The primary purposes of offering property management services can be simply outlined as below:
Alleviate the property Owners from the day-to-day hassles of managing their own rental property.
- Give your Owners peace of mind that their property is being managed competently while they are receiving a tax benefit!
- Provide accurate accounting records for your Owners’ rental properties which they may use as backup for the preparation of their income taxes.
- Do all of the above in such a way as to provide a positive experience for your Owners . . . as well as yourself.
No one will be able to achieve all of the four items above all of the time. If you don’t think you can provide these for your Owners as well as yourself at least 75% of the time, then perhaps a different career path would be a good thing for you to explore. As with anything, if you aren’t passionate about what you do, it will show . . . and it won’t necessarily be pretty. Others will pick up on your motives and your lack of passion for what you do. Many times they will end up going with someone else who exudes the passion for what they do.
Now, I am not saying that you have to love what you do or no one will use you . . . not at all. But if you don’t at least enjoy it, the equation doesn’t work for anyone; you should be doing something more close to what you were created for and others will feel more confident with someone else. Enough about that!
Property Management – Minimum Requirements
There are many things that you will need to do if you are going to manage properties for someone other than yourself, and we will cover most of those in the chapters to follow. But there are a couple of requirements you will need to fulfill before you go any further. Without these your operation will be illegal (at least in most states) and you will be opening yourself up to living a very complicated life. All right, already, you say . . . what are these requirements? Here they are:
It is a requirement in most states that at least one of the Owners or principals of a property management company be a real estate broker or an attorney at law in that state. Now let’s not be confused here, when I speak of a broker’s license, I am not talking about a real estate agent which, in most States is the first license you get. A real estate broker’s license can only be received after a person has been a real estate agent for a certain number of years and taken and passed many more hours of instruction, and taken and passed the State real estate broker’s test. From the State’s perspective, a property management business is no different than a real estate office . . . in fact it is a real estate office!
If you are not a broker or an attorney, there is one more option; you can hire a broker to be the broker of record for your property management firm, but you will need to be careful. This also applies if you have a property management business and want to open an additional office. Check with the real estate board in your state for the applicable laws. Most states require that the broker of record (this includes the attorney) oversee all of the daily transactions of the office for which he or she is the broker of record. Again, you will have to check with your state’s real estate board to see just how this would apply to you and how stringent they are going to be about it.
That is the requirement for the ownership of a property management business. But what about the company’s property managers? Almost all states require that property managers be licensed real estate agents . . . unless . . . they are full time employees of the property management firm. If a property management firm hires someone as a full time employee, as a property manager, that is legal in most states. But if you are doing contract work as a property manager, say, for several different property management firms and you are not a full-time employee, you will need to be a licensed real estate agent.
If you are looking to start a property management firm, as you can imagine, there are even more legal requirements you must follow. We will touch on some of them, but, if you truly are serious about this, you would be well served to consult with an attorney who is familiar with the real estate law in your state. The main requirement besides being a broker or attorney is that you set up and maintain a Fiduciary Trust Account. What the heck is that?
Fiduciary Trust Bank Account
At no time may you co-mingle your operating funds of the property management business with the funds being collected and disbursed on behalf of your property Owners. You will always need to maintain a separate account for running all of the income and expenses of your Owners. At no time should any of your own business funds (which would be your management fees), or payments for office rent and office electric bills, etc. ever touch this trust account. This was the case with us. We managed over 320 properties and we had a Fiduciary Trust account through which all of the income and expenses from all of those properties flowed. We were not required to have a separate account for each property or Owner but we did maintain meticulous separate records for each and every property we managed. Check with the FDIC on this also, regarding their insurance coverage for your Owners’ funds. There are some very substantial protections afforded your Owners’ funds when you structure your accounts this way.
This posting is an excerpt from our brand new book: “Manage To Make Money . . . with a Career in Property Management” available at our Manage To Make Money web site.