Property Investors

Using a letting agent to manage your buy to let property portfolio

simon

Simon Misiewicz

9th August 2019

Article relevant to the tax year 2019/20

Here are the most common questions by landlords about using letting agents

We are going to try and answer the following questions about using letting agents as a buy to let property investor / landlord

1. Is there a list of top 5 reasons why you should use a letting agent?

2. What % of rental income do letting agents take?

3. What are the benefits of fully managed services?

4. Should I manage my own property?

5. What is a letting agent responsible for?

You may be interested in our main article “buy to let tax for UK landlords”. This article discusses all the different types of tax that you need to be aware of as a UK landlord. Opens in a separate tab.

1. Is there a list of a top 5 reasons why you should use a letting agent?

You may have a lot of time consumed by worrying about your job, the daily grind of your business activities, looking after all the family matters. This is even before you start to think about yourself. This is why it is important for you to consider using a letting agent.

A -Your buy to let property is properly presented when advertised.

There is one fact in life. A picture tells a thousand words. Here is another one for you. First impressions count.

If you have dim pictures of a scruffy house then do not expect to rent it out.

It is no secret that I am not a graphic designer, nor am I a keen photographer. I feel that taking pictures with my phone is great. How wrong I am.

A letting agent will ensure that the property is tidied up. No more cushions on the floor or the duvet scrunched up on the bed, that is for the male audiences out there (if you are anything like me). A good letting agent will have the right equipment to take wide-angle shots with a suitable camera. They will also make sure that the property is well lit.

Having a great set of photos with a nicely worded description, correct spelling too will help rent the property. This should reduce void times that seriously hurt your pocket and the Return On Investment (ROI) that you make on the property.

A good letting agent will always have someone to guard the telephone. They will be on hand when a tenant prospect calls to discuss your property. If you advertise a property but do not answer the phone it is a clear message to the tenant to call for the next property. You have now lost that opportunity.

Having a well-advertised property and people waiting to take calls are essential elements to rent out your property.

B -Your time: saved when using a letting agent

We are always busy. Have you realised that the more we free up our time, the more we fill it? After a while, we have to delegate or stop doing things that are not as important as other tasks. Either that or you can simply burn the midnight candle and work even harder. Where is the fun in that?

Using a letting agent to manage your tenants is a good thing. It puts a barrier between you and the tenant. Letting agents are very good at understanding the problem, without the emotional entanglement. They will be good at proposing solutions that do not involve you. Sure, there are times when you need to intervene. This should be seldom if you are using a good letting agent.

Do you value your time?

I agree that it is cheaper to do things yourself, but at what cost. If you are an employee could you spend more time educating yourself to get a much better-paid job? Could you utilise the free time to get in the next client or reduce costs if you are a business owner? Now consider how much more money you could earn if you focus on your job/business. I am sure it is more than the savings you would make by not using a letting agent. Additionally, things may take you a lot longer than using a letting agent that knows what to do, how to do it and when to do it.

So, use a letting agent and free up your time. This means that you can spend more time on the important things in life.

C – Keeping on top of legal issues and legislation changes

You may know of at least one change that affects landlords. One of them being Section 21 where it is going to make it more difficult to evict a tenant. You could find yourself in a lot of trouble if you carry on your old ways to evict a tenant. You will have an extra cost of a solicitor to defend your actions and their costs of using a solicitor. It may be better to work with a letting agent that keeps on top of all legislation issues.

They will ensure that staff are trained on any such changes. Letting agents will change their processes, paperwork and eviction processes to ensure that your property is safe, whilst keeping in the law.

One of the issues you will face with a non-paying tenant is emotional stress. Having a letting agent that can make informed and objective decisions will save you a lot of hassle and time.

There are many other regulations that need to be kept on top of when renting a buy to let property. Gas checks, energy efficiency, health and safety, electrical tests are all aspects of checks that may need to be conducted in your property. This will require even more time to identify a team of people to carry out these activities.

Managing tradespeople may cause additional headaches and be a cause for time being wasted. A letting agent will have the ability to schedule all tests to be done on time and allocate work to their own trusted team of tradespeople. A plumber will always want to please a letting agent that provides lots of jobs rather than you that has one or two houses. It is a matter of economics.

D – Management of suppliers and tenants when using a letting agent

There will always be a time when work needs to be done on a property. Tenants will always feel put out if they have not requested the work to be done. They might sound harsh but I have personally had over 100 tenants. You know that a gas check has to be done. After leaving three voicemails and four texts you agree with Pam that she will be free on Friday between 9am and 12pm to let the plumber in.

