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If you are thinking about getting into the real estate investment business, you might consider starting a property management company. A good deal of experience and knowledge is required, but it can be quite lucrative if you succeed in setting up a profitable property management company. This article will go over the necessary steps to set up a successful property management company and start making money through real estate investing.
Decide What Type of Legal Entity You Are
If you’re interested in setting up a property management company, you’ll need to establish a legal entity. Many different legal entities can be used in the real estate investment business, but the most common is a limited liability company (LLC). An LLC can be a good choice because it allows you to operate an enterprise as an individual or with partners without worrying about filing forms and going through the costs of becoming an S Corporation. An LLC might not be the right choice for everyone, so it’s important to talk with your attorney to determine the best option for you.
Obtain a License
You need to complete one more important step before you can begin your property management company. You’ll have to get a real estate license. Each state has different requirements for getting a real estate broker’s license, so you’ll have to check your state’s licensing and regulation department to determine the specific requirements. A real estate license will allow you to perform transactions on behalf of a property owner as a property manager and will enable you to handle all related paperwork. Depending on your state, you may also have to get a property management license, limiting you exclusively to property management.
Brand Your Business
Now that you’ve established your legal entity and obtained a license, it’s time to brand your business. Decide on a company name and logo. You may even decide to hire a professional to help you determine your branding. You may not realize it, but font choices and color go a long way in establishing yourself as a reputable, trusted company.
Separate Your Finances
It’s essential to open a bank account for your business to keep it separate from your personal expenses. This will help you keep track of your business and avoid any trouble when doing taxes.
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Create a Website for Your Business
Once you’ve established your legal entity and obtained a real estate license, it’s time to create a website for your property management company. Many property management companies use websites to establish their brand, conduct business online, and keep records of interactions with clients. A good website will cost some money, but if you choose the right web developer, you can create a great-looking site that is optimized for Google. This will ensure that anyone looking for a property management company will come across you before your competitors.
In today’s world, it’s more important than ever to have an online presence. Your website needs to be filled with important keywords that your clients could be searching for. These will help you show up in their Google search results and will lead to more business. Knowing what you are doing online makes you appear more reputable and will help gain trust and credibility. If you don’t know where to start, consider hiring someone to take care of your digital marketing.
Hire a Real Estate Team
Any good real estate investor knows that you’re only as good as the team you work with. As a property management company, you will want to create a solid real estate team to help you succeed. Starting off, the three most important professionals you will need are an accountant, a real estate lawyer, and a trustworthy contractor. An accountant will be necessary to manage the day-to-day accounting related to your company’s operations. A real estate lawyer will play a key role in handling any legal issues that might come up. And a contractor will be necessary for everything from mowing lawns to painting houses. Each of these professionals can represent you at public meetings, so you don’t have to attend them all the time personally.
Set Up Property Management Technology
When you’re running a property management company, it’s crucial to have a good system for keeping track of everything that’s going on. A few years ago, this would have been much harder to do, but you can set up an entire system just using the internet with today’s technology. There are specially designed services for companies looking to increase efficiency and cut down on expenses through technology. From customer and vendor management tools to marketing solutions, you can find what you need through an online service. If you plan to manage short-term rentals, you will need management software that helps you keep track of all check-ins and check-outs, as they will be more frequent and hard to keep track of on your own.
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Establish a Pricing Structure
Once you have the basic nuts and bolts of your business taken care of, it’s time to establish pricing. Your pricing structure will differ based on the type of real estate that you’re managing. For instance, if you manage properties in a city where there is a lot of demand for affordable housing, you may be able to charge less than if you were managing high-end condos in a neighborhood with very little retail space. An excellent first step if you are just starting off is checking and seeing what competitors are charging in your area. Some fees to consider when creating your pricing structure are:
– Setup Fee: This is a one-time fee that is charged to new clients as soon as you take the job.
– Property Management Fee: This is the monthly amount that you charge for managing each property on your list.
– Real Estate Commissions: This is the percentage of your client’s total rent that goes directly to you. Technically, it’s called a ”total real estate charge,” but most property managers call it a “fee.
– Ongoing Management Fee: This is a percentage of the total rent that you charge each month to have you manage your client’s property.
– Maintenance Fee: This is an hourly fee that you charge your clients for any maintenance or repairs that need to be done at their property.
