STEP 6: Building a
Property Management Business
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This page is part 6 of a step-by-step guide to get your business up and running. There’s no fluff here - just information, help, and suggestions for doing it right - the first time!
Everything in this guide comes from experience.
Not a mere 6 months of experience in running an Airbnb, nor a year of co-hosting.
This is from 25 years of being in the vacation rental business, owning 7 properties and owning a seriously successful property management company with over 180 properties.
Our team have attended and presented at countless conferences and we continue our education by sitting in on hundreds of educational presentations, and still do to this day. So, we can bring you the learning from all those experts as well.
So, sit back and enjoy the ride…or the read!
Contents of this step:
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It’s estimated that 44% of second homes are professionally managed with 70% of global vacation rental companies owning between one and 19 properties.
Rental technology provider Hostfully calculates that there are around 23,000 property management companies in the US, with 30% of them managing 20 or more properties and the rest being smaller businesses.
While a majority of owners are willing to look after all aspects of their rental, there is still a lot of demand from homeowners for a manager to take over the administration and operation of their rental.
The Vacation Rental Managers Association (VRMA) is the largest organization for professional managers in the world, with an annual conference that attracts well over 2000 attendees. For the majority of these business owners, their stories are very much the same – at one time they owned a home or two and built the foundations of their PM company on the experience of running their small business.
They may have started out ten or fifteen years ago, and built their companies to large portfolios of hundreds – even thousands of homes, but essentially they got the same start.
They – we - are all entrepreneurs.
Taking the leap from looking after your own properties to managing for other people is a logical step for many owners who want to make a full-time business out of short-term rentals. It’s how most property management companies got started.
When I started there was no help out there and it was all seat-of-the-pants stuff. Back in 2003, you didn’t talk much to the competition and if you did they weren’t going to tell you their ‘secrets’.
That’s laughable now. There are no secrets that I know of!
Building a successful rental business needs commitment, consistency, a good nose for research, and an understanding of what clients need so you can serve them in the best possible way.
Steve Milo of VTrips (formerly Vacation Rental Pros) started his business in 2002 with his first purchase in Florida and built up to 125 before taking on his first employee. His secrets of success are efficiency, automation, and lean management. He now has thousands of properties under management, across multiple states, and in some very diverse markets.
Those with more modest ambitions can learn from the general principles Steve applied: Create a Strategic Plan; Research the Competition and Carve a Niche; Acquire Owners; Market Wisely, and Automate the Systems.
Let’s focus here on the first two of these:
If you’re already running a professional business according to the principles outlined in Step 3 - Create a Vacation Rental Marketing Strategy, and now want to expand, start by reviewing your 5-Year Plan.
Next, expand it to encompass the wider vision of managing additional properties. Ask yourself these questions:
While exploring your business goals - how much money you want to make and how big you want it to grow- don’t ignore your life goals. What does your lifestyle look like with a multi-million-dollar business? How much time do you want to spend working in your business as opposed to working on it?
Read E-Myth Revisited, by Michael Gerber. If you haven’t read this yet, it’s worth taking the time. Said to be one of the top five business books, it has a great message for every entrepreneur and may help you get off on the right foot. I read it regularly as a reminder to get out of the weeds and spend more time on strategy.
Structuring the business the right way at the outset will save you a lot of time and money. Setting it up as a limited company (however that is done in your location) demonstrates that you are serious about it, and brings a number of taxable benefits. Talk to a small business advisor, your accountant and/or lawyer about the best way to go about this.
Of course, if you want the business to stay small and you have no real ambition to grow it beyond a few properties, this may not be necessary. Just think long and hard about the future and where you want it to go, because getting the structure in place is one of the most important things you can do.
Do the math. How many properties can you manage before you need staff? Based on your research of rental rates and occupancy in your area, you should be able to estimate gross income and then calculate the best commission rate. After deducting expenses, you should have a good idea of the bottom line….and the number of homes that will be needed to build a profitable company.
Most start-up property managers work from home. If you are a one-man-show you don’t need a fancy office. It’s really unnecessary these days, with keyless entry systems taking away much of the need for a face-to-face service. There are arguments for and against having a physical office where guests can call. In some locations, it’s still expected, but it’s a requirement that can change.
