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FREE landlord softwareLETTING AGENT OR DIY LANDLORD?
Many landlords use a letting agent just to carry out the initial let. In this section I examine what letting agents do for their money and whether landlords are actually better off doing it themselves.
The Service
Letting agents offer two levels of service to landlords. The first is commonly known as the ‘let only’; the other is a full management service. The former employs the letting agent to carry out the ten basic steps outlined earlier. In essence they:
Produce letting particulars of a landlords property for marketing purposes, part of this involves a rental assessment which gives the landlord an idea of its’ rental value. This rental assessment can be useful for a novice landlord who may not be familiar with the lettings market or a landlord that lives away from the area where the landlord has bought and therefore does not know the local rental market. For experienced local residential property investors, these landlords will know the rents they can achieve and the rental assessment will have little value other than to highlight whether the letting agent ‘knows his stuff’.
Market the property. This can include: producing lettings particulars, internet advertising on their company website, advertising on national letting sites such as Rightmove, inclusion in the company press advertising in the local press.
Conduct the prospective tenant viewings.
Carry out the referencing of the tenant and then provide the landlord with the subsequent tenant assessment by which the landlord can use to make their decision
Provide an up to date Assured Shorthold Tenancy Agreement with which to create the tenancy with.
Take the first rental and deposit payment and pay them to the landlord or the landlords’ nominated account
Carry out the ‘check in’ and ‘handover’ of the investment property to the tenant, including preparing the inventory (they may charge a landlord extra for this)
To find a letting agent visit the Association of Residential Letting Agents site.
The costs of using a letting agent.
This service comes at a price as landlords would expect. Letting agents traditionally charge in one of two ways; both of which relate to the amount of rent payable for the property they let. Either the letting agent charges a fee relating to a multiple of the weekly rent, two weeks plus VAT is typical. Alternatively, some letting agents prefer to charge the landlord a percentage of the rent due for the tenancy contract period. Typically this would be 10% + VAT. This may not sound too excessive, however if the tenant moves out after 6 months the landlord could be facing two sets of charges in one 12 month period. Increasingly, letting agents are charging a fixed fee for their service. This is obviously attractive when a landlord has a higher value let in which case the management fees fall as a proportion of the rent, often to considerably below the 10% or 2 weeks of rent paid used by other letting agents. Letting agents will normally only ever charge the landlord a letting fee if they let the property. However remember that a landlord’s investment property remains empty then this is a cost and therefore a charge in all but name only. Therefore employing a cheap but ineffective letting agent is a false economy for landlords.
Inevitably most letting agents would much prefer landlords to use their full management service. This is because this way letting agents make loads more money out of landlords and guarantee themselves a nice regular risk free income often for doing very little. I go on to explore this in more detail in the next section.
How does the cost of using a letting agent compare with DIY Landlording?
I have carried out an assessment of the relative costs of landlords managing the let themselves as a posed to using a letting agent, the result of which are contained in the table below.
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COST COMPARISON TABLE
| ADVERTISING | AGENT | DIY | |
| 1 | Press only (4 adds) | INC | £40 |
| 2 | Internet add | INC | £30 |
| 3 | Notice board | FREE | FREE |
| 4 | To let board | INC | £30 |
| 5 | Viewings- 4 hrs @ £10 phr | INC | £40 |
| 6 | Admin – 4 hrs @ £10 phr | INC | £40 |
| CASH COST | £460 * | £100 | |
| CASH & TIME COST | £460 * | £180 | |
As landlords can see, taking a rent of £650 pcm ( obviously low for London ) landlords can save over 75% of the cash costs of managing their let if they DIY. Even when landlords factor in their labour, these figures still amount to a well over 50% saving on the letting agents’ fee. This can be even more where rental levels are high. This is because as the DIY costs remain fairly constant, the letting agents’ fee tends to rise in proportion to rent. For instance, say the rent doubled. The letting agent’s fee would also double to £920. The result is that the potential cash savings from a DIY let for a landlord increases to a little under 90%.
It is important for landlords to recognise that letting agents’ fees are all off settable against the profits of a landlord’s rental business when it comes to working out their rental business income tax liability. Therefore, if a landlord’s rental business is profitable, a proportion of these costs will be mitigated by a reduced tax charge.
