Property management business models

Property management involves the managing of property that is owned by another party or entity. The property manager acts on behalf of the owner to preserve the value of the property while generating income. Managed properties include residential and vacation properties, commercial retail space or industrial warehouse space. Property management may involve seeking out tenants to occupy the space, collecting monthly rental payment, maintaining the property, and upkeep of the grounds.

There are various types of property management companies – those that manage large apartment complexes, to those that manage single family homes. Some even specialize in managing service apartments and/or commercial retail units. It is also not uncommon to find many real estate brokers who manage a few properties for their clients.^[1]

The size of these companies range from those employing thousands of employees to mom and pop establishments. The combined revenues of the participants of the property management industry in the US is estimated to be about US$70 billion.^[2] The market size in India is estimated to be about US$1 billion.

While property managers are typically paid a fee and/or a percentage of the rent brought in for the property while under management, there are various business models in this space, and in this article we broadly cover most of the common ones.

Percentage of rent

This is the most common model, and is used by property management companies in the residential space that manage multi-home units and single family homes. The property owner in this case signs a property management agreement with the company, giving the latter the right to let it out to new tenants and collect rent. The owners don't usually even know who the tenants are. The property management company usually keeps 3-15% of the rent amount, and shares the rest with the property owner.

Fixed fee

This is the most common revenue model used by companies when monitoring empty homes or empty land sites. The work here involves monitoring the property and ensuring that it is safe and secure, and reporting back to the owner. As there is no income from these properties, a fixed monthly fee is usually charged to the owner.

Guaranteed rent

This model is also used in the residential space, but mostly for small units in high demand locations. Here, the company signs a rental agreement with the owner and pays them a fixed rent. As per the agreement, the company is given the right to sublet the property for a higher rent. The company's income is the difference between the two rents. As is evident, in this case, the company minimizes the rent paid to the owner, which is usually lower than market rates.

Revenue share

This model applies to the service apartment space and other commercial establishments, such as retail or business centers that generate revenue. In this case, the property manager signs an agreement with the property owner, with the right to convert the property into a revenue generating business such as a business center, service apartment, etc. Instead of paying rent to the owner, the management company shares a percentage of revenue. There are also hybrid structures here, where a combination of a fixed rent and a share of revenue is shared with the property owner. ^[3]

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