As the most populous state in the US, California is a prime market for starting a property management company. The sunny state has a diverse landscape, from the bustling metropolis of Los Angeles to the quiet coastal town of Carmel-by-the-Sea. As a result, there is a huge market for property management businesses.
If you’re looking to start your Property Management Company in California, you’ve come to the right place. In this blog post, we’ll walk you through the steps you’ll need to take to get started, what licenses and permits you’ll need, and how to stay compliant with local laws.
9 Steps to Start a Property Management Company in California
1. Write a business plan
Any prosperous business has a well-thought-out plan to guide its progress and growth. This is especially true in the case of a property management company, which must account for a range of variables in order to be successful.
A comprehensive business plan for a property management company should include an executive summary, a description of the company’s services, a target market analysis, the company’s competitive advantages, sales and marketing strategy, and a detailed financial plan.
By taking the time to develop a thorough and well-crafted business plan, you can give your property management company the best possible chance for success. Here are some important things you need to consider when creating your business plan:
Startup and ongoing costs
When starting a property management company, you will need to consider the initial startup costs as well as the ongoing costs of running the business. If you manage a few units, you won’t need office space. However, when you expand your business, you’ll need to hire employees and set up an office.
The biggest startup expense will be the purchase or lease of office space. If you plan to lease, you will also need to factor in the cost of renovations and build-out. Other startup costs include furniture, fixtures, and equipment; licenses and permits; insurance; and website.
Startup costs breakdown:
- Fee for incorporating the business: $800
- Licenses and permits: $500
- Liability insurance: $2,000
- Office setup: $40,000
- Office equipment: $5,000
- Website: $500
The ongoing costs of running a property management company include rent or mortgage payments, utilities, salaries for employees, marketing, and insurance. These costs can vary depending on the size and location of your business, but it is important to have a clear understanding of all the costs involved in running a property management company before making any decisions.
Your target market will typically be the real estate investors that own rental properties. These investors often live in another city or state, which makes it difficult for them to manage their properties on their own. As a result, they rely on property management companies to handle the day-to-day operations of their rentals.
Most property management companies charge a percentage of the monthly rent, typically 10%-15%. So, if the monthly rent is $1,000, you can charge $100-$150 per month in management fees. In addition to the monthly fee, many companies also charge an upfront lease renewal fee, typically one month’s rent and fees for marketing vacant units. And if you ever need to evict a tenant, you can charge an extra eviction fee.
A small property management company can easily manage somewhere around 100 units with an average rent of $600 per month. If you maintain 90% occupancy, annual rental income will come out to be 90 * 600 * 12 = $648,000. And your cut would be between $64,800 and $97,200 from this contract. Furthermore, by offering additional services such as repairs and renovations, a property management company can further increase its earnings potential.
2. Obtain a California Real Estate Broker license
In order to work as a property manager in the state of California, you need to have a California Real Estate Broker license. Becoming a licensed California real estate broker requires completing specific education and exam and then applying for the license with the California Department of Real Estate (DRE).
Here are some general requirements you need to fulfill to qualify for getting the license:
- Applicant must be 18 years of age or older
- Applicant must be a U.S. citizen or a permanent resident in the U.S.
- All of the information on the application must be accurate and honest. Failing to disclose information, even if it seems minor, could result in an application denial.
If you fulfill the basic requirements, you can follow these steps to obtain the license:
Step 1: Gain Real Estate Experience
You’ll also need to have at least two years of full-time licensed salesperson experience within the last five years. Alternatively, you can have a four-year university degree with a major or minor in real estate.
Step 2: Complete Eight College-Level Real Estate Courses
Before you can apply for the broker exam, you need to complete eight different college-level courses on real estate. These courses cover topics such as real estate practice, real estate finance, legal aspects of real estate, real estate appraisal, and real estate accounting. Once you’ve completed all of the required courses, you’ll be able to apply to take the broker exam.
Step 3: Apply and Pass the California Real Estate Broker Exam
The next step is to schedule and pass the state’s broker exam. The exam is comprised of 200 multiple-choice questions, and you will have five hours to complete it. You need to obtain at least 70 percent to pass the exam.
3. Choose a name for your business
Naming a business can be both exciting and daunting. On the one hand, it’s a chance to come up with something creative and clever that perfectly encapsulates the company’s mission and brand. On the other hand, it’s a permanent decision that will have a major impact on the business’s marketing and identity.
After all, the name is one of the first things that potential clients will see, and you want it to be memorable and reflective of the quality of your services. You also want to ensure that people can easily pronounce and spell the name; otherwise, potential customers might not be able to find you when they search online!
