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Self Managed or Franchised Property Management?

April 09, 2019

Are Property Management Franchises the Right Solution?

Property management brands such as RPM and PMI offer ready made solutions for those who want to launch their own property management company. But do franchisors really offer a solution you want to be locked into?

A ready made business solution might be appealing if you lack experience, contacts, training, and property management infrastructure.  Competition, liability, and complexity are encouraging many to use franchises.

We have to ask though, is it just comforting to leverage a proprietary property management system?  Is confidence the issue? If we dig deeper into franchise property managment, red flags about growth, revenue, costs, CRM, and business control start popping up.

You’re at the crossroads with your business. So let’s take a look at self-managed vs franchise opportunities, and the real pros and cons of going either way. And check out property management salaries to help you decide on career directions.

Franchises are Still Doing Very Well

Screenshot courtesy of Wikipedia

Franchises such as McDonalds, Starbucks, Remax, Pizza Hut, 7 Eleven, CertaPro Painters and others show franchises do work, in some sectors. Yet, today retail is in danger as proptech and fintech threaten aging, static, physical retail environments.

Brand names such as Quiznos, Radio Shack, and Krispy Kreme all fell victim to market changes on a big scale. The high profile successes hide the truth about sustainable profit issues for tens of thousands of franchises existing today. New competitors appear every day.

To compare independent business to franchised business, you’d want to consider what is important to you and what your business goals are. What are your business weaknesses and can you improve them? Are you looking to sell the business at some point? Are you okay with restrictions and giving up control?  Tough questions help you make the best decision.

Hopping on Someone Else’s Business Model

What popular brands offer is a system ready for business and for some franchisees it could be a quick win.  Would you be handcuffed by their proprietary systems and franchise regulations? Would your future business growth be stifled due to franchise fees and other franchisee’s territory claims?

Easy to pay and get in, but are you left stuck between a rock and a hard place?

Property Management Franchisors

PMI and Real Property Management are two the most visible property management franchise brands.

Screenshot courtesy of logosandbrands.directory

PMI is one of the largest companies offering franchises, now up to 230. The investment required is between $21,250 and $106,800 for investment and a franchise fee of $15,000 to $62,500, according to PMI. PMI sets fees at 2% to 7% for commerical clients, 5% to 12% for residential clients, or $10 to $30 per unit for HOAs.

Their business model relies on what the call 50 streams of revenue. Yet we wonder if these are nickle and diming techniques that might alienate clients.

According to Real Property Management, their franchise prices range from $86,795 to $117,795 depending on market size, the rental space you select, and other discretionary decisions. That includes startup expenses and their franchise fees. They advise a working capital of $90,000.

Infographic Courtesy of addinfographic.com

Are you Ready for Big Risks?

Of course, this level of business isn’t for newbies and certainly you would have to raise the necessary capital. And you still have to pay rent and salaries each month, before profits start rolling.  There are stories of those who have mortgaged their homes for a franchise. Would you be certain of your success that you’d go that far?

“Our startup costs were a little under $70,000 for the franchise fee, computers, incorporation, licensing, training, etc. Because we didn’t have any assets as collateral, the bank wouldn’t loan us money. We used the equity in our home to finance the endeavor. My wife and I had a frank conversation about the real possibility of losing our home if the business failed. ” — Real Property Management franchisee, Josh Kattenberg in a Forbes interview.

Read this review of franchise fees on FranchiseDirect.com. RPM’s fine for marketing outside of your designated territory is $500.

Screenshot courtesy of Franchisedirect.com

Training, Systems, Marketing and Branding

Real Property Management offers proprietary property management training, yet this is not the same as recommended training and certification. Their property management systems include back office accounting, consulting and alliances, and a recognized property management brand to bring in clients.

The value of a recognized brand is important yet will their brand positioning end up limiting your ultimate success? Is their brand suitable for luxury markets or even upscale multifamily developments? Would your targeted landlords and investors have that kind of confidence in a franchised business?

A franchise brand does lend confidence to small portfolio landlords or investors who need to hire a reliable property manager, one they can trust at their budget. A brand is all about trust and it doesn’t mean clients will pay high rates.

You have to find out if PMI’s and RPM’s fee model will work for you and whether you can charge what you believe you need.  Regarding branding, you can create your own unique brand, designed specifically for your market and your target clientele which surpasses their generic branding. This is an important fact.

Is Their Market Positioning a Noose Around Your Neck?

If PMI and RPM are geared toward a downscale market positioning, will this limit what you can achieve?  Yet are these types of landlords and investors the ones you should avoid working with? Providing bargain basement rates for standardized services isn’t a successful model.

Will the PMI and RPM business platform keep up with new trends in property management? Those trends include automation, artificial intelligence, social media integration, and accounting specialization?  Propietary systems normally can’t keep up with open systems.

It’s unlikely a large franchise would have software platforms that would keep up to tech upgrades happening now in this industry. Big systems rarely have the flexibility and nimbleness to respond to changes such as short term rentals, cloud, web 2.0, and the Internet of things. If you don’t like their system, you’re stuck with it.

How Will you do Marketing?

Would their marketing tools be sufficiently customizable enough to create impact and personalization for your specific market? Will their own database of property investor information suffice, or is marketing and business development actually up to you and your own capabilities?

And does a franchise guarantee you’ll hire high quality staff, get high quality contractors, and have quality properties and clients to work with?

Being an Independent Property Manager

After buying a franchise, franchisees realize success is still up to them. Although franchises have a much lower rate of failure, it might be due to the fact that franchisees have big operating budgets, not their platform. Unless franchisees have big cash ready to work, they don’t get a franchise.

All the resources you need to succeed in property management are available to you as an independent.

There are strategic advantages in using modern property management solutions. They’re inexpensive, upgradeable, hosted on the cloud, updated and managed by professionals, designed specifically for SMBs and all you have to do is rent them (subscription).

With respect to marketing and business development, creating your own organic lead sources such as your real people contacts (service contractors, renters, landlords) , website, and social media pages creates clients that are geared to you and the brand you create.

Time to Weigh your Pros and Cons

It’s your decision to move your current property management business to a franchise such as RPM or PMI. Since their business is fairly mature, it might be difficult to acquire a good geographic and population service area.

If that’s the case, it’s nice to know that you can study their brand positioning and modify your own so you can compete and capture the best markets. An efficient, personalized, property management firm ready to adapt to the best market opportunities seems prefereable to one wearing a straight jacket.

There’s so much more to consider on this topic however, on your own, you have unlimited potential and brand equity which only you own. Property management is still open to entrepreneurs and creative managers and using tech tools available, carving out an unbeatable positioning is possible.

Take a look at our how to start a property management business, and then try a demo of the ManageCasa platform. Everything you need might already be ready to go right now and affordable with no commission fees.  We’re attending a number of Expo events across the US.  Come and visit us at the Chicago Cooperator Expo and discuss your business plans and how we might hellp.

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