So, You Want to Be a Letting Agent?
Before I achieved my own personal and lifelong ambition to become an author and professional writer, I had my own letting agency. I was an agent for quite some years … and although I have always remained active in the property investment arena, I was very happy to leave the third-party lettings sector of the industry. If you have aspirations to become a letting agent, read what follows and you might just change your mind.
There are five main reasons why I would never get involved in letting other people’s property again, unless I was truly backed into a corner and had no other option. A few knowledgeable and experienced entrepreneurs have been able to make this type of business work for them and I have no doubt some have made good money out of it; but it’s an uphill struggle, even when the markets are good. Unfortunately, many fail within a short period of time, as they discover the odds of succeeding are heavily stacked against them.
Knowing Your Stuff
Opening a business as a letting agent means you already need to be running when you hit the road. It is not a job you can learn as you go, because that would be a recipe for disaster. The knowledge base required is enormous – and it is not something that can be acquired in a short space of time. Even worse, it’s a knowledge base that keeps changing, because new laws and regulations are being introduced all the time.
How did I manage to navigate the academic maze? Well, it took over a decade of hard study before I was comfortable about ‘going it alone’, as it were. I first became a landlord and learned my trade from first hand experience, as well as reading up on all the various regulations and legal aspects of letting. I also joined a Landlords’ Association (actually, I helped co-found one, because there were none close enough to where I lived). Being amongst fellow landlords, gaining an insight into their experiences and being told of practical remedies to common problems, all proved extremely beneficial.
Next, I befriended a property surveyor, who also happened to be a landlord and (crucially) a commercial letting agent. He guided me through the complex legal jungle of letting law and advised on the best courses to undertake and the best books to read.
Guidance is essential, otherwise you will just find yourself reading all the wrong things and paying for academic courses that prove irrelevant. I would highly recommend you taking on an apprenticeship role, working (even on the bottom rung of the ladder) at a local letting agent or realtor office and becoming familiar with various aspects of the job. From there you can progress rapidly in the right direction, learn the trade and eventually (assuming you are brave enough), go it alone.
Be aware, the learning curve never ends. So even though you may think you have enough knowledge about the law and the industry, you will still need to spend endless out-of-office hours catching up on the latest set of regulations to wind its way out of government corridors.
Going Into Business
Running an established business is hard enough, but starting one from scratch is an undertaking of nightmare proportions … and guess what, just to add to the struggle, there’s a whole new set of laws and regulations to learn about (including employment law).
Starting a new business is tough going and if you gamble the success of the business on the finances of your family and personal life (for example, by putting your own home up as security to acquire capital), you can lose a whole lot more than your shirt, if it all goes pear-shaped. Even if you have enough money to finance the start-up, you will eventually need more to buy office equipment, management software, consumables and advertising. You will also need to find money for professional indemnity insurance, staff wages (before income starts paying for them), the lease for the office, solicitor’s costs and … well, the list just goes on and on.
The biggest problem of running your own letting agency business from the outset is likely to be time – or more appropriately, a shortage of it. You will be expected to manage the office, deal with day-to-day accounts, go out and acquire new commissions, answer the telephone, attend viewing and client appointments, prepare and book advertisements, deal with income tax and VAT accounts, create impressive property brochures, talk to solicitors about devising tenancy agreements and service contracts … and probably sweep and mop the floor too. Even if you have enough capital to employ staff right from the start, it’s unlikely they will be trained or knowledgeable, so you are going to have to direct and then supervise their every move.
Most new businessmen will tell you, they have never worked harder in the whole of their lives than when they began working for themselves. During the first two or three years, expect to work 7 days a week, 365 days a year – with no holidays or sick days. If you survive through to the end of the third year … you might just make it.
Maintaining Detailed and Professional Accounts
The legal framework of running a letting agency business is complex and onerous. A major component involves maintaining adequate tax accounting practices, keeping full client records and a separate client bank account, dealing with VAT, salaries, business accounts and rent accounts. You will certainly need to keep an accountant on call and will probably require regular instruction from them during the first year or two.
If you have little or no bookkeeping skills at the outset, you will quickly lose track of where money is coming in from and where it needs to go out to. Even worse, you will start struggling to maintain a sustainable or even an adequate cash flow, which is the lifeblood of any business.
Dealing With Tenants
Tenants are clients, just as much as the landlord investors that sign an agency service contract. Letting agents commonly forget that fact – and consequentially treat their tenants in an appalling and barely tolerated manner. In my experience, most tenants are pleasant, honest and reliable – and they deserve respect, gratitude and a faultless high level of service from us.
That’s the good news.
The grim fact is that every now and then a bad apple gets into the agency barrel, causing chaos and calamity to what may otherwise normally be a well-honed business. Just one bad tenant can truly upset the applecart, bringing serious financial and legal repercussions to the unprepared novice letting agent.
In my years of dealing with bad tenants, I have seen it all. Tenants that just simply decide, for whatever reason, to stop paying rent, even though you know they have just managed to find the money for a new car; to those that wreck a property, damaging even the fabric of the building, never mind all it contains. I’ve had to deal with spurned lovers throwing themselves through windows in suicide bids, aggressive alcoholics, out-of-their-head drug abusers and those who abandon properties, taking everything (including the kitchen sink) with them.
Bad tenants also create a chain reaction of other problems, not least of which is you have to explain to your client landlord what is going on, why it’s going on, how you intend to resolve it and how you intend to prevent it happening again. When there are rent arrears or property damage, you will also need to advise or assist your client landlord to recover costs and help them pursue repossession of the property through the courts. All this costs time and money and weeks of meetings, negotiation and form filling. Bad tenants are a headache … and every letting agent suffers from them occasionally, regardless of how diligent they may be during their referencing procedure.
Dealing with Landlords
Just as there are the occasional bad tenants, there are an equal number of bad landlords. Unfortunately, most agents don’t actually realise how bad a landlord might be until after they have signed them up to a service agreement. When an agent has a demanding, difficult, ignorant and/or unyielding client landlord, the monthly 10 to 15 per cent management commission can suddenly seem woefully inadequate.
I reached a stage during my own career as an agent where I was solvent enough and confident enough to terminate service contracts with bad landlord clients – but that’s not so easy to do, when you are just starting your business and competing to acquire every commission possible.
You may have aspirations to make a fortune through letting other peoples’ properties. It’s an ambitious and potentially attainable aspiration, but I hope this article has perhaps given you some food for thought. It’s a difficult business and a highly competitive one, where other more established local agents will undercut your charges in an attempt to drive you out of the neighbourhood.
On top of that, there is now every likelihood that both estate agents and letting agents, as well as individual landlords, will soon have to be approved through a formal licensing regime before they can operate. We don’t yet know when such a scheme may become mandatory in the UK or what the qualifying criteria might be, but since it has the support of professional organisations as well as government backing, it is almost certain to become another stumbling block to letting agents in the near future.
Another Article by Tony Booth
- The Essential Guide to Letting
New landlords sometimes make what seem obvious mistakes to those of us that are more experienced. But we have all been there, so here are a few tips for any novice property investors just starting out.