Business Overview

Property management is exciting because there is always something that needs to be done. Normal maintenance can be scheduled; however, pipes may break in the middle of the night and emergencies can come up frequently. A property owner (landlord) can act as a property manager, or he or she can hire a professional property management company to take on full or partial responsibility for the management of a property or properties. The goal of a property management company is to reduce risks and maximize income for the property owners.

Who is this business right for?

Your company will be on-call 24/7 and you must enjoy dealing with all kinds of people. The best property management companies treat the properties as if they are the owners, which they also might be. They have full or partial responsibility for the building(s) that they manage and are good at screening tenants to find good ones, without discriminating. They are problem solvers and take appropriate and prompt legal action to evict destructive and/or non-paying tenants. You will have to stay calm and manage emergencies without getting overly stressed about the problems because there will be a constant stream of new problems to deal with.

Real estate brokers are good candidates for starting a property management company as either a division or a subsidiary because they already have many contacts with property owners, as well as relevant experience in the industry.

What happens during a typical day at a property management business?

As an owner of a property management company, you will need to be able to manage properties remotely for routine matters and be on-site for matters that require personal attention, such as emergencies and showing vacant apartments or rental spaces if the building is a commercial one.

For example, if your property management company manages a large group of single family homes that are rental units you will be constantly checking on them. You will be working with the vacant ones to get them rented as fast as possible. You will be constantly inspecting properties to make sure everything is OK with them and any work needed is being done properly.

You will have an extensive list of to-do items, which changes every day. There is industry-specific property management software available that helps keep track of everything. You must be able to multi-task and constantly get the most critical things accomplished as fast as possible.

Rental properties need constant maintenance. Any vacant properties need to be cleaned up and repaired quickly to find a new renter. The main responsibilities are to keep everything in good condition, manage the tenant relations, and show the vacant places, which are made attractive to reduce the "down time" when the rental properties are vacant.

What is the target market?

The clients for this business are real estate investors that own rental properties. The can own a single property or be a large Real Estate Investment Trust (REIT) that owns thousands of properties.

How does a property management business make money?

Some property management companies charge professional fees for managing property owned by a third party, while other property managers acquire the properties they manage and keep all rents derived from their property. There are property management companies that do both. Starting out, it may not be possible to directly acquire rental properties unless partnered with a real estate investor that can provide funds to buy a property.

There are five popular business models in this industry sector, which are:

  1. Charging the property owner a percentage of the rental income earned by the properties under management.
  2. Fixed fee contracts are also common. Under this scenario, the property owner contracts with a property management company for certain services and pays a fixed fee. The property management company may have full or partial responsibility for the property. This type of contract is used when the properties have no income, such as maintaining properties that are vacant and for sale.
  3. Base rent guarantee contracts are another type of agreement that property owners make with property management companies. Under these agreements, the owner accepts a base rent that is guaranteed (usually below market rates) by the property management company and allows the property management company to sublet the property for a higher rent. The difference between the two rents is the income for the property management company.
  4. Revenue sharing agreements are used for commercial properties that create income, such as stores or restaurants. The property management company pays the owner a percentage of the revenue generated, instead of paying rent for the property.
  5. Hybrid agreements are possible, such as a combination of a fixed base rent and a revenue sharing portion that is paid to the property owner by the property management company.

What is the growth potential for a property management business?

A privately-owned REIT called Blackstone in the past years, after the real estate market collapse, bought about 50,000 single-family homes all across the USA, with the intention to convert those properties to rental units. A property management company that lands a contract with Blackstone to manage their rental properties would earn many millions of dollars each year.