What do you need to open and operate a property management company in Florida?
A step-by-step guide to starting a property management company in Florida:
Step One: Get a Real Estate Broker License
If you have a real estate salesperson license, you need to take the broker’s exam and have 24 months of real estate experience. No real estate license? Get a qualifying real estate broker.
The office is defined as a room where you can meet clients. The office should have a sign in the lobby or at the entrance so your clients will know that you have a business there. A lot of small real estate businesses use executive suits for that.
Errors and Omissions insurance is professional liability insurance that protects you from lawsuits and covers attorney fees, court costs, settlements, and judgments.
An escrow account should be created to keep tenants’ deposits, advanced rent payments, and other funds that belong to the tenant or the landlord.
Step Five: Property Management Software (Optional but highly recommended)
Having property management software is optional but highly desirable. My favorite is Buildium for a start-up pm company. (read our Buildium vs Appfolio article)
Admittedly, this last step is the most difficult one but also the most important.
Before starting my property management company, everyone told me how hard it is and how it’s not worth it. This was 2008, the real estate market was tanking and I had to look for a more stable income so ignored all the naysayers and got started.
Sometimes you have to be a contrarian.
It turned out to be a good idea because it gave me a steady income and the competition back then was negligible.
The most difficult client to get was the first client but after that, it was word of mouth and we grew 25% for the first three years.
In 2017 I sold our accounts and reinvested in rentals, now I only manage my rental portfolio.
So, if you are considering opening a property management company, here are the basic requirements to get started:
Step One: Get a Real Estate Broker License
To open a property management company in Florida you will need a broker’s license.
If you are a licensed real estate agent and you just want to work as a property manager, you have to find a brokerage that allows property management.
Alternately, you can hire a qualifying broker. Here is a company that can do this for you.
Business entity setup
You don’t have to have an LLC registered because your company will be registered with DBPR. It’s a good idea to get an EIN number from IRS.
Additional requirements: E&O insurance
Step Two: Find an Office
These are the requirements for real estate office, according to DBPR:
475.22 Broker to maintain office and sign at entrance of office; registered office outside
state; broker required to cooperate in investigation.—(1) Each active broker shall maintain an
office, which shall consist of at least one enclosed room in a building of stationary construction. Each
active broker shall maintain a sign on or about the entrance of her or his principal office and each
branch office, which sign may be easily observed and and read by any person about to enter such
office. Each sign must contain the name of the broker, together with the trade name, if any. For a
partnership or corporation, the sign must contain the name of the firm or corporation or trade name of the firm or corporation, together with the name of at least one of the brokers. At a minimum, the words “licensed real estate broker” or “lic. real estate broker” must appear on the office entrance signs.
Some virtual offices will allow you to have a sign at the lobby of the building, thus satisfying the sign requirement.
You can start with a virtual office and upgrade as you need it. In the beginning, it’s better to spend money on acquiring clients instead of paying higher rent.
Step Three: Get E&O Insurance
E&O is professional liability insurance that protects you and your employees against clients’ claims of negligence.
Step Four: Open an Escrow Account for Security Deposits and Prepaid Rent.
How to set up your business and bank accounts?
Two bank accounts: escrow for security deposit, prepaid rent and repair escrows and operating account for payments from tenants, payments for repairs made on a property to vendors, and payments to landlords.
Third account: the operating account for your real estate and property management business.
Step Five: Property Management Software
Even if you are just starting, get property management software. It will make your life much easier. You can collect rent online, pay vendors and landlords, receive maintenance requests, and dispatch vendors with ease.
We started with Buildium (easy to learn and teach) and graduated to Appfolio and then moved back to Buildium. Here is an article about my experience with both Appfolio and Buildium.
It doesn’t matter which company you use, just make sure you stick with it in the long run. There is nothing worse you can do to your business than move to another software when you have 100 accounts. We barely survived it. The chaos is difficult to describe.
