Being a property manager can be an excellent long-term career that has proven to be both lucrative and fulfilling. There will always be people who are looking for a place to live, and rental property owners will always need help when it comes to keeping their properties well-managed.
From keeping a regular maintenance schedule to dealing with tenants, a property manager will never run out of things to do in their line of work! Since 31% of all housing is made up of rental homes, the demand for professional property management companies has never been higher, and it won’t be going down any time soon.
Starting your own company from scratch can be daunting though. Between gathering a steady amount of new clients and finding reliable staff to help you provide the best services possible, it can take a bit of time to get your company off the ground and start earning a profit from all of your hard work.
Luckily, you have another option: purchasing an existing company. By taking this route, you will be able to start out with a stable and in-demand business that will allow you to help rental property owners succeed while keeping a positive profit margin.
But what should you look for when it comes to purchasing a property management company that has already been established? What red flags should you avoid? Before you commit to such a large decision, it’s important to know exactly what to expect.
In this blog post, we will go over everything you need to know about buying your own property management business. By following our steps below, you should be able to start your new business venture off on the right foot, allowing you to succeed.
Location Is Not Just for Rental Properties
When a landlord is in the process of choosing a new rental property to invest in, it is heavily advised that they consider the location of their new property.
This is because when renters are searching for a new place to live, the location of their home will be a huge factor in their decision-making process.
Overall, the location of a real estate investor’s new property will have a massive effect on the overall return of the investment property.
While you may not realize it at first, the same will be true for a property management company! If the company that you are considering investing in has a business office that is on the outskirts of town, difficult to find, or in a generally inconvenient location for clients and employees, you may be risking your new business’ overall success.
This is because clients may have a hard time finding you, in addition to your employees finding their commute inconvenient, increasing your company’s turnover.
Further, if your property management company’s office is located too far from the properties that you will be handling, you may be adding unnecessary delays caused by the distance when it comes to providing your services to your clients and tenants.
The location of your property management company should ideally be in close proximity to the majority of properties that your team has under their care.
This will allow you and your employees to provide top-notch service to your clients and tenants quickly, in addition to making your offices easier to locate. At the end of the day, your offices need to be easy to access in order to gain a larger client base.
Don’t Rely on Remote Work
While the property management industry at large has gotten more technology-driven over time, it is important to avoid relying on remote work to push your company’s success.
In fact, property management is an industry that needs in-person, on-site work on a regular basis in order to provide clients and tenants with the high-quality services that they expect.
While you can get a lot of work done by using technology and working remotely, your team will need to be able to strike a healthy balance between remote work and in-person service in order to maintain a successful property management business.
At some point, you will need to be physically present in order to oversee services such as repairs, inspections, and other maintenance requirements that the investment property will have.
When you purchase a property management company, you will need to take the time to consider how your company will best operate. We recommend asking yourself the following questions:
- Is my property management company’s leasing office located near the properties that will be under our care?
- What will be the estimated commute time for both myself and my staff every day?
- Will this estimated commute time hinder my company’s ability to provide clients and tenants with top-notch services?
- As my property management business grows and gains a larger amount of rental properties, will the location help to strengthen the business or will it become a hindrance to my company’s success?
While the location of a property management company’s headquarters isn’t necessarily a deal breaker, it should be front of mind when you buy a new business. You may even consider relocating the business to a more convenient space after you have purchased the company and taken over as the new owner.
However, it is important to take into consideration the costs of relocating a business. If the process of changing offices is estimated to be a long and costly one, you may be better off deciding to continue shopping around.
How Your Company’s Location Can Impact Your Marketing
Just like an investment property’s marketing can be heavily affected by its location, your property management company’s advertising strategy can be too. As any successful business owner knows, an effective marketing strategy is essential for the growth of any company.
For example, if your company has advertised itself as one that specializes in luxury properties, it may hurt your business if your office is located in an area of town that does not reflect this.
Number of Doors vs. Number of Property Owners
Many commercial and residential property managers have a goal of gaining a client who has a large number of doors. It can be great for business! These kinds of clients are often referred to as “flagship” clients. They can help property management companies gain a large amount of business in a short amount of time, generating a steady income from a single client.
While gaining this kind of customer can be a huge goal for any property management company, it may have its drawbacks as well.
When you purchase an already existing property management company, you are inheriting their client base. If the company you are considering taking over has mainly built their business around one or two flagship clients, you may want to think twice about committing to the business.
While these clients can bring a whole lot of business with them, it is important to make sure that they don’t make up the majority of your business.
This is because if the client decides to end their property management contracts with your company or bow out of the real estate industry altogether, they may end up taking all of your income with them if they make up the larger part of your business.
This business model is a huge risk, and you don’t want to invest in a property management company that has a ratio of doors-to-owners that seems imbalanced or doesn’t make sense.
When it comes to owning a property management company, balance is the key! If a property management company’s doors-to-owners ratio looks good to you from a business perspective, then they may end up being the perfect investment for you.
However, if a company has a lot of doors and not a lot of clients, then you may want to continue your search.
Costs of Being a Property Manager
One thing that many investors may not realize is the amount of overhead and operation costs that are associated with being a property manager.
After you have completed your purchase of a property management company, all of those costs will be your responsibility to handle, and the worst thing that you can do as an investor is to go in blind.
But what exactly are the costs related to property management?
Before you commit to purchasing a property management company, you will need to make sure that you have an appropriate amount of cash flow that you can use to cover any overhead expenses that may pop up. This includes costs such as your office space, your company phones, marketing, and your website.
Further, you will need to budget for the costs associated with your services, such as maintenance, legal assistance, extensive tenant screening, advertising the rental properties under your care, and more.
Being a property manager can be a costly profession, and if you want to succeed in the property management industry, you will have to be prepared for all of these expenses and more.
The Bottom Line
At the end of the day, purchasing a property management company that is already established can be an excellent way to get into the real estate industry without needing to completely start from scratch.
However, like most investments, this takes strategy. You need to be able to identify what makes a solid investment, and that includes a wide range of factors that we listed above.
The location of your new company is a big deal, and it should always be taken into account as it can affect everything from your ability to serve clients quickly to your marketing abilities.
The client base of a property management company needs to be well-balanced in order to be a low-risk and successful investment for your future.
Finally, you must be aware of all the various costs related to property management before you commit to investing in a new company. As an investor, you never want to be hit with surprise costs, so this will be crucial to your success!
If you have more questions on how to purchase a property management company strategically, or if you have any other rental property-related needs, we can help.
Contact our team at Blanket today for our expert advice!
