Setting up a private syndicate to invest in UK property: What fees can you charge for your efforts?
What fees are legitimately charged in this structure and where are they documented?
2 February 2015
If you are thinking of setting up a self-managed private syndicate to invest in commercial or residential property then you may be thinking of how your time and efforts could be rewarded. After all, your co-investors wouldn’t be investing in these specific properties without you, and you may be incurring time and money in administering the arrangements. So what fees are legitimately charged in this structure and where are they documented?
Fees we commonly see charged are:
1. Property sourcing fees: pretty straightforward, a flat fee per property or percentage fee by value can be charged for finding the property or properties involved.
2. Development management fees: these may cover matters such as project managing the purchase, refurbishment work, and sale of the property; working with a number of advisers such as accountants, tax advisers, valuers, planners and solicitors; and the general corporate administration of the syndicate (depending on the structure, and what services are outsourced). The fees may be a fixed, one-off or monthly amount. Alternatively, they may be expressed as a percentage – for example, of the gross development value or of the build costs incurred.
3. Letting fees: if the syndicate’s investment strategy involves letting the property for any period of time, then the syndicate members may want you to arrange and manage the tenancies. As for lettings agencies generally, the fees involved are usually expressed as a percentage of gross rental income.
4. Performance fees: ultimately, as the syndicate coordinator, project manager, property manager and general facilitator of the arrangements it is legitimate for you to be rewarded for the overall performance of the venture. In the context of self-managed syndicates, any performance fees are usually kept as simple as possible – often, just a percentage of net profits before tax. What arrangements you put in place is a commercial decision for you and your co-investors, reflecting the work involved and influenced by the margins syndicate members are looking to achieve.
The fee arrangements described above may be set out in a syndicate agreement between members if the person undertaking the various services for the syndicate is also a member. If, however, a separate entity is acting as ‘property manager,’ the fees payable to that entity would usually be specified in a separate property management agreement which would also govern that appointment. It is important to note that the fee structure should be clearly agreed between the syndicate members as this structure is generally for people who already know and trust each other and this will help to avoid any potential conflict on realisation of the investment.
Need some help?
If you would like to know more about how to set up a self-managed property syndicate, this is a great place to start: