How To Start A Property Management Company

The property markets are big business these days, which makes them a potentially lucrative business to get into, whether as a side hustle or a full time business. The demand for rental properties is on the up and landlords are seeking out property management companies to manage their property investments for them.

If you’re thinking about getting involved in starting your own property management company, this article will guide you through the process, from how to start the business to what to charge for your services.

What Is A Property Management Company?

A property management business looks after both commercial and residential properties on behalf of property owners and landlords. Typical property management services include:

• Finding tenants: advertising for new tenants and screening them.

• Tenant management: handling tenants’ queries.

• Collection of rent: ensuring tenants pay rent on time.

• Legalities: ensuring all UK regulations are followed (smoke and monoxide alarms etc).

• Maintenance: handling tenant requests for repairs and instructing maintenance firms to make the repairs.

Legal Responsibilities Of A Property Management Company

In order to protect tenants and property owners, there are several regulations that must be adhered to:

• ICO Registration: for GDPR compliance, you must register your property management company with the Information Commissioner’s Office.

• Client Money Protection (CMP): these schemes are mandatory and are available from different providers (Client Money Protect, Money Shield, Propertymark etc).

• Tenancy Deposit Protection: under UK government legislation, tenants’ deposits must be placed in an approved protection scheme (MyDeposits, Deposit Protection Service, Tenancy Deposit Scheme).

• Redress scheme: Government legislation requires you to be a member of an approved redress scheme (The Property Ombudsman or The Property redress Scheme). These schemes handle any complaints between you and tenants that can’t be resolved.

• Electrical safety: electrical installations have to be inspected at least every five years.

• Energy Performance Certificate (EPC): any house for sale or rent must have a valid EPC. An Energy Performance Certificate is valid for 10 years.

• Gas Safety Certificate: also known as a CP12, this is required for rental properties and is carried out by a registered gas engineer on an annual basis.

• Alarms: you must ensure any rented property has the required smoke alarms and carbon monoxide detectors.

Business Type

Your property management company will need a legal structure in order to trade:

Sole Trader

• Easy to set up but you’ll be personally liable for any debts.

• Better suited to small and independent businesses.

Limited Company (LTD)

• The majority of property management businesses are LTDs.

• A limited company is a separate legal entity that protects you from personal liability.

• As income grows, LTD companies are more tax efficient.

Partnership

• Applicable if there are two or more of you running the business.

• Shared profits (and liability).

Register Your Property Management Company In The UK

As most property management companies are limited companies, let’s look at the business registration requirements for that.

Register with Companies House

Registering with Companies House is a legal requirement in the UK. You’ll need to provide them with the following information:

• The business name

• The business address

• Details of the directors

• Details of any shareholders

Taxation

• Corporation tax: as a limited company you must pay 25% tax on profits.

• Statutory registers: company records that detail company structure and key personnel.

• Accounts: you must submit annual accounts and confirmation statements.

• VAT: if your income exceeds £90,000 you’ll have to register for VAT.

Operational Set Up

You’ve registered your property management company, so now it’s time to look at the logistics of the business.

Office

• If your starting budget is small, consider working remotely or using a small office.

• You could save some money by using serviced offices or coworking spaces.

Property Management Software

Consider using software tailored to the property management industry. Most offer features that can streamline your business, allowing you to manage tenants, properties, compliance and finance:

• Landlord Studio: heavily focused on the finance element. They offer three packages that range from free to £24 per month.

• Arthur Online: offers the complete package from finding tenants using integration with Zoopla and Rightmove to a repairs and maintenance platform. Packages vary from £70 to £126 per month.

• Landlord Vision: aimed at small to medium property management companies. Packages range from £19.97 to £84.97 per month.

Operating Processes

Whilst most of the property management software available can manage a lot for you, you may choose to keep things in-house. If so, you need to think about the following:

• Onboarding tenants: you’ll need a seamless process for screening tenants, handling contracts and arranging moving-ins.