– Multiple Management Fee: If a client is also using another property management company, then you can charge the rental amount of one of the properties as a multiple management fee for your services.
– Leasing Fee: This is a fee that occurs when there is a vacancy that you need to fill. It covers the cost of staging, listing, showing, and eventually renting the unit. It typically comes out to about one month’s rent.
– Insurance Fee: If you take on a bigger job that requires higher insurance coverage, then you can charge an additional fee per month to cover the extra cost of the insurance.
– Renewal Fee: If there are any fees associated with renewing a rental agreement, then you can charge your client an additional renewal fee as part of your monthly management fee.
– Eviction Fee: If you need to evict a tenant for violation of the lease, then the landlord can charge the tenant an additional fee as part of your management fee.
– Deposits: If your clients are required to pay a deposit when they sign their property management contract, then you can collect a monthly percentage of that deposit.
– Pet Fee: If the property is set up for pets and has pet deposits, then you can collect an additional fee from those who choose to rent with pets.
Pursue a Marketing Strategy
Regardless of what marketing strategies you choose, you need to make sure they are appropriate for your business. For instance, if you’re just starting out, you might want to focus on word-of-mouth referrals from existing clients. If you already have several clients or a steady number of people coming into your business, then it might be best to focus on local advertising through classifieds.
If you’re just starting out, you’ll need to work a lot harder than the more established property management companies. The best time to start marketing your business is when you are still very new and unsure of the business. Don’t ever take on too much at the same time. Let your current clients know what your services are and how this will benefit their rental property. Then start new accounts by providing referrals from other potential clients in your area.
For a more modern marketing approach, take advantage of social media and digital ads. Create a Facebook page and an Instagram and update it often. Since the same parent company owns the two social networks, you can run ads across both platforms for a reasonable amount of money. Facebook ads can be adjusted to target specific demographics, locations, and niche interests. You will also want to either learn how to run Google ads or hire a company specializing in them. Investing a few dollars per day into some high-ranking keywords in your field may help you pull in leads and get your first few clients.
Network
Many people find the most effective way to market their business is to get to know their potential customers simply. This means going out and meeting them, but it also means making a personal connection through social media. Once you’ve established a rapport with someone, you might be able to refer them to your business later.
Summary
Once you learn how to start a real estate property management company, the next step is to make it successful. Even the best business plan doesn’t mean much if you can’t market it correctly. It’s essential to understand your target audience and have some marketing strategies in place before you set out on meeting people and renting out properties. Moving forward, be sure to track your progress. Keep a log of all important numbers, such as contact information for people who expressed interest in your business, how many units you rented out, etc. Keeping tabs on your company’s progress might help you if you decide to apply for bank loans or seek investors in the future. If you have trouble getting started, find a mentor who already runs a property management company and learn through them before you are ready to get started on your own.
To learn more about a career in real estate investment, make sure to sign up for our investment seminars.
Joe Arias and his partners have flipped hundreds of properties in the Southern California Region. He has developed cutting-edge systems to simplify and scale the entire remodel process that can easily be applied to flipping, rentals, wholesaling, and other passive income strategies. More recently, Joe founded a real estate investing education company called RealSuccess Investments, allowing him to share his tools and systems with hundreds of up-and-coming investors.
RealSuccess is focused on education on flipping, rentals, passive income, and wholesaling.
Joe is also a best-selling author. He has written 4 books: Finding your RealSuccess, First Steps to Flipping, R stands for Rentals and Retirement, and Wholesaling Real Estate.
“I came from Argentina when I was 20, I am 40 years old now. I didn’t know anyone, I am CERO generation, usually people say, I am first or second generation but I was the one that crossed the border, no language, no friends, no family, no money, nothing, nada… If I can do it, anyone can.”
From a young latino immigrant to a celebrated real estate investor, Joe is a true testament to hard work and discipline. As an investor, he has made it his mission to help others achieve financial freedom while enjoying living a life of passion, fulfillment, and empowerment.
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“To say that I was a failed investor is putting it mildly…”
Steve Rozenberg, founder of Empire Industries, LLC and full time commercial airline pilot, knows what it’s like to have your property investing aspirations crash and burn.
After 911, the airline industry was very shaky…he wasn’t sure he’d have a career or be able to enjoy a retirement, so he started looking for other ways to grow his wealth.
Enter real estate investing…
Like many new investors, he bought a lot of wrong properties…properties that management companies didn’t want to touch because they were low income.
