How to Start a Property Management Company in California: Essential Steps Explored

Sunny weather, sandy beaches, mountain ranges, and wine, are just a few of California’s main attractions. It’s not called the Golden State for no reason. 

The Gold Rush might be over, but each year travelers from all over the globe rush to California, making property management a lucrative career. Launching your own property management company from scratch, though, can’t be rushed. There are several essential steps that you’ll need to complete to ensure that you stay on the right side of the law and set yourself up for long-term success. 

Here are 10 of the most important steps to add to your checklist. They’re not in a strict chronological order and you might find that you’ll tackle one before the other or multiple steps simultaneously. That being said, there’s a logical flow and you’ll first need to get all your ducks in a row before you’ll be ready to reach out to your local market.    

1. Decide on your business model and legal entity

Generally, the most common legal entity for starting a property management firm is to register it as a limited liability corporation (LLC) or sole proprietorship. Each has its own set of tax requirements and owner’s liability considerations. 

Keep in mind though that the state of California has its own rules about providing professional services. As such, it’s best to work with an attorney that specializes in California’s laws. Aside from explaining to you the specific tax implications of the different types of legal entities, an experienced attorney will also be able to help you register your legal entity when you’re ready. 

2. Create a business plan

Any type of business needs a well-thought-out business plan. It serves as the foundation to running a profitable business. 

Not only will it offer the necessary guidance, but it can also be used to secure funding. If you’re in a fortunate position and don’t need to apply for funding at the start, this could change. 

As you start with this important step, it’s key that you set realistic goals. You’ll use these goals to guide you as well as to track your progress. 

Other information that you’ll want to include in your property management business plan include:

• An explanation of the types of property management services that you’ll offer
• Unique selling proposition(s)
• A marketing strategy
• The management structure for your business
• An operations plan 
• A financial plan that covers the financial history (this can include previous success stories) and projections for the first 12 months along with a five-year financial growth plan
• A cost analysis
• An analysis of your target audience (for example, residential property owners or commercial properties) and competitors

If you haven’t given thought to what you would like to trade as, this is also a good time to choose a business name. You’ll need to find a name that’s easy to understand, remember, and spell. 

The name should also be available. You can refer to the California Secretary of State’s website where you can perform a quick online search to see if the proposed name is still available. 

It’s also a good idea to expand your search and check for domain availability. At some stage, you’ll want to create a business website (even if you operate from a physical location) and will want this address to be the same as your registered business name, ideally.  

3. Study the relevant rules, regulations, and requirements

This step actually happens concurrently with the previous two steps. As you research different business structures, you’ll become familiar with the different rules set out by the state of California. 

These rules can differ from one state to the next. This means that if you have previous experience working as a property manager or running a property management company in another state, you can’t necessarily count on this knowledge and apply the same approach. 

For example, in California, all property managers must have a real estate broker’s license. You can visit the website of the California Department of Real Estate (DRE) where you’ll find more information about the process and requirements.

The general requirements include:

• You must be at least 18 years old.
• You must have a minimum of two years’ experience working as a full-time licensed salesperson within the last five years, two years of unlicensed equivalent experience, or a four-year degree with a minor or major in real estate. 
• If you aren’t a resident in California or don’t have a California business address, you’ll need to file a Consent to Service of Process with the department. 
• You must submit one set of classifiable fingerprints. 
• You must have completed eight statutorily required college-level courses. 

If you don’t have the relevant real estate license yet, now will be a good time to apply before you go any further. The examination fee is about $100, while the license fee is $300. So, in total, you’ll need to set aside about $400 to get your paperwork in order. 

Aside from knowing and abiding by the broker’s license requirements, you’ll also need to study the state’s eviction laws and different codes for health, safety, and building. There are also online resources available like the California Tenants: A Guide to Residential Tenants’ and Landlords’ Rights and Responsibilities that you can read.   

4. Find an office 

While you can work remotely, having a physical office from where you can conduct business is still essential. As mentioned earlier, one of the requirements of applying for the real estate broker’s license is that you’ll have a local business address. 

Plus, you’ll need to meet with clients. When you use your office instead of a local coffee shop as a meeting spot, you’ll come across as more professional. 

Depending on your own living arrangement, a home office can also work. 

The good news is that you don’t need a lot of equipment to get started. A computer, copier, scanner, and reliable Wi-Fi are pretty much everything you’ll need at the beginning. 

5. Design a business website

In addition to a physical location, you’ll also need an official business website. We’re living in a digital age and even though you won’t be selling products online or delivering your services virtually, you’ll need a website to make your business discoverable. 

Design your website with intuitiveness in mind. It should be very easy for property owners to use your website and find relevant information. 

Aside from listing and explaining the different property management services that you offer, you’ll also want to ensure that your contact details are prominently displayed such as your phone number, business address, and custom email address. 

It can also be a good idea to add a blog. This section can help you build your online presence and market your new business (more about that later). 