Why should a landlord employ a letting agent?
There are a number of reasons why landlords employ a letting agent to carry out the initial let of their property.
Time
The primary reason is time. After looking at all the work involved for landlords in marketing a property, landlords are probably wondering whether they want to conduct the process themselves. Landlords lead incredibly busy lives and finding the resources to fully manage the letting of one or more investment properties may mean having to give up some cherished pursuits.
In order to help landlords evaluate the commitment involved, I‘ve prepared a table below illustrating the time involved in each aspect of the process.
DIY MANAGEMENT – LANDLORD TIME IMPLICATIONS
| Step no. | Description | No. hrs |
| 1 | Drawing up a marketing plan | 0.5 |
| 2 | Placing your lettings ad & payment | 0.5 |
| 3 | Setting up rental viewings | 0.75 |
| 4 | Rental viewings | 4 * |
| 5 | Selecting the preferred tenant | 0.5 |
| 6 | References, credit checks | 0.5 |
| 7 | Organising the move | 0.25 |
| 8 | Letting property “hand over” | 1 |
| Total | 8 | |
At about 4 hours, excluding viewings, the time involved for a landlord in a let isn’t huge. Conducting the rental viewings for a landlord is the most time consuming task and also the biggest variable. This is because it is largely dependent on travel. Something, a landlord should consider when purchasing a property; particularly where the landlord intends to manage it themselves. Assuming the landlord conducts the viewings them self, how much time should a landlord allow? I would say in an average market it should take landlords four viewings to get a let. This could vary, by up to 100% either way, depending on market conditions. If each viewing (including travelling) takes one hour, then on average each let should take four. Landlords are therefore looking at approximately eight hours work per let, or roughly one working day. If a landlord’s tenancy lasts an average of say nine months, this works out at about one and half days work per year per property on lettings. It is however possible for landlord’s to reduce the viewing time down to zero!
This is where a good relationship with your existing tenant can pay off. By talking first on the phone to the prospective tenants a landlord should have already found out a little about the prospective tenant; career, background, when the tenant wants to move, etc. All this can be achieved by a landlord without having to meet the prospective tenant by traipsing across town. The great thing about a landlord using an existing tenant is that; as they are about to leave the existing tenant is consequently thinking ‘deposit, deposit’. They’re eager to please. A bit of gentle coercion goes a long way! I’ve learnt that by using the tenant to show prospective tenants around dramatically reduces the time for a landlord spent conducting viewings, possibly to zero.
After this process and the subsequent viewings; hopefully conducted by the landlords departing tenants, the landlord should be left with a number of prospective tenants all desperately keen to rent their property.
As I have mentioned the main drawback of DIY for a landlord is time but there is also the hassle factor. The time as I have shown at between 6-12 hours per investment property/yr maybe not as great as a landlord might have thought. More of a drawback in my view is the inconvenience. The fact is that as a landlord you are always on call and have to respond to the prospective tenant’s requests; particularly during stages 3 & 4 of the letting process. Given that most tenants work, this probably means that the landlord has to be available evenings and weekends. After a hard day at work or on a cold dark winters night, not always what you need!
Advice
Many novice and prospective landlords have asked me if they have never rented out an investment property before, should they really be doing it them self? The whole process of finding a tenant and managing the letting may seem a daunting prospect for landlords. The truth is that it is really not that difficult. Landlords just need to be organised and have a smattering of commercial savvy and as I have demonstrated it is possible to save themselves hundreds, if not thousands of pounds.
However, many landlords, particular novice ones still feel that they don’t really have the expertise to conduct the process themselves. Hopefully after reading this book they will change their mind. There is a huge amount of information and advice on all aspects of letting out property particularly on the internet. Sites such as www.propertyhawk.co.uk take you through every step of the letting process. However, some landlords like the comfort of specific advice tailored to their local rental property. A visit by a letting agent allows a landlord to get personalised advice on the state of their local rental market and other specifics such as whether their property requires redecoration or a new kitchen. This kind of feedback may be seen as invaluable, particular to novice landlords starting out on their ‘buy-to-let adventure’. The first bit of advice a landlord will get is the rental level of their investment property. If a landlord doesn’t know the area that well then this sort of lettings information can be very useful. It is worth noting that this information is generally obtainable by landlords studying local adverts and websites for similar properties to let. One thing for landlords to look out for is letting agents being too bullish in their rental assessment. Like any agent they need to get your business. They also know that quoting a low rent may well mean that landlords are likely to go to another letting agent who is willing to give the figure the landlord wants to hear, regardless of how realistic it turns out to be.