Empire Industries, LLC was born out of the need to manage his own properties to keep his business intact.
Using the procedures and processes he’d learned as a pilot, Steve and his business partner – an IT whiz – created their property management company for their own preservation so that they could keep their properties afloat.
Self management vs property management
“I’m often asked if it’s smarter to self manage your properties instead of hiring a property manager and my answer is always that it depends on your end goal.
“So you know, many people focus so much on the acquisition of the deal they never think about how they’re going to get the return month after month, year after year. And normally, managing the asset is an afterthought, when it’s actually the most important part of the puzzle. This is because it’s what actually gets you the return.
“If you’re willing to commit and put the time in and learn the laws and regulations and create all of these procedures and structure, then yes, you can certainly self manage.
“But if it’s not something you want to commit to and if you don’t have a plan to succeed, then you’re planning to fail. That is why landlords are among the highest sued individuals in real estate, because they don’t go into this with a business plan of how to succeed year after year. They’re so focused on the purchase they never think about the month to month…they always look at the ROI and the cash on cash return and look at all of these big numbers, but what they never think about is how do I get those numbers in my pocket?”
Whether you have one or one hundred plus properties, Steve says it all boils down to one thing…treating your property investing efforts like a business.
“If you have one property or you have 50 properties, you own a business.”
“It has profit, loss, income, expenses, legal obligations…and you know the tenants that live in your property have rights. And as an owner, you are obligated to protect, to make sure that you’re working within the confines of the law. So yes, you could manage your own property as long as you’re willing to commit the time to educate yourself on the laws and regulations, fair housing , discrimination, etc.
“Here in Texas, we have Texas property code, so these are all the things you need to think about if you’re going to self manage one…50…100 properties, it doesn’t matter…a business is a business.”
What to look for in a property manager
Having a conversation with a prospective property manager is one of the best ways to zero in on the company that will be your partner in success.
“I would first make sure that your business model aligns with the property manager’s business model,” said Steve. “By that I mean, do they manage prices in the same price point that you own a property in?
“If you want to be a “hands-off” property owner, do they want you to be “hands-on?”
“I think it’s very important to have an initial meeting with the property management company and set the proper expectations with them, meaning what is it I can expect of you and what is it you expect of me?”
“A lot of times people go with the cheapest property management company and then they end up realizing that cheaper isn’t cheaper…it actually becomes more expensive because the company may be cutting corners, cutting costs, when for an extra dollar or two dollars a day you could of had a reputable property management company that is aligned with your business goals.”
Moving forward
Although Steve experienced great success managing his own properties, he and his business partner knew they could do even more to help other investors, so they sought the help of a business coach.
“We went to a business coach – Doug Winnie of Action Coach – five years ago, who told us that yes, we have a business because we have opportunity, scalability and marketability. However, based on what we’d done so far, we probably wouldn’t succeed as a business. So we hired him on the spot.
Then we attracted the founder of Action Coach, Brad Sugars and went from zero to about 850 properties in 5 years. In fact, we’ve won the North American Marketing Campaign Award from Business Excellence, with 1471% return for our efforts,” said Steve.
“Brad is the founder of the whole coaching franchise and he became a partner of ours in the business and he is now the one [who’s] helping us grow this nationally, with his guidance,” Steve continued. “So because of him we are now in Houston, Dallas and Ft. Worth…and now we’re starting to open up more cities this year; Austin and Ft. Hood/Killeen.
“We’re going to keep opening offices and continuing to grow under his mentorship and his strategy as we start the licensing model.”
What does this mean for you as a property investor?
As the fastest growing property management company in Texas, with offices in multiple cities, Steve and his team have proven that their property management process works…and works well.
That’s why they’ve decided to begin duplicating their process under a license or franchise model…so that other investors can do what they’ve done.
“We are spanning across Texas…we’ll be in almost every city in the next 5 years. This means we’ll be able to help even more investors succeed in growing their business.
“Our goal is to have your business succeed…for you to become wealthy through real estate. You need more than someone ringing the cash register and collecting the rent…you need someone on your team…like Empire to help ensure that success.”
Anita Cooper is the founder of Northwoods Writer, a marketing resource for real estate professionals. She lives with her family in the beautiful Northwoods of Wisconsin when they’re not cruising the highways and byways on the lookout for something new and interesting or at least calm and relaxing.
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