Here are some tips to help you choose the right name:
- Keep it short and sweet. Think about how you want your name to roll off the tongue of potential clients and customers. If it feels awkward or long-winded, then it might not be the right fit for your company.
- Make sure it reflects your brand well! You want your brand to be consistent across all channels and touchpoints, so make sure the name reflects your brand well. It should sound professional and have an element of fun!
- Be original. Make sure that the name does not violate any trademark or copyright laws. The name shouldn’t infringe on any other brands or companies that may be similar to yours. You can also check USPTO’s trademark database to ensure that the name isn’t already trademarked.
- Don’t try too hard. You want a name that feels natural and authentic so that people can relate to it without feeling manipulated into doing so by some kind of clever marketing scheme.
- Make sure that the name you choose is available as a domain name. If it’s not, you’ll have to go through a process of finding one that isn’t taken.
You can also check out our article on 255 Property Management Company Name Ideas that will get your creative juices flowing and assist you in the brainstorming process. If you still struggle to find a suitable name, you can purchase our naming service, and we’ll do it for you.
4. Register your property management company as a legal entity
Before you can start operating your property management company, you will need to register it as a legal entity with the state in which you plan to do business. The four most popular business structures are sole proprietorships, partnerships, limited liability companies (LLCs), and corporations.
The type of entity you choose will determine what legal protections you have, how much taxes you will pay, and what paperwork you will need to file. Each has its own advantages and disadvantages, so it’s important to do some research and decide which structure is right for your company.
It’s also important to consult with a business attorney or accountant to determine which business structure is right for your property management company. Once you have chosen a business structure, you can file the necessary paperwork with the state to get your business up and running.
5. Register your company for taxes
The next step is to register for taxes. This is done by obtaining an Employer Identification Number (EIN) from the IRS website. An EIN is essentially a social security number for your business, and it is used to identify your company for tax purposes. Once you have an EIN, you will need to file a tax return for your business each year.
The exact process will vary depending on the type of business you have, but in general, you will need to pay income taxes on any profits you earn. In addition, you will also need to pay payroll taxes if you have employees. By taking care of these tax obligations, you can ensure that your property management company is fully compliant with the law.
6. Purchase insurance coverage for your business
There are four main types of insurance that property managers should consider: errors and omissions insurance, general liability insurance, tenant discrimination insurance, and workers’ compensation.
Errors and omissions insurance protects you in case you make a mistake that costs your company money.
General liability insurance protects you from lawsuits that may arise from injuries on the property or damage to someone’s belongings.
Tenant discrimination insurance protects you from any claims that may arise from discriminatory practices in your leasing or rental agreements.
Workers’ compensation insurance will protect you financially if an employee is injured while working on your property. It will also cover any medical expenses and lost wages that they incur. In California, workers’ compensation insurance is mandatory if you hire any employees.
There are some other insurance policies as well that you can consider. Each type of policy will provide different levels of protection, so it’s important to talk to your insurance agent to find the right coverage for your needs. By investing in the right insurance policy, you can help to protect your business from any potential risks.
7. Open a business bank account
As a business owner, you understand the importance of keeping your finances in order. A business bank account is a vital tool for doing just that. By keeping your personal and business funds separate, you’ll be able to track your expenses and income and build up a credit history for your business. This will come in handy come tax time.
When you open a business bank account, make sure to shop around and compare features. Consider factors such as fees, minimum balances, and the features and services that are important to you. You will also need to provide some documentation, such as your business license and Articles of Incorporation.
Once you have opened your account, you can start managing your finances in a more organized way. This will help you to save money and avoid any potential financial problems in the future.
8. Setup your business website
As a property management company, you want to stand out in a competitive market. You need to find ways to market your company that will reach your target audience and give you an edge over your competition. And in the age of the internet, a website is essential for any business that wants to stay competitive.
Your website is often the first impression that potential clients will have of your company, so it’s important to make sure that it represents your business well.
A good, professional-looking website will include information about your company, your services, and your contact information. Make sure to include plenty of photos and details about your services, as well as testimonials from satisfied customers.
Once your website is up and running, be sure to promote it through social media and online directories. By taking the time to create a well-designed website, you can go a long way toward increasing your visibility and attracting new business.
9. Advertise your company
There are a number of simple, effective ways to get the word out about your business and attract new clients. One way to market your company is to create a website. Be sure to include information about your company’s services and contact information.
You can also distribute flyers and brochures in the local areas and community centers. Another great way to market your company is to offer free consultations. This will give potential clients a chance to learn more about your services and get an idea of how you can help them.
You can also use social media to run ads and target specific demographics. Finally, don’t forget the power of word-of-mouth marketing. Make sure that your current clients are happy with your service, and ask them to recommend you to their friends and family members.