Disclaimer: This post is meant to share general information and does not constitute legal advice. Speak to a legal professional for specific details before making any decisions regarding legal compliance.
What Does a Property Management Company Do in California?
Before diving into the steps to launch your company, it helps to understand what California property management companies actually handle day to day. A property management company is a third-party business that operates rental properties on behalf of owners in exchange for compensation. You act as the intermediary between property owners and tenants, handling the daily operations that keep rental properties running.
The core responsibilities of property management in California include a wide range of tasks.
- Tenant placement: This involves marketing vacancies, screening applicants, and executing leases.
- Rent collection: You are responsible for collecting payments, posting charges, and handling any delinquencies.
- Maintenance coordination: This means receiving requests, dispatching vendors, and tracking work orders from start to finish.
- Financial reporting: You will share owner statements and track all income and expenses for their properties.
- Compliance: You must follow fair housing laws, local ordinances, and state regulations to keep owners compliant.
In California, the state treats most of these activities as real estate activities. This means you will need the proper licensing before you can start and legally operate your property management company in California.
Licensing Requirements to Manage Property in California
Now that you know what property management involves, the next question is whether you need a license to do it legally in California. The short answer is yes, in most cases, which makes understanding the licensing rules a good next step. Exact rules can be complex and tend to change, so it’s important to consult with a qualified legal professional if you’re in doubt.
Activities That Require a Real Estate License
The California Business and Professions Code Section 10131 defines which property management activities require a real estate license. The law is clear about what triggers the licensing requirement.
These activities include:
- Negotiating or collecting rent for others
- Arranging or negotiating leases
- Listing or advertising property for rent
- Managing trust accounts holding tenant funds
The key factor is compensation or the expectation of compensation. If you’re receiving payment for these services on behalf of someone else, you need a California real estate license to perform them legally.
Exempt Roles and Unlicensed Assistants
Not everyone working in property management needs a license. The resident manager exemption allows individuals who live on site at the property they manage to perform property management duties without a license, but this exemption only applies to that specific property.
Unlicensed employees of a licensed broker may perform limited tasks under supervision. These permitted activities for unlicensed assistants include showing rental units, accepting applications and rent payments, and providing information from a set schedule of rental rates.
However, negotiating lease terms or working independently still requires a license. The line between what requires a license and what does not depends on whether the activity involves negotiation, discretion, or independent judgment about the terms of a rental agreement.
Broker of Record and Branch Office Rules
A property management company operates under a designated broker of record who holds ultimate responsibility for all licensed activities. This person oversees compliance with real estate laws and regulations for the entire company.
If you form a corporation, any corporate officers engaging in licensed activities must hold a broker license themselves. Simply having a broker of record does not exempt other officers from licensing requirements if they are performing activities that require one.
Additionally, each physical office location where licensed activity occurs requires a separate branch office license from the California Department of Real Estate. This applies even if it is just a satellite office or secondary location.
License Application Fees and Timelines
For current fee schedules and exact costs, you can check directly with the California Department of Real Estate, as fees can change. The general steps to obtain a license include completing required coursework, passing the state exam, submitting fingerprints for a background check, and paying the associated fees.
Processing times for a California real estate license vary based on application volume and completeness. It is helpful to check the DRE website for current estimates on how long the process takes from application to license issuance.
Continuing Education and Renewal Requirements
California real estate licenses must be renewed periodically to remain valid. Renewal requires completing continuing education hours that cover updates to real estate law, ethics, and industry practices.
The specific number of hours and course requirements can change over time. You should verify current requirements with the California Department of Real Estate before your renewal date to make sure your license stays active.
With the licensing requirements clear, the next step is to choose the legal structure for your business.
What Business Entity Works for a California Property Management Company?
With licensing requirements clear, the next step is choosing how to structure your business legally. This decision impacts your liability, taxes, and how you operate. Exact rules can be complex and tend to change, so it’s important to consult with a qualified legal professional.
Corporation vs Sole Proprietorship Rules
Property management companies in California commonly form as either corporations or sole proprietorships. A corporation requires a licensed broker officer to act on behalf of the entity, as the corporation itself does not hold the license.
Tax and liability differences exist between these structures. A corporation provides liability protection that separates your personal assets from business debts, while a sole proprietorship does not offer this separation. Consulting an attorney or accountant can help you understand which structure best fits your situation.
LLC Restrictions Under State Law
California does not allow Limited Liability Companies (LLCs) to hold a real estate broker license. This means a property management company cannot operate as an LLC if it performs licensed activities.