You now call the plumber to confirm the date and time. He initially agreed the date and time with you. Now you call the plumber to confirm but he does not answer. Finally, a day before he is meant to be at the property, he calls. It is not good news. He informed you that he is busy on another job and cannot get to the property until 1pm. He is not sounding at all apologetic either, frustrating. You now have to go back to the tenant.

This time and hassle would be saved if you had a reliable workforce. As I mentioned above a letting agent will work hard on their relationships. Tradespeople will not want to lose business by upsetting the letting agent.

The letting agent may also have a Service Level Agreement (SLA) where the tradesperson has to respond to a requirement. They may also have a fixed price agreement to ensure that jobs are competitively priced. This means that you ultimately may save time dealing with the tradesperson and tenant. You will have the added benefit of saving money too.

E – Minimise administration & paperwork when working with a letting agent

There is a lot of paperwork when dealing with a tenant

– Referencing

– Credit checks

– ASTs

– Deposit Protection Scheme (DPS) forms

– Energy Efficiency Certificates (EEC)

– Gas Safety Checks

The above documents are just one of many. For a typical landlord, they may not be very good at administration. Worse still they may dislike paperwork so much that it gets in the way. I wonder if you have a full-time job or work long hours in your business. You come home to your family and want to spend time with them. You know that there is paperwork to be completed. A choice is to be made. Be on top of your paperwork or keep a happy household.

A letting agent will have administrators that manage paperwork all day long. Some may even love administration, I am sure there are many others that do not but still keep on top of things. A good letting agent will have systems that make things efficient and paperless requiring less time to get jobs done. They may even have systems that are linked to automate repetitive tasks or complete forms without manual intervention.

2. What % of rental income do letting agents take?

I see that there are some agents that charge 8%. I see other agents that charge 15%. There is a big difference between fees. Some letting agents that are registered for VAT, which means their prices increase by 20%. Some letting agents are not registered for VAT. Those that are not yet VAT registered may need to do so once their turnover reaches £85,000 (tax year 2018/19).

A famous US salesperson by the name of Zig Ziglar once said: “Sir, are you worried about the price or the cost of getting it wrong”

This is a great saying. I have many times congratulated myself for buying a cheap laptop. You know the one where it works great for about five months. Slowly but surely the thing starts to slow down a great deal. It now takes me about three to five minutes to warm up and boot the applications. We are in the 21st century, right?

…The cost of going cheap.

My point is this: Buy cheap and get rubbish. Invest and get the best. This is just my opinion. I  appreciate that no all things expensive are great. This is very true. However, if we are honest with ourselves we will look at the price of a product or service more than we look at the benefits.

I would suggest that you look at the quality of service and then price. See how much time and hassle the letting agent can take from you. You should know the value of your time. If this transfer of work to a third party provides you with enough benefit then it may be worth paying the price.

Letting agents that charge just 8% may charge this cheap price because:

– They are starting in business and need clients. Once they have established themselves their prices might go up.

– They do not carry out all the activities of a more expensive letting agent (such as taking an inventory

– They may not be too concerned about quality but focus on price. Be fearful of this. I have seen many poor photos on Zoopla and Rightmove by cheap letting agents. What are the chances of your property being rented? See above for a refresher.

…How do you pick a good letting agent?

Speak with 2-3 letting agents in your area. Go and speak with them. This will give you the opportunity to meet the people that will be managing your property. You will have a good sense if you want to work with them. Ask for a list of activities that each letting agent will carry out and compare them. lastly, check out Google reviews and social media to see what other people say about the company.

Remember, a good letting agent will be taking a lot of work from you. This is a time-saver for you. It is also a lot of emotional baggage that has been transferred to someone else. Thirdly, you will have a better time with your family and friends because you will have the time to spend with them.

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3 – What are the benefits of fully managed services

There are different types of services that letting agents provide. You need to be aware of them and choose the one that is right for you

Letting agents & let only

Let only is where the letting agent promotes your property and find a tenant for you. They will charge you a one-off fee for this tenant finding service.

A letting agent will not be too emotionally involved in the property. They will conduct a thorough tenant referencing to ensure that your property has the right tenant. They have a reputation to preserve. There is always a danger for you. If you have a property that has not been let for a while. You may be tempted to accept someone to stay at your property. This is a person that you may not have been keen on or had a good gut feeling. You may even be tempted to accept a tenant that failed a tenant reference or a credit check. It is these emotional decisions that could cost you thousands of pounds when the tenant stops paying you rent. Additional time and money issues when you have to try and evict the tenant.