It worth remembering that if a landlord is unsure or worried about the rental level to set, there is nothing stopping a landlord getting a free rental assessment from a letting agent and then still opting to DIY.
There is rightly a perception by landlords that with the introduction of new bits of legislation such as HMO licensing and the Tenancy Deposit Scheme (TDS) that being a landlord is becoming more complicated. This all adds to the feeling amongst some landlords that they are ill equipped to deal with the technicalities of modern landlording. This is not true. The reality is that a little bit of time and research should equip landlords to deal perfectly adequately with most of the issues that are likely to a rise.
Marketing
A letting agent will normally handle all aspect of the marketing. This is one less thing a landlord and property investor to worry about. The letting agent should know how much to charge in rent and how best to advertise their rental property. After all they have a shared interest with the landlord in getting the investment property let. However, it’s always worth landlords remembering that it is not the letting agent that is ‘forking out’ for the mortgage payment each month. Therefore sometimes landlords can be left with the feeling that the letting agent is not working as hard as they could to secure a let for their investment property. This will be particularly the case when there is a glut of rental properties on the market. In this scenario, letting agents are probably still letting property and making a living; unfortunately it may be you as the landlord whose investment property is getting left on the shelf. Make sure that you as the landlord monitor their performance and if the letting agent is not getting viewings the landlord will need to chase them to ensure that they are ‘pushing’ your investment property to their tenants. In this case a discussion with the letting agent to establish what is going on is invaluable. Is it the rent; are tenants put off by the poor state of the kitchen? Decisive and prompt action by a landlord should ensure that they avoid the hardship of a prolonged rental void. It may transpire that the real problem is that the rental valuation that the letting agent originally gave was too ambitious and that this has meant that the letting agent is failing to get the numbers of viewings necessary to obtain a let.
One of the big marketing advantages for landlords of using a letting agent is that many of them are signed up with Rightmove, the no.1 property marketing site. This means that a landlord has access to the highest numbers of potential tenants not only nationally but in effect world wide. Only letting agents and not private advertisers are allowed on the site. Therefore, the use of a letting agent that uses Rightmove will give the marketing of a landlord’s investment property an important boost.
Form filling
Some landlords have an aversion to form filling, me included. The letting process unfortunately does involve an element of paper pushing and it is important that these letting forms are completed correctly. The letting agent provides the landlord with an up to date and completed Assured Shorthold Tenancy agreement. The letting agent should also prepare an Inventory. It should be noted that with the introduction of the Tenancy Deposit Scheme, this document and its’ preparation has taken on a greater importance. The result is that more letting agents are either charging for their preparation or outsourcing this to specialist inventory clerks. The charges in both cases can be passed on to the tenant.
The reality is that both the Tenancy Agreement and the Inventory are fairly straightforward to fill out. They are also available to download for free off the www.propertyhawk.co.uk website.
Despite this, some landlords feel reassured that having the letting forms provided and completed by professionals will insure them against problems with the tenancy. Some landlords may be shocked to discover that this isn’t always the case as I go on to explain in the next section.
Management
Some landlords are genuinely wary of their tenants. They don’t like dealing with tenants; in which case employing a letting agent is an ideal way of sheltering from direct contact with the tenant. Personally I have always preferred to meet the tenant. To me there is a certain comfort in giving them a once over before a landlord yields up their beloved investment property to the tenant.
A positive of employing a letting agent is that they do act as a filter of some of the ‘poorer’ quality letting applicants. This is because many letting agents require either a registration fee or they charge the tenant for arranging the letting. This means that ‘scammers’, opportunists and those on benefits are less likely to come through a letting agent. Obviously if the landlord is specifically aiming at these tenant groups it is important to realise that in using a letting agent this may exclude a proportion of their potential letting ‘pool’.
