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.
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.
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.
|Months||Properties||£475.00 pcm||£675.00 pcm||£850.00 pcm|
Based on average rental levels of £675.00, 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.
|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
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.
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.
|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|
|Tradesman Commissions (gas safety certs, EPC’s)||£100.00|
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.
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.