For many, handing over their property to a lettings agent is done without even asking. It’s just a given – they will give the keys over and hope for no problems – and wait for rent to be paid on time.

Generally, in my experience (of being a landlord for 10 years) – Estate agents go through three distinct time periods:

  1. New and fresh to the market with energy and a want to ‘change the market’ – this small band of super agents is usually the owner(s) and 1 or 2 members of staff. The service is good – they know your name when you call and cannot do enough to help you out. This usually lasts for the first year or two before the endless grind of management moves them to stage 2…
  2. When the baton has been passed to the a manager – or someone other than the owner has more oversight – this is where things begin to go wrong. In my experience, this has happens because the manager is just an employee – there is no passion to deliver the same level of performance. More formally this is called ‘agency theory’ – the rewards need to be closely linked to their output but this is rarely the case. This period can last anywhere between 2-5 years
  3. Sale / stagnation and loss of business – either the agent sells to a larger firm or they begin to suffer a loss of business.

The main issue with agents is the management fee. Ranging typically between 8-12%, you will find that you are losing an enormous amount of money each year – and generally the agent will not be solving any major problems on a monthly basis. Investment fees on pensions kill the investment – these are typically a lot less than the 8-12% – so just imagine what you’re losing out on long term. Add in the new tenant fees and you have an extortionate amount of money.

A previous letting agency stood by wanting to charge £150 +VAT per new tenancy alongside 8% per month. To put this in perspective, they would happily take £750 +VAT plus 8% of the total gross rent in the first month from a 5 bed HMO. Effectively killing off 1 month of income per year AT LEAST.

Here is why it matters so much to HMOs:

  1. The agent is actually benefitting from having more tenancies in the same period. Why would they want a tenant to stay for 3 years when they could move them into different properties in their list and gain so much from their fees
  2. One tenancy can typically last 6 – 8 months – meaning that you’re likely to get 2x new tenancies per room per year – which potentially loses you 2 months of rental income
  3. This loss compounded over many years makes my eyes water – landlords are losing thousands – many agents don’t even have to visit the property in the month and still get paid.

The best thing to do is to in fact reduce your expenses and recycle the money back into your investments – this makes use of compounding.

Your letting agent needs to be flexible – people need to open their eyes to their losses – ranging in the thousands per year. Demand more from your agent…I will post a list of things a great HMO letting agent should be doing…