6. Register your business

On top of ensuring that your own paperwork is ready, you’ll also have to take care of your legal entity’s paperwork. This will include getting an employer identification number (EIN) from the Internal Revenue Service (IRS). You’ll need this number to pay taxes, hire property managers and other employees, and open a bank account for your business. 

It makes life a lot easier if you separate personal assets, like your own bank account, from your company’s. Another reason why you’ll want to open a business bank account is that there will come a time when you’ll want to invest in an accounting system. If your business has its own bank account from the first day, it will be much easier to sync software and your account. 

7. Calculate the costs and determine your pricing structure

While you were busy writing your business plan, you would have crunched the numbers. It’s key that you know which expenses you’ll have. Your startup costs, like legal fees, website design, license fees, etc., alone can add up to anything from $2,000 to five times that. 

Then, you’ll also have to budget for ongoing expenses. Examples of common recurring expenses that you’ll need to cover include:

• General liability insurance
• Travel costs such as fuel, car insurance, and parking
• Your own property rent
• Communication costs like domain hosting, Wi-Fi, and cellphone
• Monthly subscriptions such as accounting software and property management software
• Printing and signage for the rental properties in your portfolio

Once you have a better idea of what your operational costs are, you’ll be better equipped to decide on your own fee structure. 

The ongoing management fee that you’ll charge will be your primary source of business income. You have the option of choosing a flat rate or a percentage of the rent payments. 

According to Popular Homes, a national property management company that services several cities across California, the average property management fee in California is about $115 per home or 9% of one month’s rent. The property type, size, location, and services can all impact this rate. For example, the San Francisco Bay area is one of the most expensive areas.

In addition to this fee, other sources of income can include:

• Initial setup fees
• Lease renewal fees
• Tenant screening or placement fees
• Property inspections (if you bill this to the property owner)
• Maintenance requests
• Eviction fees
• Late fees
• Vacancy fee

Let your competitors’ rates guide you. Your fees should be competitive. 

Transparency is also key. A common concern among property owners is that property managers might charge a premium for maintenance requests as a way to make more money. Ensure that you offer detailed billing and clear rental agreements to dispel this fear and avoid any confusion or dissatisfaction. 

Also, don’t let your rate determine the quality of your property management services. If you decide to charge slightly less than most property management companies in your area, you should still deliver the same professional service. 

8. Create a marketing strategy

You’ll want to use a mixture of online and offline strategies. First, though, find out which channels your target market uses. It will be of no use if you create videos for TikTok when property owners looking to turn their investment properties into rental units rarely open TikTok. 

Once you know where to find your target audience, turn your attention to creating relevant content for these channels. What makes social media such a great tool is that it’s free. That said, you’ll also want to budget for paid campaigns like running Google ads. This will help drive traffic to your website. 

Email marketing can also be very effective. Once you’ve built a substantial network, you can ask them to subscribe to your monthly newsletter, for instance. This newsletter can include links to your most popular blog posts or a recent success story. 

As for offline marketing, business cards still have an important role to play. These will come in handy when you attend relevant expos and conferences, another form of offline marketing that aspiring property managers can leverage.  

9. Build a network of local professionals and services

Not only will you need to concentrate on building a client database, but also one for third-party service providers that you can count on. The lawyer who guided you through the legal process of registering this type of business in California will be added to this network, for example. You’ll also need legal expertise for other crucial tasks like drawing up rental agreements. 

Another professional that you’ll need to work with regularly is an accountant. Bookkeeping is a huge responsibility. In addition to monthly rent collection, you’ll also need to keep track of security deposits, salaries, etc. 

Other examples of professionals that you’ll most likely need at some stage include:

• A tax practitioner
• A plumber
• A handyman
• An electrician
• A locksmith
• Painters
• Landscapers
• Home inspectors
• Pest control 
• A security company
• Cleaners

You can’t wait until you have a burst pipe to find a reliable plumber.

In some instances, help may not come in human form. You’ll also want to explore the software solutions aimed at property managers. For example, if you plan on managing short-term rental units instead of commercial properties, communication will be more frequent and demanding. In this instance, it will make more sense for you to invest in a vacation rental software solution that can automate guest communication like iGMS.  

10. Grow your client base 

For most of the previous steps, you’ll need to complete only once. You might revisit some of them, like formulating your pricing structure.

However, growing your client base is one of the tasks that you’ll basically be working on day in, day out. The best marketing plan isn’t going to implement itself. 

Also, regular marketing isn’t enough. You’ll also need to consider putting in place some type of referral network. Go out of your way to network with other industry professionals and stakeholders like homeowners associations (HOAs), builders associations, and real estate brokers. They can also help you to attract potential clients and stay up to date with the latest news and technology in the industry.

Word of mouth remains key. To ensure that your reviews remain positive, remember to prioritize relationships with property owners as well as tenants. Good relationships are built upon regular communication, trust, and transparency. 

Then, once your own property management business is up and running, you might consider buying another property management company in California. This way, you can add more rental units to your portfolio.