How to Start a Property Management

Company
Starting your own property management company is a big decision, and there are
many things you must take into consideration before getting started. Learn how to
start a property management company, including the requirements and key steps.

What Does a Property Management Company Do?

The exact responsibilities of any property manager will vary based on the specific
contract he or she signs with the client. There are general roles a property manager
can take on, including:

 Tenant acquisition: A property manager can be responsible for all aspects of

tenant acquisition, including marketing a vacancy, showing vacant
units, screening prospective tenants, signing lease agreements, and collecting
security deposits.
 Tenant management: This includes collecting rent and dealing with tenant
issues and complaints.
 Tenant move out: A property manager can be responsible for move out
inspections, apartment turnover, and returning a tenant’s security deposit.
 Evictions: If a tenant is not paying their rent or otherwise breaching their
lease agreement, the manager is responsible for sending the tenant the
appropriate Notice to Quit, and then going through with the eviction process if
necessary.
 Maintenance: A property manager is responsible for performing or
overseeing preventative and necessary maintenance and repairs.
 Account keeping: A property manager may be responsible for managing all
income and expenses, and keeping the appropriate records.
 Vacant properties: A manager could be hired to manage a vacant property.
 Managing other employees: Managers may have to oversee other
employees, such as contractors.
 Knowledge of landlord-tenant law: A property manager must understand
and follow the specific landlord-tenant law in their state.
License Requirements
The majority of states require a property manager to have a real estate broker’s
license in order to lease out and manage properties or a property management
license to manage properties.1 Six states, including Massachusetts and Maryland, do
not require a manager to be licensed at all. 2 Obtaining a license involves a
combination of taking a class, passing an exam and a certain amount of real-life
experience in the real estate field.

Expected Salary
The average salary for a property manager in the United States is slightly over
$55,850 a year. The low-end salary for a property manager is $29,700 and the high
end is $126,000 a year.3

Plan Your Business

What Property Management Roles Will You Perform?

You need to determine the property management activities you are comfortable
performing. Do you only want to handle tenant management and building
maintenance? Or are you okay with filling vacancies, evicting tenants and the
financial responsibilities?

What Is Your Fee Structure?

You need to determine how you will get paid. You may decide to charge a flat
monthly management fee, which is a percentage of the rental income collected. Or,
you could charge additional fees for specific responsibilities, such as a setup fee of a
few hundred dollars to set up a new account with a property. You could also charge
a leasing fee as a percentage of the rent to fill a vacancy, as well as an eviction fee.

Where Will Your Business Be Located?

Will you be working from home or renting out office space? It’s cheaper to work from
home, especially when you are first starting out, but you must make sure you have
all the necessary office equipment, such as phone line, computer, fax, and printer. 
Will You Have Employees?

Are you planning on starting out on your own or will you be hiring other property
managers or maintenance staff to work with you? Hiring others will change your
insurance requirements and your taxes.4 This includes paying state unemployment
taxes, submitting employee tax withholdings to the IRS, paying into Medicare and
Social Security and getting workers’ compensation insurance.

What Will You Name Your Business?

You need to name your company. When you set up your company with the state,
they will provide you with several resources, such as the U.S. Patent and Trademark
Commission, where you can check to make sure the business name you have
selected does not already exist.

Business Structure
To begin a company, you must first submit the appropriate legal
documentation. Limited Liability Companies, or LLCs, are a common way to
structure this type of company, but you may decide that another type of business
structure, such as an incorporated company, works best for you.

Each state will have specific requirements for setting up a business. For example,
here is the state of Washington’s business licensing service. In general, you will
need to draft and fill out the appropriate legal forms, which you may feel comfortable
doing yourself or you may want to hire a third party attorney or legal website to do
so. You must then submit these forms to your state and pay the necessary filing and
or registration fee.

Draft a Contract
A strong, legal contract is an important part of any successful business. Again, you
may feel comfortable drafting this contract yourself or may want to hire a third party
attorney to make sure it meets all legal requirements in your state.

A property management contract should clearly define:5

  Contract term
 Who the contract is between
 What the property manager is responsible for
 What the property manager is not responsible for
 Breakdown of fees
 Responsibilities of the property owner
 Hold harmless clause
 Termination clause

Find Clients
 Create a Website: You need to create a website for your company. There are
endless sites that allow you to easily create and manage your own website for
a minimal fee including Wix and Duda.
 Network: You need to network within the real estate industry to find potential
clients. Contact real estate agents and hard money lenders who work with
property investors. You should also join property management organizations
such as the National Association of Residential Property Managers or the
National Apartment Association. 

Freelance or Own?
You may decide you do not want the responsibility of owning your own property
management company. You can still be in the field of property management as a
freelance manager at a larger property management company. You will still get paid
your salary but will have significantly less risk and responsibility.

Bottom Line

Starting a property management company takes careful consideration and planning.

Due to its low cost of entry, with the proper planning, execution and daily
management, it can be a very successful venture for the right individual.  

What Is a Principal-Agent Relationship?

Definition & Examples of a Principal-Agent Relationship
A principal-agent relationship describes the relationship between a business or
individual and someone hired by that business or person to act on their behalf. The
principal is the business entity (or hiring individual), while the agent is the entity hired
to act on behalf of the principal.

