A property preservation company helps banks and financial institutions to maintain foreclosed properties. Legally, banks are not able to manage properties, therefore, these services are usually subcontracted to property preservation companies.
According to the Mortgage Bankers Association, one out of every 200 homes in the U.S. will be foreclosed upon with more than 250,000 homes foreclosed upon every three months. Oftentimes, homeowners will leave substantial damage to the property when they leave, such as removing securely installed items such as bathroom hardware and kitchen cabinets, which can significantly reduce the market value of properties. Repairs require the services of a skilled property preservation company.
The property preservation industry is highly competitive and demands immediate response when a bank requires a vendor’s services. The following is a list of steps to starting your own property preservation business:
Understanding the Property Preservation Industry
The property preservation industry is not controlled by one major company. Rather,the industry, which reported $62 billion in revenue between 2011 to 2016, consists of 239,987 small businesses that employ over 766,000 people across the United States.
Among the industry’s main consumers are banks, servicers, lenders and investors, who outsource their responsibilities to property preservation companies. Real estate and construction firms also actively use the services provided by these companies.
Property preservation companies tend to specialize in the following:
- Facility management
- Maintenance services
- Rent Collection
- Property accounting
- Trash and recycling management
- Legal representation of property owners
- Property repair and renovation
- Coordination of repair contractors
- Security management
- Tenancy application screening
Not all property preservation businesses offer all services, yet some may offer additional services as well, depending on their size.
“There are numerous unoccupied properties in the market today,” says David Friedman, chief executive officer of American Home Mortgage Servicing. “Given the sheer volume, the competition to market and sell these properties is at an all-time high. Property preservation services can make the difference and potentially remove the stigma associated with an REO and reduce the days on market for the property.”
Property Preservation Industry Competition
There is significant competition within the property preservation business, therefore, before getting started, it pays to have all assets and human resources in place. Since at the start new business have no established reputation, it is a good idea to affiliate with an established company that can subcontract work to your company. This will allow you to build your reputation and connect with potential clients, such as banks and financial institutions, as well as REO managers.
Established Property Preservation Companies
The following is a list of established property preservation companies that you may want to explore to study their business plan:
- Dynamite Property Preservation
- HUD Property Preservation
- Five Brothers Property Preservation
- Carrington Property Services
- Mortgage Contracting Services
- Cyprexx Services
- Field Asset Services
- Lenders Asset Management Corporation
Starting from Scratch vs. Buying a Franchise Better
A property preservation company should have a long-term vision and clear objectives. Starting a business from the scratch allows you to grow at your own pace and implement your own strategies.
Yet buying a franchise allows you the opportunity to connect directly with an established brand with its own client list. Franchises, however, require that you adhere to strict guidelines, leaving you few options for decision making.
Property Preservation Business Challenges
The property preservation industry tends to fluctuate since when the economy is booming, there tend to be fewer foreclosures, therefore property preservation services are less in demand, which can be a challenge for companies that are less diversified.
Another challenge is from established property preservation competitors with an established reputation. It is necessary to have strategies in place to offset these challenges.
Property Preservation Business Plan
A well-developed business plan is key when starting a new property preservation business. I will allow you to bring your goals and strategies into focus. The business plan should be something you can show investors, as well as the banks, lenders, and financial institutions you hope to work with.
Choosing a Property Preservation Business Location
Ideally, your property preservation business will be located in an area that has a high property foreclosure rate. This is a business that can be easily run from home, which will allow you to save on overhead. If you don’t have space at home to store equipment and materials, you may want to consider a storage space or an actual facility.
Property Preservation Business Equipment and Manpower
Most of the equipment needed for a property preservation business is basic, since heavier, technical equipment can be rented on an ass needed basis. Search online and at local hardware stores for good deals, or second-hand equipment.
This is a list of tools you may need:
- Portable Heater
- Hard Hat
As for manpower, you may only need someone to handle administrative work, such as a secretary and an accountant since most tasks, such as basic repairs, should be handled either by you or subcontracted workers.
License and Register Property Preservation Business
Construction work requires a state license; therefore, it is important to have a valid license and to complete all paperwork and exams accordingly.
Your business should also be registered with the state as either a sole proprietorship, a limited liability company, or a corporation. You must also register with the Internal Revenue Service and your state tax agency.
Property Preservation Business Services
Most services provided will likely be basic preservation tasks, such as repairs, changing locks, de-freezing pipes, capping the gas supply, changing rotting boards, and landscaping or snow removal to ensure the property is secure.
Property Preservation Marketing Plan
In order to grow and prosper, a property preservation business needs a clear marketing plan that includes advertising and publicity, as well as social media outreach to ensure your business is visible to desired clients, such as banks and financial institutions.
Most projects will need to be bid on, therefore, it helps to become affiliated with established property preservation companies that have a good working relationship with banks, services, and financial institutions.
Here is a list of marketing strategies:
- Join property preservation vendor directories, both nationally and regionally, so REO asset managers and agents can contact you.
- Affiliate with established large property preservation firms.
- Market services directly to REO agents and directories by sending frequent mailings.
- Create an official website to establish an online presence.
- Leverage social media platforms, such as Facebook and Twitter to expand your reach.
- Attend related business seminars to network and create visibility for your business.
- Be prepared to accept contracts when offered.
“Almost every bank has a Real Estate Owned or REO department that handles the properties it has repossessed. Contact the REO department of each lender providing mortgages in their area to determine if the services you offer are needed. In many cases, lenders might already have companies lined up to do this work, and may only place your company name on a waiting list. However, opportunities can arise when a company fails to live up to their responsibilities and gets dismissed, or a lender experiences a sudden influx of repossessed properties and their current contractors cannot meet the demand,” says Griffith Pritchard, a former senior branch manager for M&T Bank.
Create a Supply/Distribution Network
It is essential that you create a database of suppliers and distributors that can offer immediate service. Be willing to meet with suppliers and distributors directly in order to establish a working relationship and explain your business plan.