This restriction is specific to California and differs from many other states. If you were considering an LLC structure, you will need to choose a different entity type for your property management business in California.
Once you have your business structure sorted out, it is time to make it official by registering with the proper agencies.
What Registrations and Tax IDs Are Required in California?
After selecting your entity type, you need to register with state and federal agencies before conducting business. Some of these rules may vary by location or other factors, so we recommend consulting with a qualified tax professional.
Secretary of State Filing and FTB Registration
If you form a corporation, you must file articles of incorporation with the California Secretary of State to form the business entity. This filing establishes your corporation as a legal entity separate from its owners.
The Franchise Tax Board (FTB) requires registration for state tax purposes, whether you are a corporation or a sole proprietorship. A Statement of Information filing is also required periodically to keep the state updated on your business’s current information.
Federal EIN and Tax Accounts
An Employer Identification Number (EIN) is the federal tax ID for your business, much like a Social Security number for an individual. You will need an EIN to open business bank accounts, hire employees, and file federal taxes.
Even if you do not plan to have employees immediately, getting an EIN early simplifies your business setup. The IRS issues EINs at no cost, and you can apply online for immediate results.
City Business License and Local Tax
Most California cities require a business license to operate locally. This is separate from your real estate license and allows you to conduct business within that specific jurisdiction.
Some jurisdictions have additional taxes or registration requirements beyond the basic business license. You should check with the city or county where your business will be headquartered to understand all local requirements before you begin operations.
With your business registered, you can now focus on one of the most regulated aspects of property management in California: handling other people’s money.
What Trust Accounting Rules Apply in California?
One of the most regulated aspects of property management in California is handling other people’s money, which brings specific trust account obligations. These rules are in place to protect client funds and keep you compliant. Since trust accounting requirements can vary, consult with a legal professional for compliance.
Trust Bank Account Requirements and Reconciliations
Brokers must deposit tenant funds, such as rent payments and security deposits, into a trust account, not a personal or operating account. This separation protects client funds from being used for business expenses.
Brokers must maintain trust accounts at a bank located in California. Out-of-state banks are not acceptable for holding California trust funds.
The California Department of Real Estate requires regular reconciliations of these trust accounts to verify that all client funds are properly accounted for. The California Department of Real Estate strictly prohibits commingling personal or business funds with trust funds and may take disciplinary action against your license.
Security Deposit Limits and Handling
California law sets specific limits on the amount you can collect for a security deposit. For unfurnished properties, the maximum is typically two months’ rent, while furnished properties can allow for up to three months’ rent.
You must hold and return deposits according to state timelines. Within 21 days after a tenant moves out, you must return the deposit or share an itemized statement of any deductions.
Recent legislation, such as AB 12, has changed deposit limits, so you should verify current rules before setting deposit amounts. Itemized statements are required when making deductions, and they must detail each charge and include receipts for the work performed.
Protecting client funds is a top priority, and so is protecting your business itself with the right insurance coverage.
What Kind of Insurance Coverage Do Property Management Companies Carry in California?
Beyond compliance, protecting your business from liability is a practical necessity before you begin operations. The right insurance helps shield you from the financial impact of unexpected events.
General Liability and Workers Compensation
General liability insurance covers third-party bodily injury and property damage claims that might arise from your business operations. If someone slips and falls at a property you manage, this coverage helps protect your business.
If you have employees, California requires you to carry workers’ compensation insurance. This coverage protects both you and your employees if someone gets injured while working. Property owners may also require proof of coverage before signing a management agreement.
Errors and Omissions Policies
Errors and Omissions (E&O) insurance offers coverage for professional mistakes or negligence claims. If you make an error in handling a security deposit or accidentally violate a fair housing law, E&O coverage helps protect your business from the financial consequences.
This type of insurance is common in property management because the complexity of the job creates many opportunities for honest mistakes. Some owners or contracts may require a minimum E&O policy limit before they will work with you.
Resident-Caused Damage Coverage Options
Some companies offer or require residents to carry renters insurance to protect their personal belongings and provide liability coverage. While this primarily protects the resident, it can also benefit you by reducing disputes over damages.
Certain programs allow property managers to offer damage protection products that cover resident-caused damages beyond normal wear and tear. These programs can provide an additional revenue stream while protecting the properties you manage.
Once you have your insurance in place, you will need to define your client relationships with clear contracts.
