Thousands of landlords manage their letting properties without help from a letting agent, but many are worried about making mistakes that could lead to a hefty fine.
There’s no doubt property management has been a nightmare over recent years, with the government repeatedly changing the rules about tax and bringing in new laws to protect tenant rights.
Landlords must pick their way through an estimated 147 pieces of legislation covering everything from safety standards to Right to Rent checks.
Working with a letting agent shifts much of this burden – but letting agents do come with a cost.
Why work with a letting agent?
Landlords have many reasons for working with letting agents.
Lack of time often heads the list, along with a reluctance to deal with tenants, a lack of knowledge about how a property business works and concerns about property law, HMO licensing and other regulations that might apply to letting homes.
Another common reason for using a letting agent is the problems of managing a rented home remotely.
A letting agent’s job
Most letting agents offer three types of service:
- Finding a tenant – This covers advertising a property, conducting viewings and reference checks to moving tenants in.
- Rent collection – Ensuring tenants pay the rent on time and chasing arrears, if necessary.
- Total management – Covers the other two services and includes looking after repairs, maintenance, regular site visits, safety certificates, and tenant inquiries.
Landlords should expect to pay a fee for each service, plus extra for credit, employer and landlord references. Most letting agents will also charge for drafting tenancy agreements and inventory work at the start and end of a tenancy.
Property management costs
Property management costs are generally based on a proportion of the rent a home commands, expressed as a percentage.
Letting agents have a scale of charges depending on the service.
Expect to pay up to twice a property’s monthly rent for finding and checking in a tenant as a one-off fee.
Rent collection is a minor recurring monthly cost.
The most expensive is total property management, which often bundles the three services together. The cost varies between 10 and 20 per cent of the monthly rent plus VAT.
If you have several rental homes in the same area, try negotiating the monthly management fee down for managing them. Many agents will go as low as 8 per cent a month plus VAT.
Quotes from letting agents for managing the same property are not necessarily like-for-like comparisons. Read the terms and conditions to understand what you are paying for and to check for hidden charges.
Do not agree to a vague, verbal contract, but tie down the details and price in writing.
For a buy to let renting out at £750 a month, a letting agent would charge between £750 and £1,500 plus VAT for sourcing and checking in a tenant.
The full-service cost could hit between £900 and £1,800 a year plus VAT.
As landlords and property managers can no longer charge upfront fees for arranging a tenancy, these costs fall to the landlord. The prices include the cost of references, legal advice and inventories.
Choosing a property manager
The leading service offered by a property manager is finding tenants.
Remote landlords can source tradespeople for repairs and maintenance, but finding the right tenant often requires extensive local marketing.
Picking a property manager blind is tough, so here are some points to consider:
- Property managers must register with a professional body to take qualifying exams and follow client money protection (CMP) rules.
- The property manager must sign up for a government-approved redress scheme for handling complaints.
- See if you can track down testimonials or recommendations from other landlords and tenants online.
- Check the property manager has a presence in your property’s neighbourhood and that they cater for the kind of tenants you are seeking.
- Ask a couple of friends to take part in a mystery shopping exercise to test customer service.
Ignore the cost while you draw up a shortlist of two or three property managers. Providing an efficient service is more important, even if it costs a little more in the long run.
DIY property management
Managing a rented home is a no-brainer financial decision for many landlords.
Moving up to £1,800 a year from property business expenses to profit is a considerable saving – and even more so if you look after two, three or even more properties.
Property management is time-consuming and comes with social and legal responsibilities, which are sometimes daunting for the inexperienced.
A good landlord’s association such as the Guild of Residential Landlords can help with almost all aspects of self-managing your property.
DIY property management does not come with any requirement to join a professional body, pass exams or apply for a licence in England, but for Wales, a licence is required. However, if you manage a shared house in multiple occupation (HMO), you will need to pass a ‘fit and proper’ person test before the local council allows you to take in tenants.
To pass, you should not have a criminal record or convictions for offences involving tenants or property laws.
One major drawback is being on call to deal with tenant emergencies, like leaks, locking themselves out of their home and the other 101 things that can go wrong with boilers. However, some insurance companies and tradespeople offer emergency cover packages that can share the load with landlords.