One attraction of a landlord dealing directly with the tenant rather than through a letting agent is that they can act incisively. For instance, the landlord likes the look of the tenants. The tenants are setting up home for the first time and need a sofa. The landlord can make a snap decision. Do they yield up the opportunity of receiving £7000 in rent and incur an additional £80 in advertising costs; or do they spend £200 on an Ikea sofa? I know what I’d do. If left with a letting agent, the letting agent is likely to follow their instructions which were that the property to let is only available part furnished and the investment property therefore remains un-let.
Many landlords, especially if they only have one investment property have a strong sense of ‘ownership’ of their investment. Therefore, the landlord wants to be involved in every aspect of property management and they are uncomfortable about ceding this responsibility to others. In light of the previous section and the issues raised landlords need to ask themselves honestly; where do they stand in the spectrum of management control? Does the landlord want to have complete control and manage the letting them-self or would they prefer to have very little direct involvement relying instead on the abilities of property professionals. The willingness of a landlord to hand over the management of their investment property is likely to depend in part on the quality of the local letting agents. If a landlord has a reliable local letting agent, then they will probably be more willing to give up an element of control.
Ultimately it’s important to understand that when landlords employ somebody else to manage their investment property it means that they relinquish control to somebody who will always be less committed to the success of their residential investment than they are. Primarily on a ‘let only’ a letting agent is concerned with getting a tenant in. Providing the tenant passes the requisite tests the letting agents are quite happy because ultimately the tenant will be the landlords’ problem. Landlords should be aware of this.
Quality control is a big issue for landords. Aspects of the quality of the letting agent’s service
are not always apparent until after the tenancy has begun. For instance, what types of credit and referencing checks has the letting agent carried out? Have a look at the section later on how landlords can vet their tenants to see what checks should have been carried out. When the letting agent tells the landlord that the tenants are ‘fine’, landlords need to make sure that they know what this means and what checks the letting agent has employed. Equally, landlords should look at how thorough the inventory they have completed is. Will it stand up in court or to a process of arbitration? Does the letting agent really notify the utilities of the new tenants’ details and the meter readings. All these aspects can be overlooked by a letting agent and landlord; the former who wants their fee, the landlord who is just relieved that they have a tenant. As a landlord, make sure that the letting agent delivers the level of service they promised when they were originally looking for your business.
What do I do?
For many years, I’ve managed the letting process and found it to be a rewarding activity. Recently I’ve tended to employ a letting agent on a ‘let only’ basis.
I’ve concluded that having a portfolio, delegating the letting work to another party makes sense for me in that it saves time and shifts the responsibility to somebody that I trust to do a reasonable job. I still employ the ‘twin tracking’ technique if I feel that a let is starting to drag, although the tendency is that my agent will ‘beat me to it’ by letting the property before I do. To me this justifies the money I pay him.
Where DIY does really make sense to landlords is if they have a single or couple of properties. Then the landlord can really focus their efforts and time into micro managing the whole letting process properly. Under this scenario there is clearly a lot of money to be saved. On top of that, it is likely the landlord will do a better and more comprehensive job than any letting agent. The result is that a landlords’ investment will be more secure and their returns greater than if they had employed somebody to do it for them.
Accelerated possession - Section 21 Notice
Non payment of rent
The Tenancy Deposit Scheme ( TDS )
How to prepare a property inventory
Grounds for possession of a rental property
Gaining possession - using a Section 21 Notice
Fair wear and tear on a rental property?