What Contracts and Disclosures Are Standard in California Management Agreements?
Before taking on your first client, you need a written management agreement that defines the relationship and complies with California law. This contract is the foundation of your partnership with a property owner. Exact rules can be complex and tend to change, so it’s’ important to consult with a qualified legal professional if you’re in doubt.
Scope of Authority and Permitted Activities
The management agreement should clearly state what you are authorized to do on behalf of the owner. This clarity prevents misunderstandings and protects both parties.
Common scope items in a management agreement include:
- Collecting rent and issuing notices
- Coordinating maintenance and repairs
- Screening and placing tenants
- Managing trust funds on behalf of the owner
Activities outside the agreement may expose you to liability. If an owner asks you to perform tasks not covered in your contract, you should amend the agreement first.
Fee Schedule and Termination Terms
The agreement should list all fees the owner will pay for your services. Transparency about costs helps build trust and prevents disputes later.
| Fee Type | Description |
|---|---|
| Management fee | Ongoing percentage of collected rent or flat monthly rate |
| Leasing fee | One-time charge for placing a new tenant |
| Renewal fee | Charge for executing a lease renewal |
| Maintenance markup | Percentage added to vendor invoices |
Termination clauses should specify notice periods and any penalties for early termination. Both parties need to understand how to end the relationship if necessary.
Fair Housing and Local Ordinance Disclosures
California has state fair housing laws in addition to federal protections that prohibit discrimination based on protected characteristics. Some cities also have rent control, just cause eviction, or other local ordinances that affect how you can manage properties.
Management agreements often include disclosures about these compliance responsibilities. Consulting a real estate attorney to draft or review your contracts can help protect your business and confirm your agreements comply with current law.
A clear contract also means a clear fee structure, which is how you will generate revenue.
What Fees Do California Property Management Companies Charge?
Understanding the fee landscape helps you price your services competitively while covering your costs. This is how you will earn income from your property management California business.
Ongoing Management Fee Ranges
Typically, the management fee is a percentage of the monthly rent collected or a flat rate per unit. This recurring fee covers your basic property management services.
Fees can vary based on property type, location, and the services included. A single-family home in a suburban area might command different fees than a multi-unit building in an urban center. Your fees should reflect the scope of services you provide.
Leasing and Renewal Fees
A leasing fee is a one-time charge for marketing, showing, screening, and placing a tenant. This fee compensates you for the time and effort required to fill a vacancy.
Renewal fees cover the administrative work of executing a new lease term with an existing tenant. Some companies bundle these fees into the management fee, while others charge them separately.
Other Common Administrative Fees
Additional fees some companies charge include:
- A setup or onboarding fee for new properties
- Inspection fees for move-in or move-out walkthroughs
- Maintenance coordination fees or markups
- Early termination fees if an owner cancels the agreement
Transparency in your fee schedule builds trust with owners. Hidden fees or surprise charges can damage your reputation and lead to lost business.
With your fee structure decided, you can think about the tools that will help you manage these operations.
What Tools and Technology Support Early Operations?
Once your legal and financial foundation is set, the right technology helps you manage properties efficiently from day one. Using purpose-built tools can make a significant difference in your daily workflow.
Core Software Capabilities
Property management software centralizes accounting, leasing, maintenance, and communication in one place. Instead of juggling spreadsheets and paper files, you can manage everything from a single dashboard.
New companies typically need these capabilities:
- Accounting: Track income, expenses, and trust funds by property.
- Tenant and owner portals: Allow online payments and access to statements.
- Maintenance tracking: Log requests, assign vendors, and monitor completion.
- Lease management: Store documents, track expirations, and send renewal notices.
Cloud-based property management software allows access from anywhere and supports small teams without requiring expensive IT infrastructure. For example, Buildium’s property management software includes all these features and is designed to scale as your business grows.
Lead Generation Options for New PMCs
Online directories and referral networks connect property managers with owners seeking services. These platforms put your business in front of potential clients actively looking for help with property management in California.
Some platforms offer lead generation tools as part of their software ecosystem. Buildium, for instance, integrates with All Property Management, a network that connects you with property owners in your area who need management services. Building an online presence through a website and listings also helps attract clients.
These tools are a key part of your marketing for property managers, which is how you will find your first clients.
How Do New California Property Management Companies Find Clients?
With your operations ready, the final challenge is attracting owners who need your services. Finding those first few clients is a major milestone in starting your property management company in California.
