By: Laurie Mega
In their 2021 State of the Industry Report, Buildium found that 77 percent of surveyed property managers anticipated portfolio growth in the next two years. That’s an encouraging number, reflecting the industry’s strength, despite the recession.
If you’re one of those property management companies, but you’re looking to grow to new locations, you may not know where to start. It’s one thing to add properties in areas you already cover, but it’s quite another to make the leap from one to two or more locations.
Without a growth strategy, you may find yourself managing properties in areas out of your company’s comfort zone, where the target market — and even regulations — are different. You need to make sure you have the right team and the right infrastructure to support your properties.
If you’re looking to expand into a new city, region or state, take the time to plan that growth. If you’ve already started expanding organically, it’s not too late to put a plan in place to keep your growth at a pace your company can handle.
In this article, we’ll discuss the steps to take to move your company from one to multiple locations successfully.
1. Devise Your Expansion Plan
There are three main ways you can expand into a new area.
Bring on New Owners Directly
The first option is to bring on new owners in other areas. This is probably the best way to control your growth, because you can add properties one at a time. That allows you to really measure your expansion success as you add new properties.
Acquire Another Property Management Company
One way to expand into another area is to look for management companies that are looking to sell. But before you agree to acquire another business, look for the following:
- The Owner agreements are in good order and the company has good relationships with the owner because when acquiring the company you are purchasing these contracts.
- The company is in good standing with the IRS and has no outstanding debts.
- The company has reasonable operating margins and decent profits.
- The company is in good standing with the Department of Real Estate
Basically, you’re looking for a company that compliments your business strategy and will add to your profits and get you into a new area without much effort.
Keep in mind, too, that when you bring another company, you’ll have to convert it over to your systems and eliminate redundancies. If you acquire a company that uses the same property management software can make the transition easier.
Set Up a Franchise
Another option but one that is a different model is to set up your company as a franchise, bringing on other property managers to manage their locations under your brand. A franchise model allows your business to expand without geographic constraints, but it will change your business model. You will now be in the business of selling franchises and supporting franchisees, as Entrepreneur points out.
The first step is to register with the Federal Trade Commission. After that, you’ll have to set up a franchise model, build your brand strategy, determine your franchise fees, and the operation guidelines all franchisees must follow.
2. Research Your Target Areas
If you want to expand to other markets, now’s the time to do some research. First, look at the opportunities out there, and where the market is strong. Even before the pandemic, for example, single-family home rentals were growing in suburban areas, and they really took off when the pandemic began.
Pinpoint exactly where you want to seek out new owners with homes or properties to manage. Then, look at how their management requirements differ (if at all) from the properties in the locations you manage currently.
Don’t assume you can apply the same rental, marketing and maintenance processes that you have now. New areas are going to have different rules, different demographics, and even different cultures.
For example, you may find you have to adjust your marketing strategy for your new area based on demographics. Your new area may have a booming tech industry that attracts workers from overseas. It would behoove you, then, to understand where they look for housing and what is important to them in a rental unit.
Get Familiar with Local and State Regulations
State and city regulations for rental properties vary. If the properties you’re looking at are located in outside of your current properties’ area, make sure you have a clear understanding of the following laws and regulations:
- Property and other taxes
- Trash and recycling removal
- Fair housing and accessibility (HUD) guidelines
- Property maintenance and safety issues
- Contracts and notices
- Lease renewal
- Delinquency and tenant eviction
- Tenant screening
- Rental registrations
- Occupancy laws
- Utility operations
For example, one property management company that uses Propertyware expanded to Phoenix, AZ, where businesses have to pay a transaction privilege tax (TPT). It’s the only place they have to pay that tax, so they had to adjust their forms to reflect the tax in that area.
You may even want to hire a lawyer or accountant (or both) who lives in your property’s area, someone who understand local laws and ordinances.
3. Assess Your Company’s Needs to Expand
This is the perfect time to assess your company's current management processes. Look for gaps you need to fill, as well as current procedures you can replicate. Look for places where you company should grow, as well, to meet the needs of new clients.
There are three actions you should take, here, to make sure you have adequate staffing keeping in mind that you are moving into other geographic areas.
- Take a look at your staff’s current workload. Talk to your employees to understand how work is getting done, and whether or not they feel they need help already. Shore up each department by shifting responsibilities or adding new team members. For example, your receptionist may be able to take on more customer service-related tasks.
- Determine where you’ll need to staff up when you add new properties. You may need more staff in rental maintenance, for example. Or, you may need to hire remote workers in your target areas who have experience managing properties there.
- Look for areas where you can hire outside vendors instead of permanent staff. You may need more cleaning or lawn maintenance services for your new properties. Talk to your current vendors to see if they work where your new properties are. If they don’t, they may have recommendations. If your new properties are in another county or state, do your research before choosing your vendors.
What kind of software and equipment will you need to bring on properties in new locations? Will you need more computers or phones? Will you need to add software licenses for accounting, communication, or even word processing apps?
If your current software stack is piecemeal, you may want to consider investing in a more comprehensive property management software solution, one that allows you to streamline the application, screening, and lease-signing processes; store documents; communicate with tenants and clients; and even integrates third-party vendors into your system.
For example, Propertyware allows you manage all of our locations in one place so you can easily view consolidated dashboards and reports across all locations and monitor local operations from a single sign on. You can also create form templates that you can push out to all of your locations to ensure consistency. You can then customize them at the location level for specific needs, such as snow removal in Colorado and irrigation in Nevada.
4. Determine Your Budget
You know the old adage; you have to spend money to make money? That’s certainly true when you expand your real estate portfolio. Of course, adding properties means more revenue for the company, but that revenue won’t be there on day one.
Look at your operating margins and how much those will increase by adding new properties. Your goal is to maintain or lower your operating margins to keep profits at or above their current levels.
So, how much will you have to increase your budget to add new hires, new software, or new equipment? Will there be new business taxes to pay? Will the money coming in from new properties keep your profits strong?
It stands to reason that any new money coming in is a good thing, but not if the cost you’re putting into new properties outweighs the benefits.
For example, if a new client requires a high level of attention, the time and money you’re putting into that client may not benefit your bottom line in the end.
5. Assess and Adjust Regularly
Once you’ve put your growth plan into motion, don’t just leave it to collect dust. Assess how your new and old properties are doing. Talk to clients, residents, and staff to ensure your business is meeting all of their needs, and that you haven’t stretched yourself too thin.
Keep an eye on your cost and profit margins and look for areas you can increase efficiency or even add new fees and services.
Finally, take a hard look at all of your owners to determine if any of them are taking up too much of your time. If they are, it may be worth replacing them with other owners so you can maintain your growth goals.
6. Know When to Stop
Finally, have a pre-defined stopping point – a certain number of rental properties or a target profit margin that defines success for you. Without this benchmark, you may find yourself growing to quickly for your plan.
Making that leap into managing homes across multiple locations can be a little tricky, but all you really need is a solid plan. Shore up your current processes and make sure they’re running smoothly before venturing out to new markets.
Fill gaps in staff, marketing, infrastructure, and knowledge of your properties’ area. Once you’ve implemented your plan, check and check again.
Stick to your plan and adjust where you need to, and you can start building a multi-regional portfolio.