by Gail Kerry

Created on: November 13, 2008

Before launching any business, whether home based or otherwise, a comprehensive business plan should be developed. This first step is essential as it will cause the entrepreneur to face facts, not fantasy. If the business plan is detailed, as it should be, the business owner will become familiar with the current rental market pricing, management fee structure, estimated renovation expenses, current application fees, allowable security deposits and estimated vacancy rates within your geographical area. Most importantly, the business plan should identify applicable laws regulating property management within your state, as certain states do not allow a home based property management business.

Always look at the worst case scenario and assume after every move out, that there will be renovation expenses. Plan ahead, identify your potential contractors and determine best pricing before repairs are needed. Once contractors are identified, certificates of insurance should be maintained and continuously updated in the property manager's filing system. Common expenses after a rental move out include trash removal, lock changes, carpet cleaning, carpet replacement, painting and drywall repair. Don't forget to budget for regular maintenance items such as HVAC, plumbing, electrical and, in some cases landscaping. Funds should also be kept in a reserve account for major appliance replacement.

A business relationship with a good attorney is crucial to a successful property management enterprise. It is preferable that the attorney specializes in Landlord/Tenant issues. Attorney fees should be discussed and agreed upon as they could negatively affect the profitability of the business. The attorney will provide the business owner with a standard lease for the state in which the property is located and will instruct the business owner about the notification laws of the state/county for which you are conducting your business. Many Landlord/Tenant attorneys will also handle evictions and/or collection issues once on retainer, without additional fees to the property management firm. In some cases the firm may also handle tenant credit verification. Otherwise, a business relationship with a credit verification firm is also important to the tenant screening process.

All applications, leases and correspondence relating to the rental and maintenance of a dwelling must be preserved, organized and maintained in files. Excellent record keeping is an important component of a successful property management organization which should also include accurate records for rental receipts and maintenance requests.

Another point to consider is whether or not the property management firm will conduct third party management (fee management) or whether the business will only be managing properties that it owns. Some states require licensure or accreditation of third party managers. Even if your state does not require licensure, it would be advisable to take some property management courses in order to reduce exposure to liability if you are an industry novice. Affiliation with organizations such as Building Owners and Management Association (BOMA) or Property Management Association (PMA) can prove beneficial as a source of reliable contractors, general information and available courses. These groups have chapters in almost every state.

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