Tips for a landlords tax return
A landlords tax liabilities
Responsibility for repair and maintenance
Length of a tenancy
Section 21 Notice
Possession - Section 8 Notice
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FORMS FOR LETTING PROPERTY
TENANCY AGREEMENT (AST)
TDS - SECTION 213 NOTICE
INVENTORY
SECTION 21 NOTICE
SECTION 8 NOTICE
TENANCY GUARANTOR FORMS
FINANCE AND TAX ON RENTAL PROPERTY
INCOME TAX
CAPITAL GAINS TAX
LANDLORD INSURANCE
INVESTMENTS
OTHER BTL FINANCE
BUY TO LET MORTGAGES
RENTAL PROPERTY REGULATIONS
GENERAL SAFETY
GAS SAFETY
ELECTRICAL SAFETY
FURNITURE AND FURNISHINGS
FIRE SAFETY
TV LICENCES
HMO (HOUSE IN MULTIPLE OCCUPATION)
TENANCY DEPOSIT SCHEME (TDS)
ENERGY PERFORMANCE CERTIFICATES
INVESTING IN BTL PROPERTY
WHAT TO BUY
CALCULATING RETURNS
FINDING PROPERTY
SELECTION STRATEGY
INVESTMENT CHECKLIST
PROPERTY AUCTIONS
BMV PROPERTY
BUYING OFF PLAN
BUYING APARTMENTS
BUYING HOUSES
BUYING HMO'S
ALTERNATIVES
KNOWING THE RISKS
INVESTMENT CLUBS
RENTAL TYPES
MANAGING YOUR RENTAL PROPERTY
MAINTENANCE
APPLIANCES
LANDLORD ASSOCIATIONS
TENANT ABANDONMENT
NON - PAYMENT OF RENT
GETTING YOUR MONEY BACK
THE TENANT WONT MOVE OUT
THE TENANT DOES A BUNK
SQUATTERS
RAISING THE RENT
REDUCING THE RENT
REPAYING THE TENANCY DEPOSIT
DAMP, MOULD AND CONDENSATION
LETTING RENTAL PROPERTY
PROPERTY MARKETING
WRITING A LETTING ADVERT
FURNISHING A PROPERTY
LETTING AGENT OR DIY
SELECTING A LETTING AGENT
VETTING TENANTS
PREPARING AN INVENTORY
PROPERTY HANDOVER
THE DEPOSIT
TERMS OF A TENANCY
LENGTH OF A TENANCY
RESPONSIBILITY FOR REPAIR AND MAINTENANCE
TENANCIES IN SCOTLAND
ALTERNATIVE TENANCIES
LEGISLATION ON LETTING PROPERTY
INTRODUCTION
ARBITRATION
ALTERNATIVE DISPUTE RESOLUTION
TRIBUNALS
HOUSING ACT APPEAL DISPUTES
THE LANDS TRIBUNAL
RIGHTS OF LIGHT APPLICATION
APPEALS FROM LEASEHOLD VALUATION TRIBUNALS (LVT's)
POSSESSION PROCEEDINGS
POSSESSION - SECTION 8 NOTICE
POSSESSION - SECTION 21 NOTICE
SECTION 21 TIMETABLE AND PROCESS
N5B POSSESSION
POSSESSION ORDERS
GROUNDS FOR POSSESSION
LEASEHOLD DISPUTES
HARASSMENT BY LANDLORDS
RENT DISPUTES BETWEEN LANDLORD & TENANT
FAIR RENT (RAC)
MARKET RENT UNDER AST
LEASEHOLD VALUATION TRIBUNALS
MODIFICATION OF RESTRICTIVE COVENANTS
Jane
Be careful with Rent Guarantee schemes. Some are just insurance and there will be a primuim to pay, while others are in fact "Whole Term" tenancy agreements where the letting agents will rent the property from you for the entire term and the sub-let at their own rent. You will effectively lose control of the letting and the property. Obviously, the rent the agent will offer you will be considerable less than the market rent to allow for their fees and charges to be collected direct fromt he tenants they introduce.
I'm owed now about £4000 by the tenant as they haven't paid any rent for months and were in arrears during a period prior to that. I have served a section 8 notice on the tenants who should be leaving in June. They have no money so a court battle seems pointless. I have an agent who has just sent me a bill for over £450 for their fees. If I haven't received rent, is it fair that I should pay their fees, especially since they have not done much to recover the rent?
Does a landlord need to continue paying a fee to the letting agent each year if the same tenants rent the property in subsequent years? Can an agreement with the letting agent be terminated and the same tenants deal directly with the laandlord the following year?
#5 - N Smith - 05/10/2012 - 20:27
Question?
Subsequent years
Does a landlord need to continue paying a fee to the letting agent each year if the same tenants rent the property in subsequent years? Can an agreement with the letting agent be terminated and the same tenants deal directly with the laandlord the following year?
thanks
Steve