Once you have property management software, get bookkeeping software for your company accounting. most owners skip that but that’s a grave mistake. I recommend Zoho, at $9 per year, it’s worth it and it will keep your clients money and your money separate. It will give you a good idea of what your profitability is at any time and that’s the key to running a successful property management company.
Step Six: Find Clients
How to find clients?
The most difficult client to find is your first client. You need at least one reference to get started.
My suggestion is to network with other agents. Give them a great referral fee, maybe 50% of the leasing fee in the beginning. You have to also give them a guarantee that they will not lose that client when it comes time to resell. I like this strategy especially in today’s market because it’s free. It requires networking, by phone or by email for now.
After you have a couple of clients, you may offer a discount for a while for new clients.
Other options are Google leads, pay-per-click, snail mail (newsletter), etc.
You will get the best traction from networking in the beginning,
Growing a property management portfolio – challenges
You have to decide if you are going to be a one-person show or become a huge business. Keep in mind that if you decide to do it alone you will not be able to manage more than 70 properties if you want to provide good service.
It very hard and unprofitable to be in the middle between being a solo entrepreneur and a big business. If you start hiring other managers the minimum number of properties you need to manage is 300 to turn a profit.
One way you can remain a one-person profitable company is to outsource services that are not vital, maintenance dispatch, accounting, and certain admin tasks.
If you decide to grow, you have to be aggressive with marketing and client acquisition, especially in this market.
Create systems, execute, and be consistent.
One more thing: don’t abandon real estate sales. Remind your clients that you are also a real estate broker. If you focus on property management only, your clients will find someone else when it’s time to sell or buy.
Most clients don’t care if your company is called Realty or Property Management as long as you do a great job managing their properties.
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What are the pros and cons of starting a property management company?
- You have a steady monthly income
- Opportunity to network with investors and help them get more properties which leads to more sales.
- Done right, an opportunity to scale and have a business instead of a sales job.
- low margin business, many opportunities to screw up
- an emotionally difficult job as you are always the bearer of bad news
What services does a property management company offer?
- Estimate the proper rental price
- Oversee repairs if needed
- Advertise and show the property
- Screen tenants, perform credit checks, verifying employment, and rental history.
- Collect rent
- Provide monthly accounting reports to the landlord
- Negotiate and renew leases
- Conduct property checks every six or twelve months.
- Oversee the maintenance of the rental.
- Enforce the lease and facilitate eviction if needed.
These are the tasks to rent and manage a rental property:
- A property manager will oversee any work necessary to get a property in a rent-ready condition. Most managers charge extra for that but many do it as a goodwill gesture.
- Next, the property management company will advertise the property, show it, and get a tenant.
- Potential applicants are screened by the property management company if approved, a lease is signed and the tenants are moved into the property.
- The property manager collects the security deposit and the first-month rents.
- During the lease, usually, a six-month walkthrough is conducted. The property manager deals with any late payments, lease violations, Home Owners Association (HOA) deed restriction violations, lease renewals, vendor soucing and dispatching.
- At the end of the lease, a move-out inspection is conducted, a letter to the tenant is prepared and mailed to let them know if any money will be deducted from their security deposit.
- The last task is getting the property ready for the next tenant.
How much do property management companies charge?
There are four types of fees:
- Procuring the tenant – 50% to 100% of one month’s rent. This depends on the area but a more common charge is 50%.
- Management fee – I have seen it from $79 per month to up to 12%. More common is 10%
- Additional fees: Move-in fees, late fees, etc., repairs fees
- Vendor passthrough fees: the vendors pay 10-15% for each job they are given.
Lately, I am noticing a trend for property management companies to charge the landlord less but add fees to tenants and vendors. This no doubt is the result of overcapacity in this market. However, that may change if we get into a recession.
Resources and Legal Forms:
- Rental Forms
- Property Management Agreements (Apartments, Single Family Home and Commercial)
- Software: Buildium, Appfolio
- Florida Real Estate Licensing
- Qualifying Brokers Information – How to create a real estate or property management company without getting a real estate license.
- Office that can satisfy the state requirements