An aspect of letting out a property is the tenant Assured Shorthold Tenancy (AST). It is tempting to use a template from Google or use a template that you have always used. We know that laws and legislation changes. This means that AST’s also need to change. Do you have time to keep on top of all the changes? I do not think you do, nor will you have the expertise to change the correct sections. It is better to have a letting agent that keeps on top of the regulatory changes. This provides you with comfort and confidence that the AST is correct.

The letting agent will also ensure that the deposit in a regulated protection scheme.

Letting agents and fully managed services

It is 3am in the morning and a tenant went on a social evening. Put it this way they are not in the best shape. If you know what I mean. They are at the door of the property but realise that they have lost their key. They have your mobile number and do not think twice what time it is. You awaken from your pleasant sleep to hear:

“[hic] I have lost my [burp] key. Can you [hic and long pause] come bring me a [burp] new key?

How might you respond to this?

You now have a choice. Get up and travel 30 to 60 minutes in your car, which you should not be driving if you had some alcohol yourself the night before, and take a spare key. Alternatively, you could contact a local locksmith that will charge you £50 to £100 to go out to the property and change the locks.

Either way, you are now awake with a decision to make. How will this affect your morning family time, performance at your job or important activities in your business?

…How will a letting agent solve this?

A letting agent in this situation would have allocated team members to take evening calls. They will also have people on hand to go to the property with speed to resolve the problem, This is very important especially if you live far away. Make sure that your letting agent is local to your property.

With a fully managed service, a good letting agent will create an inventory of all the items that is yours in the property. They will also document the quality aspects of walls to note any scratches, dents or rips in the carpet. This is essential for when the tenant leaves. If there is damage to the property you need to prove when it was done. There is a better chance that the deposit protection scheme will pay you for the damage of the property if you have evidence that the tenant caused the damage.

A letting agent will periodically inspect the property. This helps to manage the tenant. There is a greater chance that the tenant will tidy up and look after the property if they know that someone is inspecting it every three months.

Letting agents and rent guarantees

An advancement of the above is a rent guarantee. Some letting agents will provide you with a guarantee that money will be paid to you each month regardless if the tenant pays or not. You have a tenant called Bob. He has paid the rent for the first six months without question. However, it is now November and he wants to save for Christmas presents and go out with his friends Thursday, Friday and each Saturday night. This is an expensive hobby so he has to prioritise what money is paid to whom. Rent is not on that list. He, therefore, decides not to pay it.

It can cause you stress, anxiety and financial instability if you depend on that money. You too have things to pay out for. Bon does not seem to care. Sadly, this is too often the reality for many landlords out there.

Would this cause you a lot of headaches?

One of the ways to remove this issue is to speak with a letting agent that provides a rent guarantee. This is where a tenant may ordinally pay you £500 per month. A letting agent discusses with you £350 guaranteed rent, which is payable to you irrespective if the tenant pays or not.

Given the above situation, it is better to bank on some money coming in than none at all.

4. Should I manage my own property?

Have a look at the above.

After reading the majority of the article you will get a sense whether or not you should use a letting agent or not. The above paints a rosy picture of things I appreciate. Letting agents are run by humans and mistakes will be made. However, you need to do your own due diligence and see which agent is right for you.

I will confess that I look at letting agents and say to myself

– Letting agents have a lot of properties and mine will come last in their list of priorities

– I would manage the tenant better

– I would have taken a nicer picture of the garden

These are small things to worry about. If the overall benefits outweigh the disbenefits then a letting agent will be a smart move for you.

5. What is a letting agent responsible for?

Depending on the services that you undertake a letting agent will be responsible for:

– Presenting the property in the best light (pun intended)

– Making sure the property is fit to live in

– Showing potential tenants around the property

– Making a decision of which tenant should be allowed to move into the property

– Referencing and performing credit checks on potential tenants

– Creating an inventory of the property that is understood by the tenant

– Collecting rents from the tenant

– Dealing with maintenance issues from the tenant

– Arranging maintenance issues to be sorted by tradespeople.

– Managing the rents from tenants

– Keeping you informed of the legislation changes and how it may affect you, your property or the tenant.

This list is but a small list of the reality of things. It just gives you a flavour for what a letting agent does, and what they could be doing for you. One rule in business that I have truly taken on board. Delete the tasks that are not useful and delegate the rest.

If you want to know more then please read our “buy to let tax tips for UK landlords” article

 

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