Website and Listing Syndication
A professional website establishes credibility and provides contact information for potential clients. Your website serves as a digital business card that works for you around the clock.
Listing vacant units on rental sites increases visibility for both tenants and owners. When owners see you successfully marketing properties and filling vacancies, they are more likely to trust you with their investments. Some property management software includes website builders or syndication tools to simplify this process.
Industry Associations and Directories
Professional associations offer networking and directory listings that can help you connect with potential clients.
- National Association of Residential Property Managers (NARPM)
- California Apartment Association (CAA)
- Institute of Real Estate Management (IREM)
Membership in these organizations offers credibility and referral opportunities. Other members might refer clients who need services in your area.
Reviews and Referrals
Online reviews on Google and industry sites influence owner decisions when choosing a property manager. Positive reviews from satisfied clients build trust with prospects who do not know you yet.
Referrals from satisfied owners, real estate agents, and vendors are a common source of new business. People trust recommendations from others they know and respect, making your reputation a valuable asset.
Startup Checklist for California Property Management Companies
To help you track your progress, here is a consolidated checklist covering the major steps discussed in this post for how to start a property management company in California.
Licensing and Entity Setup
- Determine if your activities require a California real estate broker license.
- Complete required pre-license education and pass the state exam.
- Choose a business entity type (corporation or sole proprietorship, not LLC).
- Designate a broker of record if forming a corporation.
Registrations and Bank Accounts
- File formation documents with the California Secretary of State.
- Register with the Franchise Tax Board.
- Obtain a federal EIN from the IRS.
- Apply for a local business license.
- Open a trust bank account at a California bank.
- Open a separate operating account for business expenses.
Insurance and Contracts
- Obtain general liability insurance.
- Secure errors and omissions coverage.
- Arrange workers’ compensation if hiring employees.
- Draft or have an attorney review your management agreement template.
- Prepare required disclosures for fair housing and local ordinances.
Software and Operations
- Select property management software that supports accounting, leasing, and maintenance.
- Set up tenant and owner portals for online payments and communication.
- Establish workflows for rent collection, maintenance requests, and financial reporting.
Marketing and Client Acquisition
- Build a professional website with contact information and service descriptions.
- Join industry associations and directories.
- Create profiles on review sites and request feedback from early clients.
- Explore lead generation platforms to connect with property owners.
Build Your Foundation With a Platform That Scales
Starting a property management company in California involves many steps, from licensing and entity formation to trust accounting and marketing, and the right tools make managing it all much easier. From obtaining your California real estate license to finding your first clients, each step builds toward a compliant and efficient operation.
- Licensing is non-negotiable: Most property management activities in California require a real estate license when performed for compensation.
- Entity structure matters: California does not allow LLCs to hold broker licenses, so you will choose between a corporation or sole proprietorship.
- Trust accounting requires precision: Separate trust accounts and regular reconciliations protect both you and your clients.
- Technology can support growth: Property management software helps with the complexities of accounting, maintenance, and communication from day one.
The right property management software can help you maintain compliance while scaling your operations. When you have systems in place for routine tasks, you free up time to focus on growing your client base and delivering excellent service, which in turn supports your tenant retention strategies.
Get your operational systems buttoned up before you scale. You can schedule a guided demo or sign up for a 14-day free trial to see how Buildium can support your new company.
Frequently Asked Questions About Starting a Property Management Company in California
Do you need a real estate license to manage property for others in California?
Yes, performing property management activities for compensation on behalf of others generally requires a California real estate broker or salesperson license. Limited exceptions exist for on-site resident managers and supervised unlicensed employees performing administrative tasks.
Can a property management company operate as an LLC in California?
No, California does not permit LLCs to hold a real estate broker license. Property management companies performing licensed activities must use a different entity structure, such as a corporation or a sole proprietorship.
What are the trust account requirements for California brokers?
Brokers must deposit client funds into a trust account at a California bank, keeping trust funds separate from operating funds. The Department of Real Estate requires regular reconciliations to verify the proper handling of all client money.
Do California property managers need a separate license for each branch office?
Yes, each physical location where licensed property management activities occur requires a branch office license from the California Department of Real Estate. This applies to all offices, not just the main headquarters.
How long does it take to get a California real estate broker license?
Timelines vary based on completing the required education, passing the state exam, and current DRE processing times. You should check the Department of Real Estate website for the most current estimates and requirements.
Disclaimer: This blog post is meant for informational purposes only and does not constitute legal advice. Consult with a licensed attorney in your area for specific legal guidance.
