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Managing your properties is a huge part of being a landlord. Aside from the governmental red tape, you have tenants to look after, finances to keep on top of, various expiring certificates and insurance to be aware of and more besides.
Property management comes with associated costs. If you’re not paying someone to do it for you then the cost is in time lost to your administrative responsibilities. So, in this post, we’re looking at how much you should pay for property management both in terms of time and money.
Why Pay for Property Management?
This seems a weird question to ask because it assumes that there isn’t always a cost, but there is. This is something many don’t understand about property management. Even if you’re not paying someone to do it for you there are costs in terms of time spent managing.
There are ways you can reduce the time you spend managing your properties. For instance, using a dedicated property management or accounting software will reduce your admin time, especially vs something manual like a spreadsheet. But these spreadsheets aren’t usually free either and those that are free tend to represent less of a time saving because they will only be able to do half the job. You’ll likely still find yourself using other systems that you need to pay for or using manual systems alongside the free ones to stay on top of everything.
Why Pay for Landlord Software?
If you want to reduce the time you spend on admin a dedicated landlord software will help you do that. While there are free versions on the market, you’ll find that they aren’t as comprehensive as the paid versions, and you’ll likely still need to do some manual admin to cover the parts of your business that are not handled by the free software.
Another reason to pay for landlord software is because of the low cost. Paying for property management software is cheaper than paying for a letting agent, so if you’re a seasoned landlord and you have experience managing properties then it’s a logical next step from any manual system you’ve been using.
The costs of landlord software are tax-deductible and represent a massive cost saving over a fully managed service. The point of them is to reduce the time it takes you to do almost anything. Essentially, they’re your landlord brain – everything all in one place, no separate systems, no jumping around, just log in, do what you need to do, and log out.
Another reason to use a paid for landlord software is because it helps to fund innovation in the product that you’re using, meaning you will be getting software that can and will keep up with industry standards.
You’ve likely heard the quote “If you’re not paying for the product, you are the product” and this isn’t exactly wrong. Free software must be funded somehow. This is usually done by selling customer data or selling ad space within the software you’re using. Either that or there is a free plan that is very limited in what it allows you to use in the hopes that you’ll see how effective it is and will eventually upgrade to a paid plan. So free software is generally a fallacy that you pay for intangibly in the end. A paid for software doesn’t have to sell your data, or place ads within your software, or throttle your features just to get you to pay. Software providers who charge for their products generally re-invest profits into continual development. So generally paid for software represents better quality, more features, and consistent development.
Why Pay Letting Agents or Property Managers?
Simply put there are no free letting agents or property managers! So, the only option is to pay for them. However, the question really is whether they’re worth it.
It is perfectly legitimate for landlords to manage their own properties, but there are also many reasons you might not want to. If you’ve done the maths and figured out that you can earn a lot of money per hour doing something else, it stands to reason you’d rather pay someone less than that amount per hour to manage your properties. For instance, if in your day job you earn £20 per hour but a managing agent charges £10 per hour, you’re better off spending your time in work and paying the managing agent to manage your portfolio. This maximises your earning potential by ensuring that the available time you have in which to work is spent making the most money.
If you have a particularly large or complex portfolio and you’d struggle to manage it all yourself then a letting agent or property manager is worth the money to help you keep on top of things.
If you’re new to being a landlord, a letting agent or property manager can help to support you while you figure things out for yourself and decide how you’d like to manage properties in the future. So, there are many reasons why you’d pay for letting agents or property managers to handle your portfolio.
Do You Have to Pay for Property Management?
As we touched on earlier, you can self-manage your property portfolio yourself for no monetary cost. If you opt to use a spreadsheet and diary system along with other free tools, then you can technically manage your properties for free. However, the cost isn’t always monetary.
If you opt to manage your properties in this way, it will take time. You will find that you have to spend time managing your paperwork, filling in your spreadsheets, maintaining your diary system, dealing with tenants, etc. This is time you can’t spend doing other things.
This is where you have to assess whether it’s better to sacrifice time or money to property management. If your time is valuable and you could spend it better elsewhere then it’s worth looking into software or letting agents. If you have a lot of spare time and don’t mind spending it managing your properties, then you can likely use time to pay for your property management instead of money.
How Much do Letting Agents Charge Landlords for Property Management?
There are different types of services offered by letting agents and the type of service you opt for will determine how much you pay.
Different Types of Letting Agent Fees
We’re not going to cover this in too much detail here because we’ve previously written an in-depth article covering the different types of letting agent services available and the fees letting agents may charge.
Typical Estate Agent Fees
If you opt for a fully managed service, where the letting agent does absolutely everything, you’ll likely be looking at paying 10-15% of your monthly rental income.
If you opt just for a rental collection service where the letting agent collects rent but you do everything else, you’ll typically be looking at around 5% of your monthly rental income in fees.
If you opt for a tenant finder service, it’s usually a one-off fee that ranges between £50-£150 per tenant find.
