup costs of property management companies are relatively low compared to many other new business ventures.
It is estimated at $2,000 – $10,000, depending on the factors elaborated above. Nonetheless, becoming a successful property manager requires dedication to learn the ever – changing real estate industry as well as commitment to handle the everyday tasks that come with this job.
Being a property manager can be a challenge – especially if you are on your own – which is why it’s not for everybody. However, great rewards come with great risks and starting a property management company can be an extremely lucrative career in real estate.