As a landlord you maybe wondering do you need a property manager and what are the cost of property management fees. In the ever growing property market in the UK, landlords face endless decisions that can impact the profitability of their property. One of biggest factors is understanding if they need a property manager and what are the associated cost of property management fees? This guide aims to shed light on the costs associated with property management services in the UK, offering insights into what these fees entail and how they can affect your bottom line.
Average rent in the UK
Property management is a big industry in the UK. The average rent in UK as of February 2024 is £1,123 per month, reflecting a 7.2% growth over the past year. It is also noted that rental increases are slowing in the most major UK cities which are seeing smaller rent rises than rural areas (Zoopla).
| Area Name | Average monthly rent | Change on a year ago (%) | Change on a year ago (£) |
| London | £2,121 | 4.2% | £90 |
| South East | £1,325 | 8.7% | £110 |
| Eastern | £1,163 | 8.4% | £90 |
| South West | £1,077 | 8.2% | £80 |
| West Midlands | £905 | 7.9% | £70 |
| Wales | £881 | 9.5% | £80 |
| East Midlands | £860 | 8.7% | £70 |
| North West | £848 | 9.0% | £70 |
| Yorkshire and the Humber | £799 | 7.1% | £50 |
| Scotland | £793 | 9.9% | £70 |
| Northern Ireland | £735 | 2.6% | £20 |
| North East | £695 | 9.9% | £60 |
Average property management fees in the UK usually sit between 10-15% of the monthly rent collected. However, they’ve been known to range from as low as 5% and as high as 20%; it depends on the professional company you are engaging.
Understanding Property Management Fees
Property management fees are payments made by landlords such as yourself to property management agencies or managers for overseeing the day-to-day operations of rental properties. These services can range from tenant sourcing and vetting to maintenance, handling legal paperwork, and managing financial transactions related to the property.
Types of Management Fees in the UK
- Letting Fees: Typically charged for finding and vetting a new tenant, these can vary but often equate to one month’s rent or a percentage thereof. Some agencies offer a “tenant-find” service, which is less comprehensive and therefore cheaper.
- Monthly Management Fees: These are ongoing fees charged for the continuous management of the property and are usually calculated as a percentage of the monthly rent, generally between 8% to 15%.
- Renewal Fees: If a tenant decides to renew their lease, some property managers charge a renewal fee, which is often a fraction of the letting fee.
- Maintenance Mark-Up Fees: While not universal, some managers may add a mark-up to maintenance and repair costs.
Factors that affect the Cost of Property Management Fees
- Location: Fees can vary significantly across different regions in the UK. Higher charges can often be found in London and the South East compared to other northern parts of the country.
- Service Level: Full property management and Maintenance services cost more than basic tenant finding services.
- Property Type: The size and condition of the property can also influence management costs, with larger or older properties potentially requiring more maintenance and thus higher fees.
Try to maximise the Value for Money
- Negotiate Fees: Don’t accept the first quote you receive; compare different agencies and negotiate to get the best deal.
- Understand What’s Included: Ensure you have a clear understanding of what services are included in any fee structure.
- Look for Transparency: Choose a property management company that offers clear, upfront information about their fee structure and what it covers.
Property Management Fee Examples:
1. Percentage of Rent Structure:
- Monthly Rental Income: £2,000
- Property Management Fee Rate: 10% of monthly rent
Calculation:
Property Management Fee=Monthly Rental Income × Fee Rate
Property Management Fee=£2,000×10%=£200
So, for a property that generates £2,000 in monthly rental income, a property management fee of 10% would amount to £200 per month.
Annual Property Management Fees=£200×12=£2,400
2. Flat Fee Structure:
- Monthly Rental Income: £2,000
- Property Management Flat Fee: £300 per month
Calculation:
The property management fee is a fixed amount, regardless of the rental income.
Property Management Fee=£300
So, regardless of the property’s monthly rental income, the property management fee would be £300 per month.
Long-term Financial Impact
s calculate the annual cost of property management fees for the above examples and compare them to see how they could affect the profitability of a property:
- Percentage of Rent Structure:
Annual Property Management Fees=£200×12=£2,400
- Flat Fee Structure:
Annual Property Management Fees=£300×12=£3,600
Assuming the rental income remains constant, and there are no additional fees (which can vary by property manager, such as setup fees, lease renewal fees, etc.), the choice between a percentage-based fee and a flat fee can have a significant impact on the annual costs of property management. In this hypothetical scenario, the flat fee structure results in higher annual property management costs (£3,600) compared to the percentage of rent structure (£2,400), affecting the overall profitability of the property. This example demonstrates the importance of carefully considering the structure of property management fees in relation to the monthly rental income and the services provided.
Using a property manager can increase your profit by because they monitor the renting market and local legislations.
The primary distinction between a less expensive and a more costly property manager lies in the range and quality of services they offer, directly impacting the Property Management Fees involved. A budget-friendly property manager might provide a basic suite of services, such as tenant screening, rent collection, and maintenance handling. However, these services might be more formulaic and less personalised, potentially affecting the tenant’s satisfaction and the overall profitability of the property, reflecting on the Property Management Fees.
Our Conclusion
Over time, the Property Management Fees associated with a more expensive property manager can be offset by the increased revenue generated from a more profitable property listing. Properties under the stewardship of a high-quality manager tend to attract and retain better tenants who are willing to pay a premium for an enhanced living experience, thereby justifying the higher Management Fees. Furthermore, the strategic marketing and upkeep of the property can lead to a higher property value, making it more attractive in the rental market. Thus, while the upfront Fees might be higher, the long-term financial benefits, including sustained higher occupancy rates and the ability to command higher rents, can absorb and justify these initial expenses. Investing in a premium property management service, therefore, becomes a prudent financial decision, balancing out the Property Management Fees over time.
