The pros and cons of property management franchises

If you’re considering starting your own property management company, you may be tempted to look into property management franchises. They are certainly an easy way to get your foot in the door.

When you buy into a property management franchise, as opposed to starting your own business, you become a part of a larger property management enterprise that gives you the tech, marketing, and other resources you need to get up and running fast. In return, you run the business under the parent company’s branding.

But there are pros and cons to owning a franchise. In this article, we’ll explore some considerations you should keep in mind if you’re thinking about being a franchisee.

Ready-made Expertise

If you’re brand new to property management, you will receive training in rent and fee collection procedures, marketing techniques, accounting practices, compliance and other legal issues, and all other aspects of property management.

If you have experience in property management, they’ll get you up to speed with their expertise. You will receive information on their company’s branding, how they work with owners and residents, and so on.

While you will receive training, you’ll still need to have some knowledge or experience in running a business. After all, you’ll be hiring your team and looking after the P&L sheet. At the same time, you’ll have to make sure you follow all of the franchise’s rules to a T.

How You Run Your Business

Speaking of rules, there will be a procedure and best practice for everything already laid out. So, any challenges you run into will probably be nothing new to the parent company, and they’ll have a solution ready for you. If it’s a challenge they haven’t run into before, they will have the procedures in place to work out a new solution.

This is particularly helpful for aspects of property management that you’re not as strong in as others. So, if you’re a pro at customer service, but not as comfortable with marketing, you can look to the franchise’s own best practices and processes.

But if you want to be able to make your own rules, especially when it comes to aspects such as how you collect rent and fees, how you’ll handle vacancies, or market to property owner leads, then know that as part of a franchise, you won’t have the freedom to do that.

So, if you are getting into property management to disrupt the industry in your area, a franchise may not let you go that far to make a mark.

Additionally, you already know that each housing market has diverse needs and challenges. If your local market doesn’t align with the franchisor’s procedures and systems, there may be elements that don’t make sense for your owners and residents—and be lacking in other areas altogether unique to your portfolio.

Marketing Tools

A strong marketing plan is essential for attracting owners and residents. But making sure you’re hitting all the right channels with the right content could take a lot of time away from your current owners and residents.

If you’re part of a franchise, at most, they will take care of the marketing for you; and at the least, they’ll give you the tools you need to set up an effective marketing strategy and funnel.

While you’ll have the backing of a full marketing team, you may not have much say in how or where you market to your audience. Not to mention, you’ll have to pay a fee for the franchise’s marketing services, which is usually a percentage of your revenue.

Reputation

Being tied to your parent company’s reputation can be a gamble. If they have a good reputation with owners and residents, you’ll have an easier time attracting new business and filling vacancies. But if you’ve bought into a company that suddenly experiences a drop in reputation, it could pose a challenge for attracting new owners and residents.

Initial Investment, Long-Term Costs, and Profitability

Starting your own property management company can cost as low as $2,000, especially if you’re boot-strapping it. On the other hand, one property management franchise company recommends candidates have $75,000 available to start.

That’s because the initial investment includes not only franchise fees, but the cost of rent (if you choose to use an office, utilities, and initial hiring costs.

And while starting your own business is a bit riskier, the profit you make is all yours to invest in your business as you see fit. According to Buildium’s 2020 Industry Report, profitability ranked #3 on the list of their top priorities. Given how the pandemic has affected profit margins for many due to eviction moratoriums, there’s no doubt that profitability will remain a focus for 2021.

Franchises, on the other hand, take a percentage of revenue—which will of course impact your profit margins right out of the gate. In addition, there are a number of property management franchisee fees you pay on a regular basis.

Those can include:

• Marketing
• Software
• Late payment
• Ongoing training
• Renewals

There may also be penalty fees including:

• Late payments
• Bounced checks
• Marketing outside your territory
• Using unapproved suppliers

In any case, you’ll want to break down the premium you’re paying in every respect so that you’re seeing value from your franchisor.

Your Proptech Stack

If you’re just starting out in property management, having a suite of software ready to go might actually be a pro, especially if you don’t know anything about building the right tech stack for your business.

When we talk about proptech and tech stacks, we’re talking about all of the online and software tools you need to run your business. That includes accounting software, marketing and social media tools, online portals for owners and residents, as well as other software solutions that take care of maintenance request tracking, taxes, and other day-to-day tasks for property managers.

But, if you’re an experienced property manager, and you’re well-versed in proptech, or you prefer to use a particular SaaS platform, you might find it frustrating to switch to the system the franchise uses, essentially re-learning how to complete daily tasks.

A property management franchise contract can last 10 years. So, if you buy in, you’ll be attached to that company for the next decade. A lot can change with your business goals and even with the market in your area in that time.

While it may take longer to start up your own property management company, you will be creating your own business on your own terms. So, if you’re not afraid of a little hard work and creativity, this might be the way to go.

Whether you choose to buy into one of the many property management franchises available or decide to start your own business, careful research will be the key. Look at your financials to see what you can afford, and weigh the ROI of buying a franchise versus starting from scratch.

Finally, determine the amount of leeway you want in your business practices, especially when it comes to providing the best service to your owners and residents—and how.