Online vs Highstreet Letting Agent Fees
You will typically find that online letting agents charge lower fees because they have lower overheads. They don’t usually need to maintain shop fronts and so the costs of doing so aren’t passed on to the customer. There are pros and cons to using online letting agents which we have covered in depth in a separate article.
What are the Pros of Paying Someone to do Your Property Management?
The obvious benefit of paying someone to do your property management is that you don’t have to do it.
In the last few years there has been a whole raft of legislation introduced into the private rental sector with the aim of making it safer for renters. This has made it more difficult for landlords to remain compliant with the legislation as there is now so much to consider and keep on top of for every single tenancy. If you use a letting agent or property manager there is much less chance of you forgetting something important. It doesn’t mean that you’re absolved of all responsibility though as it is down to you to ensure the letting agent is doing their job properly. Ignorance is no defence in the eyes of the law. However, good, well established, and registered letting agents should cover all of these bases for you.
If you’re a new landlord, it can be especially difficult for you to come to grips with everything you need to do to manage your properties. Using a letting agent for a few months will give you time to get used to everything and will likely teach you quite a bit about how tenancies, tenants, and properties are managed if you’re keeping on top of what the letting agent is doing for you.
What are the Cons of Paying Someone to do Your Property Management?
The most common gripe landlords have with letting agents is the expense. When you’re talking fees as a percentage it doesn’t feel as tangible as an actual pound sign number. Then when the bill comes due it’s clear that the costs are quite high.
For instance, if the rent on your property is £650 a month and your letting fee is 12% which is about the median fee, you’ll be paying £78 per month in fees. This is quite a lot over the course of a year, especially when you compare this with landlord software which will average out somewhere between £5-20 per month for a single tenancy depending on the provider and the plan. Also, this cost is on a per property or tenancy basis so the more properties or tenancies you want the agent to manage, the higher the fees.
The second biggest gripe with letting agents is that they don’t always do the job to the same standard that you would. When you’re looking after your own properties, you’re familiar enough with the numbers to be able to make efficiencies. You know what all your expenses are because you manage your own finances and so you’re able to look for cheaper options and cost-saving opportunities.
If a letting agent manages this side of things for you, they’re likely using their own contractors, not shopping around for you, and finding the cheapest prices. No one wants to see your property portfolio grow and become more profitable than you do. So, when you use a letting agent, if you’re not also keeping an eye on the bottom line and finding your own contractors etc, then the chances are you’re leaving money on the table. However, if you’re self-managing you’re more likely to be optimising your profit as you go along.
Tips for Outsourcing Property Management
If you do decide to pay someone to do your property management, there are a few tips that can help you find the right option for you.
- Shop around. Don’t just accept the first property manager or letting agent you come across. Get quotes from different letting agents and property managers and compare what each one will do for the fee they have quoted. Just like you would if you were finding a contractor to do some work in your properties.
- Look for someone who will work in the same way that you do. If you prefer face-to-face communication, then look for a Highstreet letting agent that you can talk to face-to-face. If you prefer email or text or phone communication, find a letting agent who will communicate with you in that way and at the frequency you would prefer.
- Look for a registered letting agent or property manager. Letting agents should be registered with trading standards, so you can search the trading standards site for registered agents. You can also search the UK association of letting agents. Finding registered agents lowers your risk of hiring a bad or fraudulent agent.
- Read reviews. If you can’t find any reviews for a letting agent online, it isn’t a good sign. Look for reviews for the letting agents and see what others say about their services. Look specifically for independent reviews, i.e., those collected through a reviews service or reviews that are verified rather than just words that are typed onto their website.
- Take recommendations from other landlords.
What Fees are Associated with Doing Your own Property Management?
When it comes to doing your own property management, any costs are likely going to be software-based. The costs when it comes to self-management range from no money but a cost in time through to however much money you want to spend on software. Then there are the fees for using an accountant.
Typical costs of landlord software range from £5 to £70 per month though you will likely find examples that fall outside of this range. The cost will also depend on how many features you want and how many tenancies or properties you want to manage.
What are the Pros of Managing Your own Properties?
Managing your own properties tends to be cheaper than using a letting agent. Even if you opt to use software it isn’t usually going to cost you as much as 15% of your monthly rental payment to do so!
Managing yourself means that you get to manage your properties in the way you want them managed. So, the service you deliver to your tenants, the frequency of property maintenance, the costs you pay contractors, and the contractors you use are all firmly within your control. This usually makes it easier to grow your profits and optimise your business model until you get your business working just as you want it to.
What are the Cons of Managing Your Own Properties?
The cons are undoubtedly the amount of time it usually takes, though some of this can be mitigated with software. If you’re a more experienced landlord, it probably won’t take you as much time as it would a new landlord.
Keeping on top of legislation and all your obligations is undoubtedly difficult for self-managing landlords. If you’re quite an organised person though and you use software and keep abreast of changes within the sector this won’t be as much of a disadvantage.