• Repairs and maintenance: arrange for local businesses or handyman services to handle all the repairs and maintenance for the properties on your books.

• Reports: find software that will enable you to track income and expenditure and also provide annual financial reports to customers.

Marketing Your Property Management Company

Provide a Unique Selling Proposition (USP)

• Define what makes you different from other property management companies (low commission, support 24/7, dedicated property manager etc)

Create a Website

• Have a dedicated property section to list all available properties.

• Provide a search feature so potential customers can look for property specifics (location, number of bedrooms etc).

• Include a customer review and testimonial section.

• Add a blog to increase your SEO rankings and include industry news.

• Offer an email alert service so customers get notified about new listings that might suit their requirements.

Use Property Portals

In addition to listing properties on your own site, utilise property portals such as:

• Zoopla

• Purple Bricks

• Rightmove

• OnTheMarket

Industry Networks

• Join property management bodies such as the Association of Residential Managing Agents (ARMA), the Institute of Residential Property Management (IRPM) and the UK Association of Letting Agents (UKALA).

• Attend any local property type events for industry updates and to network with people who may be able to complement your property management business.

Offer Incentives

• Consider offering reduced management fees to new customers for a set period.

How Much Do Property Management Companies Charge?

The prices you can charge for a property management service will vary according to your location, what service you’re providing and the rental income of a property.

It’s important that you offer value for money so you would expect your duties as a property manager handling a fully managed service to be:

• Screen potential tenants

• Manage all the contracts and legalities

• Collect rent

• Arrange repairs and maintenance

• Communicate with landlords and tenants

So, what should you be charging for your services?

Fully Managed Service

This service generally commands the highest charge and can range from 10-15%.

In England, the average cost of renting is £1,276 per month. Therefore, the minimum you would expect to be charging is £127.60 per month and could range up to £191.40 per month.

The average rent paid in Scotland, Wales and Northern Ireland is slightly less.

Tenant Find Only

This service usually involves the following services:

• Marketing the property

• Arranging viewings

• Screening references

• Creating tenancy agreements

This type of service is usually a one off payment and a typical cost is 8% of one month's rent.

Tenant Find and Rent Collection

This service involves everything that the tenant find only service does, but you collect the rent from the tenants as well. This can be on a weekly or monthly basis.

This service can be charged at up to 10% of the monthly rent.

Property Management Service Tips

• Create a good brand: having a brand that is reputable and recognisable will have a big impact.

• Utilise technology: make use of property management software to improve efficiency.

• Remain compliant: stay up-to-date with UK property regulations.

• Prioritise customers: great customer service will build trustworthy relationships and enhance your reputation.

Pros And Cons Of Running A Property Management Company

Pros

• Consistent income: property management provides recurring revenue from monthly management charges. This helps with predicted income streams.

• Demand: people have such busy lives these days that they rarely have time to manage property portfolios. This means the demand for good property management services continues to grow.

• Low startup costs: obviously there will be set-up costs and ongoing expenses, but compared to buying and managing properties directly, it’s considerably less.

Cons

• Difficult tenants: unfortunately, it’s unavoidable that you will meet challenging tenants. You will need good communication and resolution skills at times.

• Stiff competition: property management can be a fiercely competitive industry so you must ensure you can offer something different to your competitors.

• Regulatory compliance: if you are running a fully managed service, it’s your responsibility to be aware of any laws and make sure every property adheres to them.

Conclusion

Starting your own property management company isn’t a walk in the park. It requires a lot of planning, marketing and adherence to regulations. However, by following the guidance in this article, there’s no reason it can’t be a rewarding and profitable experience.

Given that you can scale the business to any size you wish, how much time you dedicate to your new venture is up to you. That said, if you’re looking for a side hustle more than a full-time venture, you might find other possibilities suit you better. For example, you could try domain flipping, social media management, or even Matched Betting.