Letting Agent or Diy Landlord?
Should I manage my rental property?
Not all property investors are interested in being a landlord. The thought of actually dealing with all that property maintenance and tricky tenants make some sigh with the indignity. The fact is, not everyone is suited to being a landlord. All rental properties needs to be managed, and if a property investor doesn’t want to do it, then they need to find a letting agent who will be expert in finding good tenants.
A landlord is on constant call, many find themselves leaning over someones elses blocked sink on a Sunday morning, pummeling away with a plunger. It’s understandably not to everyone’s taste. However, before a property investor rings their local letting agent, they should take a minute to consider their options.
Managing a rental property doesn’t have to be that much work, and sometimes, if you’re lucky, you won’t hear a peep from a tenant for the duration of the tenancy. Now, imagine. you could of been paying out a ten percent of your rent to a letting agent, for doing ‘diddly squat’!
So, before deciding to handover the property management responsibility, let’s just examine what letting agents do for their money and how much should you pay for letting agent fees? You might decide that you’re better off doing it yourself. If you do decide to use one then these are questions to ask a letting agent before engaging their services.
The services of a letting agent & an online letting agent
Letting agents typically offer two levels of service to landlords. The first is commonly known as the ‘let only’; the other is a full management service. Increasingly online letting agents are being use by landlords who specialise in getting a rental property on one of the major property portals such as Rightmove or Zoopla and will carry out the let only services 1 – 4 outlined below.
A ‘let only’ service will mean a letting agent will typically:
1. Produce the letting particulars for the rental property. They will help with making a rental assessment which will be useful for a novice landlord not familiar with the lettings market. An experienced landlords will already have a pretty good idea of the rents they can achieve, but it will at least highlight whether the letting agent ‘knows their stuff’.
2. Market the rental 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.
3. Carry out the referencing of the tenant. Providing the relevent checks so a landlord can make a decision
4. Provide an up to date Assured Shorthold Tenancy Agreement.
5. Take the first rental payment and the rental deposit payment.
6. Conduct the prospective tenant viewings.
7. Carry out the ‘check in’ and ‘handover’ of the rental property.
8. Prepare a property inventory /schedule of condition (this may come with an extra charge)
Which letting agent should I use?
If you do decide to use a letting agent and as I go on to point out you really don’t need one with the raft of online letting agents. I’ve managed for years with and then without a letting agent. However, if you do use a letting agent and there are advantages as I outline below which letting agent should I use?
Clearly, like any service there are letting agents and letting agents! Price is clearly a factor and as I’ve said you can pay anything from 8% (not really sustainable to 18% (ridiculous!) of your gross rent. But cheapest doesn’t make it cheap. Look out for hidden fees and also read the contract to find what is included in the service. Quality, can be priceless. If the letting agent is well respected and has good contacts in the local area then the fact that they charge a little more for their services will be well worth it. Reliability is often priceless to busy landlords. So do your research and ask lots of pertinent questions and you will get the letting agent you deserve!
To find a letting agent visit the Association of Residential Letting Agents site.
The costs of using a letting agent
Letting agents traditionally charge in one of two ways; both of which relate to the amount of rent payable. 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.
Now, 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, but remember, if the property remains empty then this is a cost and therefore a charge in all but name only. Its worth noting that employing a cheap but ineffective letting agent is a false economy for landlords.
Obviously letting agents would prefer landlords to take their ‘full management service’, as they’ll make a guaranteed regular risk free income, often for doing very little work.
How much money can I save by not using a letting agent?
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.
COST COMPARISON TABLE
|1||Press only (4 adds)||INC||£40|
|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|
* figure based on rent of £650 pcm & standard let only fee of 10% of rent on assumed 6 month rent + 17.5% VAT (rounded up)
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 tax liability. Therefore, a proportion of the letting agent’s costs will be mitigated by a reduction in any tax charged on a landlord’s profits.
Using a letting agent saves time
The primary reason is time. After looking at all the work involved for landlords in marketing a rental 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|
* possibility of reducing it to zero
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!
Letting agents should be able to give a landlord 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 Houses in Multiple Occupation 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.
Letting agent are better placed to market a rental property
A letting agent will normally handle all aspect of the marketing of a rental property. This is one less thing a landlord will need 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 to get the it 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, unfortunately, yours may be getting left on the shelf. Make sure to monitor their performance, and if the property is not getting viewings, chase them up and insist ‘push’ your property. Have a discussion with the letting agent to establish what is going on. Is the rent too high? 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 most are signed up with Rightmove, the no.1 property marketing site. If they’re not, don’t use them. Rightmove is the biggest property marketing site so you want your rental property on there.
Help with letting forms and agreements
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 a property 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.
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.
Letting agents will take control
Some landlords are wary of their tenants. Employing a letting agent is an ideal way of not having direct contact with tenants. Personally, I have prefer to meet my tenants. To me, there is a certain comfort in giving them a once over before a handing over the keys to my precious property.
A positive of employing a letting agent is that they do act as a filter, cutting out some of the ‘poorer’ quality letting applicants, that a landlord might have to sift through if they were advertising in classified adverts. This is because many letting agents require either a registration fee or they charge the tenant for arranging the letting. This cuts out ‘scammers’, opportunists, and many tenants on benefits, who are less likely to register through a costly letting agent. Obviously, if the landlord is specifically aiming at benefit tenants they need to realise that in using a letting agent this may exclude a proportion of their potential letting ‘pool’.
The advantages of dealing direct with the tenant, rather than through a letting agent, is that a landlord 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 is only available part furnished and therefore it remains un-let.
Many landlords, especially those with a single investment property, retain a strong sense of ‘ownership’. They want 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 or would they prefer to have very little direct involvement, relying instead on the property professionals.
Ultimately, it’s important to understand that by employing somebody else to manage their rental property, they are relinquishing control to somebody less committed to the success of their residential investment than maybe they are. On a ‘let only’ basis, a letting agent is concerned with getting a tenant in, and providing the tenant passes the requisite tests and tenant referencing checks they will get their commission, any subsequent issues with the tenant is not their problem. Landlords should alway remember this.
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? 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 thoroughly the property inventory was completed. Will it stand up in court or a process of arbitration? Does the letting agent really notify the utility companies of the new tenants’ details and the meter readings. The landlord needs to monitor the level of service is the same as a letting agent first promised and doesn’t start to slip over time. Simply put, don’t trust your letting agent, however smiley and nice they might appear. Remember it’s their job to be nice to you.
Do you use a letting agent?
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.
Letting agent renewal fees
In recent years the spotlight has been placed on the practice of letting agent renewal fees.
This is a controversal topic where landlords have claimed to having been misled or at the very least not been fully informed. Most recently the Conservative government of Teresa May is bringing in legislation to ban letting agent fees for tenants. The reality for all services including that of letting agents is that they do provide a valuable service (if they didn’t they wouldn’t exist) and based on this logic somebody has to pay whether this is landlord or tenant. Some people have forcast that the days of office based letting agents just like estate agents is limited as disruptive technology means that everything can be done online leading to internet letting agent businesses such as Letting A Property. Time will tell!
More useful stuff on using letting agents: