How to Start a Property Management Company in Texas

Looking to start a property management company in Texas? Then this guide is for you.

Texas is a potentially lucrative market for property management firms, with over 37% of properties across the Lone Star State rented. There are many perks to starting a property management company in Texas, but keep in mind that it is a competitive environment.

This guide is here to help you through the legal and logistical steps of building a rental business from scratch.

TL;DR

Texas is a great market for launching a property management company, but it must be done in line with TREC regulations and set up to bridge the gap between owners and tenants.

What a Texas Property Management Company Does

Before entering the property management (PM) industry, you need to know exactly what a PM is and what they do.

Whether operating in Texas or any other location, the fundamental role of a property management company is to manage real estate assets on behalf of landlords and owners. As a property manager, you’ll serve as the middleman between home owners and their tenants.

Why Hire a PM?

For property owners, hiring a management company allows them to take a backseat role, leaving the daily challenges of managing a rental property to someone else while still taking a profit. For tenants, property managers serve as the first point of communication when there is an issue with safety, rent, or living standards.

While a management company interacts with tenants, they work for the property owner. Clients typically hire outside experts due to time, worries about legal compliance, or geographic distance. Typical clients include individual tenants, portfolio owners, commercial property owners, institutional investors (REITs), and residential management companies (RMCs).

New property managers may specialize in a specific local market, handling assets in a specific town or only working with a certain type of property. Either way, you could handle a variety of tasks on behalf of the client, which opens the door to several revenue streams. The most common include:

• Management fees
• Leasing fees
• Lease renewal fees
• Eviction process fees
• Markups on maintenance
• Ancillary service fees

Alternatively, if managing short-term rentals, you can charge clients an extra fee for successfully upselling services like early check-ins to guests.

Legal Requirements for Property Management in Texas

As a property management company targeting the local market in Texas, it’s imperative that you comply with all legal requirements. It should be noted, however, that a real estate broker’s license isn’t always necessary. It is possible to manage a property or homeowner’s association unlicensed as long as services are limited to the ongoing duties like maintenance and collecting rent.

A broker’s license is needed when you actively lease a property or market it for sale, though. Consequently, the services you can offer are restricted until you are licensed. To acquire a license, you must be a legal resident of Texas and aged 18+. Additional obligations include the following:

• Be referred to an approved real estate school by the Texas Real Estate Commission (TREC)
• Complete the Texas Principles of Real Estate I & II courses
• Pass the Texas Law of Agency and the Texas Law of Contracts
• Adhere to the Licensed Broker Responsibilities as per TREC

Nice to know: Exemptions are available to on-site apartment managers, owners leasing properties they own, and salespeople working for a single developer of new build homes.

Broker’s License and Business Entity Licensing

Broker’s licensing and business entity licensing should be completed in line with the Texas Real Estate Commission recommendations. Without it, you will not be authorized to conduct business in the Lone Star State.

Submissions can be made via TREC’s online system or via mai. You will need an active sales license and have at least 360 points on TREC’s experience point system while also completing the relevant courses. The application itself can be completed via the following steps;

• Step 1 - Submit Form Broker-1 to TREC.
• Step 2 - Submit fingerprints to TREC.
• Step 3 - Complete the Broker’s exam.

Once this has been done, the business structure can be established before moving onto property management operations.

Business Entity Broker License Steps

If you do not plan to operate as a sole proprietorship, it will be necessary to apply for an entity broker license.

Entity-level broker’s license applicants should complete their application as per TREC’s dedicated information sheet. Filing is completed via the following steps;

• Step 1 - Submit an application to TREC, which then gives you a one-year period to meet all licensing requirements.
• Step 2 -Designate a representative broker, who will hold an active broker’s license for the State of Texas.
• Step 3 - Submit necessary documents including Franchise Tax Certificate, Proof of Managing Authority, Proof of Ownership, and E&O Insurance.

Brokers must then continue to satisfy all compliance regulations while periodical renewals must be completed in good time to avoid potential fines.

Choose Your Business Structure and Business Entity

Your property managing company cannot start to approach prospective clients until it has officially registered as a company. Therefore, selecting the right business structure for liability protection should be your first goal.

The most likely options are Limited Liability Corporations (LLCs) and unincorporated business entities (also known as S-Corps).The following table should help you decide:

The positive feature of S-Corps is that, in Texas, they avoid double taxation. This is true for LLCs too. If the company expects to see profits exceeding $80,000, it is usually better to opt for the S-Corp model.

When registering the business, you will have to confirm its legal trading name. However, you can also register a DBA (Doing Business As) name, which essentially becomes your brand.

