Letting, agents etc

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Should you use agents, or be a DIY landlord.

We discussed at length how to write this article, to be the best advice to you, and decided to use a somewhat different approach than we have elsewhere within this site. We have taken two completely opposing views, one that says you should use an agent and the other that says you should do it all yourself. The objective being to put before you, not only ideas, but to allow you to consider yourself, which option you favour.

The case for doing it yourself

In theory there is less for you to have to sort out if you use an agent to find and vet tenants, and to manage the property, and they will of course make a big thing about you not having to leave your Christmas lunch to sort out an overflowing drain or similar.  However the quality of service that tenants get is patchy, mostly restricted to office hours and few agents actually fix anything, they just contact others to do it.

So as a landlord if you manage the tenancies, what does this entail once you have a tenant in place, well checking you have got the rent, but you have to check you got it from the agent anyway. Organizing repairs,  but realistically if property is kept in good order and all problems fixed as soon as discovered how many real emergencies are there likely to be. Most agents anyway will come back to you for approval and to look at any repair costing over £100, and you don't get much done for £100 do you.

Some agents will do a 3 monthly walk around to check everything is in order and report the condition and any problem to you, but would it not be a better idea to do this yourself and agree immediately with tenants what has to be done. If tenants see you and you make sure small problems get fixed and they know you will be around again, there is more incentive for them to look after the property. 

Conceptually agents should have regular contacts with builders etc and be able to get the best prices for you, but many have arrangements with specific builders or repairers, and even if they seek quotes may specify it in such a way as to get a higher price and share the view of incoming quotes with their chosen accomplice. As its not their money, perhaps they are not as keen as you are, to keep down costs. Having said that if you do it yourself then you have to be able to find people who will fix things when needed, unless of course you want to do it yourself and save the costs.

Turning to tenancy agreements, another reason some feel they should use agents. Many agreements we have seen are straight from books you can buy or standard agreements you can get your hands on, others have been cobbled together from various other agreements that they have seen elsewhere, often with loads of clauses that are not only, not relevant, but would not be enforceable anyway. Many tenants don't even get to see them until they pick up the keys and pay the deposit and first months rent, by then they are committed to moving anyway. When tenants do pick up on problems with the agreements earlier on, very few get amended, its usually just covered by letters that have been exchanged. So yes you need an agreement, but most available, are superior to what many agents use. We, by the way are looking to put one on this web site, that you can download and use for free, watch the publications page to see when or if this is available.

Another reason given is that they have a file of people looking to rent a property to send information to. With buyers this is true people do ask agents to send them items that match, but most prospective tenants watch the adverts for something suitable to come available and try to see the best places before others do. Rental decisions tend to get made fast, people look, maybe think overnight and then decide, its not buying they don't have to get a survey, mortgage etc. Now some tenants who know a move is necessary as their existing tenancy is coming to an end, perhaps the owner coming back from abroad etc so they will need to find another place, will start looking in advance, but this is the minority and even these will tend to look as widely as they can. As to waiting list of suitable tenants, if there are that many people queued up in your area unable to find a place then just think how easy it would be to get a tenant yourself, and perhaps you could get a higher rent. We also have not come across any agents who took references ahead of a property being selected, so any list they have is just a mailing list.

So what does an agent do, sticks in a single line advertisement for the property, answer questions on the phone, few have any real details, and then they show people around, and if they are interested they get them to complete a form, and mail off a few standard letters for references. As to credit checks, few do any. Most experienced tenants know how to get around references and many agents encourage them to use friends or relatives to give them just what is required. The most valuable piece of information of course that you can get is the name of their current landlord and be able to check with him or her to see if they have been any problem and paid on time. You write for a reference but call anyway for an off the record reply. So what about us giving you a standard application form for tenants and some standard letters, requesting references from their bank and others. Watch the publications section, this will be there soon if it is not already. So all that you have to do is to place an advert and use the documentation we can give you.

Few agents are on top of rent reviews, and most want to hold deposits in their accounts and many even pay you three months in arrears.

On the other hand some landlords are so tight they will not fix a leaking roof, but tell the tenant to put a bowl in the roof space, or make such a lot of noise about any small wear and tear or maintenance that tenants get encouraged to look for another place.

For finding tenants many agents charge 10% of the first 6 months rent, up front of course, plus charge the tenant both an application fee (to cover the cost of requesting references) and agreement fee to cover the cost of photocopying the standard contract, or is it supposed to be drawing it up. So for placing a single line advert and showing a few people around they have charged you on a £1000 rent/month property, this is £900. Recently I placed a sizable lineage advert in the property sections in papers in London, Reading, Bristol, Bath, Birmingham, Swindon, Cheltenham, South Wales, and a load of others and still had change left out of £600, but to advertise a property to rent I would just use a bargain package of local adverts. Okay you have to show a few people around and if you are in another part of the country you may have to stay somewhere local a night or two, I use B&B, which is economic, friendly and lets me make more contacts, but for £900 you could stay in a reasonable hotel for some time.

The cost of using an agent to manage the property can be anything  between 10% and 20% of rental received, in addition to the lost cash flow of deposit and later incoming amounts. 

Deposits are tenants money in concept, but most contracts say you have a month to repay them after they leave, and providing another tenant is in place, you will have another deposit to pay this from. As they have to give you a months notice you of course also know of this requirement two months before it is payable. You will see from this that this cash is money in effect lent to you for free. If you had 30 houses and they averaged a £1000 deposit then you are talking about an interest free loan of £30,000, enough to add a further property.

If you get rents 3 months in arrears through agents and you have 30 houses, then you are having to fund the mortgage payments ahead yourself, if the rent is £1000 a month on average, then you are carrying on your cash flow 3 x30 x1000 or £90,000, this is costing you interest and/or could have allowed you to have had more properties on line.