Learn how the principal-agent relationship could affect your business.

What Is a Principal-Agent Relationship? 

The principal-agent relationship is a relationship that arises from situations in which
one entity (the principal) has power over another (the agent). The agent is acting in
the place of the principal for specific or general purposes. In doing so, the agent is
expected to carry out the principal's wishes.

The principal is the party who authorizes the other to act in their place, and the agent
is the person who has the authority to act on behalf of the principal.

It's important to vet potential agents. Businesses must only hire agents who are
trustworthy and well-qualified to do the job they are hired to do.

How Does a Principal-Agent Relationship Work?

A principal will hire an agent to do something that the principal either can’t do,
doesn’t have time to do, or otherwise doesn't want to do. There are many examples
of how this commonly plays out in business and daily life. Your corporation’s
shareholders appoint the members of the board of directors to take advantage of
their expertise in running a business. You hire a real estate agent to find business
property for you. You hire employees to make business deals with customers.

You could do all these things on your own. You could spend time searching for
building listings and negotiating sale prices. You could spend your time answering
phones and taking customer questions. However, there are probably better things
you could do with your time, and these tasks might not fit your skillset. By assigning
these tasks to others, you're being efficient with your time.
How Is a Principal-Agent Relationship Started? 

A principal-agent relationship usually starts with a contract that clearly outlines the
duties and responsibilities of both parties. Some common examples of an agency
contract are a power of attorney form or a contract with a realtor to sell a building
your business owns.

Who Can Be a Principal or an Agent? 

Anyone can be a principal or an agent, but sometimes it's tricky to determine

whether a principal-agent relationship has been formed. In ambiguous situations that
spark disagreement, a court may have to step in and decide if the principal-agent
relationship exists.

Such a ruling—in the absence of a clear contract—would be based on the behaviour

of the two parties. Someone can assume you have made a person your agent, even
if there is no contract. Businesses must avoid the appearance of agency in their
dealings. For example, if your employee buys something for your business after the
employee was fired, your business could still be on the hook for the purchase,
depending on how clear you were with the employee about their termination.

Tasks an Agent Can't Do

An agent can take on a lot of responsibilities, both in terms of your business and
yourself as an individual. However, the law doesn't allow agents to do everything for
you. You can't hire an agent to vote for you. You have to sign your will—you can't
have an agent do that. An agent can't make a statement for you under oath.

Certain individuals can be considered essential to a personal service, and those

individuals can't hire an agent to perform that service on their behalf. For example, a
famous singer can't hire someone else to go perform at a venue in their place if their
contract with the venue specifically asks for the famous singer to perform.

Types of Agents in Business

The two most common types of principal-agent relationships in business are internal
and external. Many businesses use a mix of both internal and external agents.
Employees are perhaps the best example of an internal agent. Hiring an employee
doesn’t necessarily mean you are hiring an agent, it depends on the responsibilities
that employee will have. If the employee will sign contracts, write checks, or
otherwise make purchases on behalf of the company, that employee is an agent.

Outside contractors can be an example of an external agent, but again, it depends

on the responsibilities that person will have. If the contractor signs documents for
you or makes financial decisions on your behalf, then that person is your agent.  

Duties of the Agent and Principal

The agent's duties include:

 A duty of loyalty: The agent must act according to the principal’s wishes, put
the principal’s interest first, and not benefit from the relationship at the
principal’s expense. 
 A duty to obey instructions: This includes a duty to clarify instructions when
the agent doesn't fully understand them. 
 Duty to act with skill and care: An agent is hired because of their specific
professional expertise. More expertise means the agent is held to a higher
standard. 
 Duty to notify the principal of important matters: If any important
information or situations come up in the course of the agent’s service, the
agent is expected to notify the principal. 
 Duty to account for time and resources spent: The agent is expected to
track their hours worked, money spent, and property used in the course of the
agency relationship.

The principal’s duties include: 

 Duty to compensate: The principal must pay the agreed-upon fee for the
agent's services. This is often done by contract. If there is no written contract,
the agent may not be liable for acts not requested or consented to. 
 Duty to reimburse the agent: Any expenses an agent incurs as a result of
the agency relationship should be repaid by the principal.
  Duty to indemnify: The principal gives an implied promise to indemnify (hold
harmless) an agent for losses during the time of the relationship. This is why
you can't sue a financial advisor if they suggest a stock investment that
performs poorly (unless you believe they breached their duties in suggesting
the investment).

If there is a written contract, the agent or principal can sue the other party for breach
of contract. Even if there isn’t a written contract, a court can make the principal liable
for the actions of an agent. 

How to Protect a Business From Bad Agents

You can’t protect your business from all misdoings by agents, but you can prevent
some bad agent relationships by taking preventive measures like: 

 Creating specific job descriptions for agents

 Carefully checking out all agents (including background checks) before you
hire them
 Making sure contracts are specific and binding
 Monitoring the actions of your agents to make sure they are doing their duties

Key Takeaways

 A principal-agent relationship is a term that refers to the relationship between

an entity (the principal) and the person that entity hires (the agent) to act on
their behalf.
 There are legal expectations for both the principal and the agent in a principal-
agent relationship.
 The details of a principal-agent relationship are ideally outlined in a contract
that is signed by both parties before the agent does anything on the principal's
behalf.