How much does a letting agent earn?

Many letting agents will quite comfortably earn over £100k per annum. To achieve this, letting agents mainly charge for two types of service. They are as follows:

Let only, also know as a tenant find service - this is where the agent introduces the Tenant for a one off fee and the landlord manages their property thereafter

And

A fully managed service - where the letting agent will charge both a one off fee to find the tenant and an ongoing commission of the monthly rent for the duration of a tenancy. As your managed property portfolio grows, so too will your residual income.

The amount you charge will depend on rental levels in you local area, which vary across the UK; however typically speaking, the average monthly commission charged by a letting agency is between 10 and 15% of the monthly rent.

What is the big attraction to starting a letting agency?

One of the greatest benefits of becoming a letting agent is that you should never need to chase payment from landlords in respect of your letting services. This is because a tenant will pay their rent by standing order into your client bank account on a monthly basis, allowing you to simply deduct your fees and expenses, before forwarding any remaining balance to the landlord.

This not only takes away the risk and stress of non payment, but it also saves time and administration costs, meaning that more of your time can be spent on building the business.

Tenants will also have to pay a holding deposit to reserve a property before any referencing work is carried out, and must pay their outstanding fees before a tenancy is signed and they can move into their new home.

Below is a list of typical revenue streams utilised by a letting agent:

• Landlord Letting Fee
• Landlord Commission Fee
• Tenant Agency Fee
• Tenant Renewal Fee
• Tenants / Landlords Home Insurance Commissions
• Utility Warehouse
• Tradesman Commissions
• Property Inspection Fees

We will of course give you the best advice on how to charge fees and when, however based on just between 1 and 2 lettings a week; we would expect in most cases that by year three, with hard work and dedication, you will be sure to see the financial benefits from setting up a letting agency. Options on various fee structures can be found within our comprehensive training manual.

Residual Income

In addition to its other fees, a letting agent has the luxury of being able to build a superb recurring income from building their managed property portfolio. The beauty of this means they have gained a definite income before the month even begins, to cover the event of going on vacation or deciding to take on additional ventures which otherwise may have been a higher risk in terms of investment.

Monthly Managed Income Growth

Please find below a table to demonstrate this increase in revenue based on a modest managed commission fee of 12% of the monthly rent.

Months	Properties	£475.00 pcm	£675.00 pcm	£850.00 pcm
1	4	£228.00	£324.00	£408.00
2	8	£456.00	£648.00	£816.00
3	12	£684.00	£972.00	£1224.00
4	16	£912.00	£1,296.00	£1632.00
5	20	£1,140.00	£1,620.00	£2040.00
6	24	£1,368.00	£1,944.00	£2448.00
7	28	£1,596.00	£2,268.00	£2856.00
8	32	£1,824.00	£2,592.00	£3284.00
9	36	£2,052.00	£2,916.00	£3672.00
10	40	£2,280.00	£3,240.00	£4080.00
11	45	£2,565.00	£3,645.00	£4590.00
12	50	£2,850.00	£4,050.00	£5100.00

Based on average rental levels of £650.00, you can see that your monthly income after 12 months of trading is £4,050, and this without the additional fees such as let only, tenant agency fees, renewal fees and commissions.

Annual Managed Income Growth

Years	Properties	£475.00 pcm	£675.00 pcm	£850.00 pcm
1	50	£34,200.00 pa	£48,600.00 pa	£61,200.00 pa
2	100	£68400.00 pa	£97,200.00 pa	£122,400.00 pa
3	150	£102,600.00 pa	£145,800.00 pa	£183,600.00 pa
4	200	£136,800.00 pa	£194,400.00 pa	£244,800.00 pa
5	250	£171,000.00 pa	£243,000.00 pa	£306,000.00 pa

Based on average rental levels of £675.00, you can see that your annual income from management commissions alone at year end 1 = £48,600 Year End 2 = £97,200 and Year End 3 = £145,800

How many Landlords will I need to make a good income?

A recent survey by ARLA established that the average landlord owns 8 properties. This therefore means that letting agents don't necessarily need a large client base to give them a good income and based on this average, you would only need to find 6 landlord clients to potentially build a managed portfolio of 48 properties.

As it isn't uncommon for a single branch letting agency to manage anything up to 500 properties, you can see the potential income growth for your letting agency.

How much can I earn in the early stages when charging all fees

Even in the very beginning stages and with a very small client base, you should still experience great financial benefit from starting a letting agency. Please see below a table to demonstrate what your monthly income statement could look like based on just 15 managed properties and 6 Let only tenancies based on a modest 12% of an average rental of £650 and a modest let only fee of 50% of the first months rent. Remember, let only is when you just introduce a tenant, collect the first months rent and deposit, complete checks, set up the tenancy, then allowing the landlord to take full responsibility for collecting future rents and maintenance.

Service	Fee
Let Only x 6 £325.00	£1950.00
Tenant Agency Fees x 6 (average £170 per tenancy)	£1020.00
Management commissions x 15 (12% of £650.00)	£1170.00
Inventory x 3 (£75 each)	£225.00
Insurance commissions	£100.00
Tradesman Commissions (gas safety certs, EPC's)	£100.00
TOTAL	£4565.00

A proven Asset

Another fantastic benefit to owning a letting agency is that you will build a tangible asset that you can grow and easily measure, making this especially attractive to potential buyers of your letting agency in the future. At present, the typical letting agency will sell for approximately 1.25 of its annual turnover, meaning a small agency with a turnover of £100k a year would typically sell for approx £125,000.

Summary

As you can see, in the ever growing and vibrant rental market, even a very small number of properties can produce an excellent and recurring income, and given that many letting agents will manage in excess of 200 properties, you can see how potentially lucrative this market can be. It is why so many letting agents are managing their office accounts in the tens of thousands on a daily basis.