Taking an average management fee of 15%, if you had 30 houses each bringing in £1000 a month on average then you are paying 12 months x 30 x 1000 x15% or £54,000 a year to the agent for the work he does for you. But perhaps he has saved you a few phone calls.

So why do so many landlords use agents, many will tell you that it saves them the hassle of finding someone, of getting references, completing a rental agreement, and then sorting out any problems that arise. In reality in most cases its because they don't know really what is involved, and many have never been tenants. Another reason given is that agents have to chase rents in, but they get tenants to sign standing order forms, so the banks pay it every month with no chasing. There may be the occasional hiccup, but few tenants will mess a landlord about on a shorthold tenancy, as they know they will have to move if they do. If someone does not pay on time then as a landlord you are not just chasing in money, but can point out that you need the rent to be able to pay the mortgage and stop the property being repossessed. Its much harder to put you off than an agent who is not going to pay it over for up to three months anyway.

Another reason many start using an agent is that they are told the lender of their mortgage would like them to. Having given you the mortgage the only thing your lender is going to check on is that you are keeping your payments up.

Some agents throw in FREE insurance cover against voids (unlet periods). However insurance companies will never set up a policy that will pay out anything like as much as they charge, so realistically it either wont pay under most conditions or will only be available when there is little likelihood of a claim being made. Others advertise these policies, some I have seen around £300 a year, however its not something I have looked at yet in depth. Perhaps check later for another article someone writes on this topic.

I am not saying in all cases that using an agent is not justified, it may be, for example if you have emigrated and the cost of coming back from abroad is greater than the costs involved. It may also be valid if you are ill and unable to manage it yourself, or sufficiently loaded that this sort of cost is not important to you. It may also be valid if your job makes it impossible for you to find the time or respond to problems.

Every month there are more and more agents setting up, and now there are quite a few franchises that help people with no previous experience to set up a new branch under their brand name. Many landlords also offer management services to others new to 'buy to let' and maybe you will. Many of the books and courses on getting into buy to let do point out the considerable money to be made in this area. However before you think this is the answer to your funding, setting up an agency involves premises, staff, office furniture and equipment, cars, and regular block adverts.

Another point worth considering is who is making what profit and at what rent levels. You could for example find an agent pushing you to lower rental levels to speed up finding a tenant, your margin can completely disappear, but the agent is still doing nicely. So if more agents are setting up and the agent has bills to pay, and costs to cover, can you see that on some occasions agents will be more interested in getting in cash to pay their bills than in maximizing your return.

The case for using an agent

You have your own job, life, want to go on holidays, not have to go out on Christmas day or at other inconvenient times to sort out problems, so why not let someone else take the strain. Okay the agent will not actually do a lot themselves, but they will know who can be called out and regularly be in contact with people who can help. 

They need to run a business, and have costs, rent, power, staff costs, computing and other equipment, vehicles, web sites,  advertising expenditure, bank charges, To Let signs, and more. The fees they charge have to cover all of these. As to deposits these are held in a client account and anyone in business knows that if you can get 2% on bank deposits you are doing well. 

They also know what is happening in their area so you don't have to, when a re-let comes up they will be able to say what rent it could fetch, and can even advise you when you come to consider other purchases as to the likely rents you would get.

They have agreements, maybe not all that special but at least the tenants believe that if they don't stick to them, the agents have no option but to enforce the agreements.  Do you really want the agro anyway, and could you deal with problems without resulting to legal advice and paying a fortune to a solicitor.

What about when the tenant wants improvements, he calls and says its about time you redecorated the house, or that a piece of equipment or furniture has seen better days and should be replaced. Are you going to be able to say no, its far easier for the agent, for a start he can use up a lot of time asking the owner, and getting quotes, and even if it never happens, the tenant will have lost the enthusiasm about it.

Similarly what happens when a tenant calls you to say he realizes how wealthy you are with your 30 plus houses, and he has this problem which is not his fault, his bonus got missed, the bank have made a mistake and lost some of his money, or her mother is sick and she paid her bills and was promised the money back but it has not arrived just yet. All they need is a bit more time. The agent of course cannot give it to them, but could you say no. If you allow them to, will this become a regular occurrence, and if you let them get behind will you ever get the money.

When they come to leave, you have to check all is well, before giving them back their deposit. Lets suppose you are not happy, its not clean enough, or they had a pet they had not agreed with you and you have pet damage. Maybe they have left a skip load of stuff behind, how do you determine the amount to withhold and are you up to facing them when they demand their deposit back. How about situations where your idea of something is different to theirs, as in how clean an oven should be, they have wiped it out and you expect to see chrome shinning not black. 

Life is far easier with an agent, people know what to expect, and you can get on with your life. 

With small numbers of properties do you really want the agro for the amount you will save and when you get to large numbers of properties, perhaps once you get to a set size, you could negotiate a volume discount with your agent.

If you have properties widely distributed, can you realistically cope yourself anyway, how many times a month after all do you want to drive from one end of the country to the other. If you do it yourself, are you going to have the time to look for and stay abreast of other properties you may want to get, so might it not be that in order to save a few pounds in the short term you allow a larger sum to slip through your fingers.

The final note

It is likely that many of you will read one of these that will strike you as the case for or against, others perhaps will like to look at some of the details and look perhaps at managing those near their home themselves while using an agent for those further away. Some of you might also like to consider using an agent for the first year of a tenancy, until the tenant is proven and pattern set, and then take it over yourself.

We are neither recommending that you do or do not, just that you give all the aspects of this full consideration before making a decision.

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