Write a Property Management Business Plan

Starting a property management business takes time. Drafting a clear and defined business plan helps you plan ahead. It should cover a number of key issues, such as:

• The company’s mission statement
• A defined niche and list of intended services
• Accurate startup cost projections
• Forecasts for monthly burn rates
• Short-term and long-term growth targets
• Analysis of market trends and competitors
• Management team role requirements
• Maintenance protocols (in-house and outsourced)
• Risk assessments
• Client needs and how you satisfy them

An efficient business plan can identify potential problems before you even get started and subsequently guide you throughout the journey ahead. Get this right, and it’ll save you a lot of time and hassle in the long run.

Define Services for Your Property Management Business

There are several possible revenue streams to consider. Defining what you offer can go a long way to helping you build a clear niche and find your place in the market. It also makes things a lot easier when you eventually come to approaching clients or attracting them to your door.

Most businesses in this field provide rental management as a core service. This includes the collection of monthly rent from tenants while it often extends to lease renewals. When you gain a reputation for being the best company for securing timely payments and optimized Return On Investments (ROIs), this strong brand identity can do a lot of the heavy lifting in future marketing efforts.

Some property management companies offer property maintenance, such as repairs, within their core services lists. They may also include placement services and finding suitable tenants.

Here are some tips:

• Create a list of core property management services.
• Consider creating defined packages for prospective clients, tailoring your solutions with optional add-on services and upsells.
• Set expectations for different property types. Single-family houses may have different demands than multifamily properties and multi-unit options. And if you plan to offer commercial property management, the list of services and service-level expectations could look vastly different.

Set Your Pricing Structure and Fee Structure

The success of every business (in any industry) is ultimately determined by the financial outcomes. With this in mind, the pricing structure and fee structure deserves huge attention as you look to start a property management firm. The objective is simple: charge enough money to make a profit while still being cheap enough to win clients.

Competitor pricing research is the first step to getting this right. So, how much do property management companies charge in Texas? Generally, firms tend to charge 8-12% of the monthly rental costs for management services. In other words, you can generate $100 (+/- $20) for every $1,000 collected in rent from tenants.

Leasing fees can equate to between 50% and 100% of one month’s rent while lease renewals may sit between 25% and 50% of one month’s rent. Both of these charges, along with many others (maintenance markups, eviction fees, etc.) can also be calculated as a set figure. This is something that you must determine ASAP, not least because it has a huge influence when calculating breakeven points or whether the company can thrive.

A pricing structure that adds up from your perspective is one thing, but landlords and property owners need clarity too. You must document a transparent fee structure for owner contracts to remove any possible ambiguity. You will additionally want to create base management fee templates and ancillary fee templates for add-on services.

Most potential clients will compare your property management company against other local firms in Texas. Knowing exactly what to expect from your business in terms of pricing, as well as what they receive in return, allows them to reach their decisions with confidence.

What are the Operations to Setup for a Management Company?

While your sights are probably set on providing the bridge between property owners and tenants, it’s imperative that the company is set up to handle business operations.

• Open operating and owner trust bank accounts
• Establish tenant payment and deposit workflows
• Having accounts and credit cards for individual employees or teams to make business purchases is a useful step.

Pro tip: Use a PM software like TenantCloud to simplify rent collection, accounting, and bank reconciliation.

Choose Property Management Software and Tools

Building an efficient tech stack should be a priority for all modern businesses, especially property managers. The right software can automate various processes and removing human error. Look for a platform with these features:

• Tenant screening, rental applications, and renewals
• Communication tools
• Inspections and maintenance requests
• Accounting and financial reporting
• Team workflows
• Listing and advertising

Whichever software solution you select, configuring accounting and owner reporting features to align with your specific needs is vital. Similarly, setting credentials for individual teams or employees is key.

Accounting, Insurance, and Compliance

Most property management companies have the passion and skills to deliver high standards of rent collection, maintenance, and ongoing daily operations. However, the financial and legal aspects are where many fall short.

You cannot afford to second guess your finances, which is why implementing an accounting system to monitor revenue and expenses at all times is vital. Meanwhile, an ROI calculator can help with forecasting and key decisions relating to your pricing structure or proposed expansion plans like taking in additional part-time employees.

Insurance is another non-negotiable responsibility that needs immediate attention. In addition to general liability insurance, you need to put Errors and Omissions (E&O) insurance in place. Aside from compliance with local regulations, the added protection provides peace of mind.

You are also obligated to meet fair housing requirements and, if offering this service, comply with the state eviction processes. Failure to do so can lead to fines or enforced closure.

Hiring, Team Structure, and Vendor Management

Given that a property management company completes several assignments, ranging from tenant screening and resident communication to managing maintenance, you should realize that it is too much work for one pair of hands. Therefore, recruitment and team structure is an integral management task.

Staffing is typically the largest expense facing property management businesses. The team structure may include both full-time and part-time salaries employees, as well as some third-party services. The following table details the core team roles and responsibilities that drive the company to success:

When hiring employees, you need to check that they have the skills and character traits to thrive in the industry. They are an extension of the brand, determining productivity levels while interactions with tenants can allay their fears regarding rental scams.

