Real estate investors utilize the assistance of property management companies to oversee the financial aspects involved in the management of investment property. Property management companies establish rent collection systems, negotiate lease contracts with tenants and ensure that the investment properties meet health, safety and building code standards. In essence, property management companies work on behalf of the property owners. Starting a property management company involves establishing business relationships with owners of investment properties and adhering to state and federal requirements to start the business.
A property management company is required to maintain a broker’s license in the state where it plans to do business. The broker’s license enables the property management company to list properties for rent and negotiate leases. The requirements to obtain a broker’s license are established by the states, which typically include passing an examination and having a certain amount of experience working in real estate sales. In addition to having a broker’s license, the owner of a property management company must obtain any other business licenses that are required by her local county and state. Also, each state maintains its own requirements in regard to the type of state license that's needed to operate a property management company.
Determining a business structure is an important decision involved with starting any type of business. Sole proprietorships are typically established by single business owners with the intent to work as self-employed individuals. For instance, a sole proprietor with a broker’s license may establish a property management company and work as the property manager for real estate owners. Other forms of business structures include partnerships, limited liability companies, or LLCs, and corporations.
There are legal requirements involved to establish each type of business, such as business registration requirements with the state and tax considerations. Business partnerships and corporations are usually required to obtain a federal Employer Identification Number, or EIN, with the Internal Revenue Service; this is a requirement for companies that have employees. Also, regardless of the type of business structure, the company must operate under its legal name or register a fictitious name or “doing business as” name with the secretary of state.
Property management companies acquire business from developing business relationships with property owners. Property managers can't manage property without working on behalf of property owners. Essentially, a major concern involved with opening a property management company is developing and expanding the firm’s client base. On the other hand, property management companies sometimes invest and manage their own properties. Property managers deal directly with property owners, and the property managers are responsible for managing property under the guidance of the property owners. Therefore, the property manager or property management company must have an understanding of the goals and objectives of the property owners.
- Internal Revenue Service: Business Structures
- Home Business Center: How to Start a Property Management Business
- U.S. Census Bureau. "Local Governments in Northeast More Reliant on Property Taxes than South and West." Accessed Nov. 26, 2019.
- Organisation for Economic Co-operation and Development. "Tax on Property." Accessed Nov. 26, 2019.
- Internal Revenue Service. "1.14.4 Personal Property Management." Accessed Nov. 26, 2019.
- Tax Foundation. "States Should Continue to Reform Taxes on Tangible Personal Property." Accessed Dec. 18, 2019.
- Tax Foundation. "Testimony before the House Ways and Means Select Revenue Measures Subcommittee." Accessed Dec. 18, 2019.
- Internal Revenue Service. "With New SALT Limit, IRS Explains Tax Treatment of State and Local Tax Refunds." Accessed Dec. 18, 2019.
Marie Huntington has been a legal and business writer since 2002 with articles appearing on various websites. She also provides travel-related content online and holds a Juris Doctor from Thomas Cooley Law School.