Wherever the office is located, you will always need boots on the ground- whether that is cleaning and maintenance staff, owner acquisition specialists, or quality inspectors. However, it does not mean you can’t work remotely as a manager – it just needs organization, good employees and a good degree of trust.
The big difference between independent ownership and property management is that you now have two different client groups – on the one hand are the guests whose rental income you receive, and on the other are the owners to whom you will disburse that income after commission and expenses.
An overall strategy should take into account the way money will be handled within the business. You will need a system of trust accounting and a commitment to regular audits.
Doing a SWOT Analysis should be a first step in examining how your business might look in terms of where it is positioned in the market, what niche areas you could get into, and how to protect yourself from the impact of obstacles along the way.If you’ve never done a SWOT before, it’s an interesting exercise that makes you explore both the positive and negative aspects of your plan. It takes a look at both the external and internal elements of the business and identifies areas that need attention – and that could drive your business in the right direction. (SWOT Analysis for Your Short Term Rental Business)
For example, you could find that your strengths lie in the experience you have of running an independent rental and the connections you’ve made with other owners in your network. There could be an opportunity to develop a new niche in your area. You might also identify that your weakness is that you don’t yet have a brand that people recognize, or that there are some regulatory issues that might pose a threat.
Take some time to do this and you can then work on capitalizing on your strengths and the available opportunities while acting to minimize the threats and shore up the weaknesses.
Launching a successful property management company is more than creating a good website and being strong on social media.
It involves a lot of research in many areas. So, before you start, make sure you’ve done your due diligence in terms of the following:
Establish that there is sufficient inbound traffic and demand to support another company.
Determine how many properties there are currently available for rental.
Check occupancy levels to assess levels of saturation.
Assuming you’ve already established the requirements for operating in your location and that there are no obstacles for starting up, it’s time to start researching the competition
If you want to put all your eggs in the Airbnb market and take advantage of the co-host model, it’s likely you’ll be pitted against numerous other startup property management companies offering a very similar model, which can be challenging.
If, however, you’re planning on developing a professional property management company that offers wider marketing distribution for property owners there’s a good scope for creating something new and unique that will stand you out from the competition.
Pick out several property management companies in the area and do some deep diving into what they do and how they do it. Look at
The number of properties under management
Average nightly rate
Occupancy levels (assess levels of saturation)
Terms and Conditions of rental
The quality of their website and the booking engines they are using. If you don’t know how to do that, get a tech-savvy friend who can find data on plugins and other internal website data.
Check out the Owner area (most property management companies pay little attention to this important part of the website)
Check out the About Us page (is it bland and generalized, or personal and inviting?)
Read their Google My Business reviews as this should capture interesting qualitative data.
Then, do a secret shopper exercise and make an inquiry as if you were a guest, and again as a potential owner. How do they respond? What’s unique about their response? What communication systems do they use?
These are just a few of the details you should be looking for to feed into a competition spreadsheet. This should provide plenty of data to analyze and allow you to figure out what other successful property management companies are doing that works.
At the start you are likely to be a small fish in a very big pond of competing agencies, so you need to find a unique selling point that’s going to bring the traffic to you and not them. Identifying a niche that will help you stand out from the competition should be a primary goal, particularly in areas where there are numerous property management companies all vying for the same market.
Think about these questions:
What will be your unique selling point when speaking with potential new owners?
How will you convince guests that your new company is different and delivers the best experience?
Who is your target guest market?
These questions will drive your niche strategy and help define how and where you’ll market.
Here are some ideas:
Fully accessible properties that cater for a range of disabilities
Truly pet-friendly homes featuring pet packs and information on dog parks and beaches with no pet-fees.
Baby/toddler focused with amenities that parents would love – all the safety features, etc.
Themed properties – such as Disney or mountain cabin
A Live Like a Local experience
Moving from managing a personal property to becoming a full-time property manager is no longer the daunting prospect it was 10 years ago, when so much of the work was manual. If you have a passion for the business, a commitment to providing the best experience for both owners and guests, and you embrace the fast-moving changes in technology, this could be the pathway to your future in vacation rentals.