All workers should also be equipped to deal with residential property management, commercial property management, timeshare property management, or short-term vacation rental property management depending on your niche. You should additionally draft employment templates to cover expectations, protocols, salaries, perks, conduct, and more.

Contractors also represent your business. Creating a contractor vetting checklist to validate their professionalism and ability to deliver reliable results is vital. Meanwhile, contractor agreement templates can streamline the process of getting them signed up.

Marketing and Client Acquisition for Property Management Companies

Before you can start to develop tenant relationships, you must first attract clients who will be willing to hire your firm for their ongoing property management needs. As a brand new company, masterful marketing could be the difference between success and failure.

You need to put yourself in a property owner’s shoes to gain a better understanding of their pain points. Right now, Texas has a growing number of ‘accidental landlords’ who rent out properties as a result of selling struggles. Many of them will want to acquire the help of a management firm, and will actively research local services.

With this in mind, you need to build an owner-focused website. A simplistic design that presents information clearly works best, avoiding confusion and overwhelm. It should also be supported by dedicated local SEO (search engine optimization) strategies. Appearing on the first page of Google increases traffic from genuine leads.

Lead generation isn’t just about getting property owners to visit your site. An effective lead form that guides clients towards booking a consultation or seeking further advice about your services is advised. It maintains a professional image while potentially streamlining the path to conversions.

Marketing efforts should not overlook the importance of local networking and referral outreach strategies. After all, most clients are local property owners. Getting seen by the right people in the right places is essential. Creating an owner pitch and clear service proposals helps you showcase what the property management firm has to offer, both in terms of standards and potential ROIs for clients.

Presenting details of services like lease renewals alongside your fee structure matters. Above all else, though, clients want vacant units to be filled fast. When you set up losing syndication for vacancies, you can show owens that their properties will be seen. This can reduce unit vacancy durations while improving the chances of commanding higher monthly rentals and a better caliber of tenant as a result of increased options.

Onboard Your First Property and Owner

After completing the legal and logistical preparations of launching a business, it’s time to actually start providing property management services. Attracting a property owner is one thing, but you must then focus on onboarding. Preparing a Texas-compliant management agreement is a vital step. Contracts provide clarity for both parties while also getting the business relationship off to a professional start.

The contract should set out the details of services, compensations, and payment structures. The services section will detail the core operations and optional add-ons while also detailing issues like whether a property manager will live on-site, which can be the case for apartment complexes and condos.

Securing the contract from a property owner is a major breakthrough. You will then need to fill the vacant unit. Syndicated listings should attract applicants while tenant screening processes help you identify the most suitable candidate. Landlords have entrusted you with their assets. You owe it to them, as well as yourself, to find a tenant who will respect the property and make timely payments.

Before the tenant enters the property, you also need to perform an assessment of the property. The initial property checklist should cover;

• Heating and electrical systems,
• Confirmation that no mold is present,
• Tests of all smoke alarms and safety features,
• Checks that appliances work,
• Confirmation that windows and doors function,
• Verification of valid gas and electric safety certificates
• Itemized lists of all included furniture and furnishings.

All details should be documented with photos via your property management software.

Scale and Monitor Your Property Management Business

Managing one property well shows that you are capable of running a successful operation, but taking a 10% management fee on one property won’t be enough for the business to become profitable. Building a real estate portfolio is the key to scaling your venture. Unlike property owners, you don’t need to purchase properties. You are simply providing services to run them, which means you can grow the company without injecting capital or borrowing funds.

The great news is that the fundamental blueprint of managing a property can be repeated time and time again, although you must adapt to the needs of individual properties and clients. To ensure that the business grows smoothly, you must;

• Set Key Performance Indicators (KPIs) for occupancy and owner retention,
• Establish how many units you need to take on by a certain date,
• Create monthly owner reporting cadence that is finalized by the 15th of the next month,
• Monitor the growing demands on your team to highlight when extra staff are needed,
• Plan for license renewals to prevent potential downtime, delays, or repercussions,
• Continuing your team’s education to stay ahead of the competition.

Pro tip: With TenantCloud at your disposal, staying organized in daily operations and monthly processes remains simple - regardless of how large your portfolio becomes.

How to Start a Texas Property Management Company FAQs

Is Starting a Property Management Company in Texas Profitable?

Yes, it is a potentially lucrative market. Property managers in Texas earn an average of $63,720 but owning a business offers significant scaling potential.

How Quickly Can I Start a Property Management Company in Texas?

When following the right process of registrations, licensing, and setting up business operations, it is possible to take on your first property within 3 months.

Do I Need a License for My Business?

Standard business registrations are mandatory. However, you do not need a license in Texas to collect rent and provide property maintenance. You will need one to lease or sell assets.