Alwin Oliver gave a great presentation on this topic at the AGM which we have had requests to follow up with a half-day course on the subject. Do let us know if you are interested in such an event but whether you are or not, Alwin has taken the time to summarise some of his key messages in this article.
These thoughts are based on Alwin's experience of being a landlord for over 20 years:
One of the most fundamental but difficult choices you will have to take as a landlord is the level of management you wish to undertake yourself versus how much you choose to outsource to an agent.
There are advantages to BOTH approaches and your approach may change over time
This extract of his talk is to help you make your mind up or help you to change your approach when the time is right. And some things to consider whichever approach you take
Using an agent or going it alone?
If you are using an agent, it is at least worth while to ensure that you are aware what they are doing on your behalf; And that it is being done properly and on time.
Knowledge and understanding of the process is vital to either approach
3 golden rules
- Nobody will care for your business like you care for it yourself
- Property is not a hands off investment
- There are some things that you are ALWAYS responsible for as a landlord
5 magic mantras
- Always aim to trade in profit
- Identify risks, eliminate, reduce, spread
- Always look at any deal from the perspective of the other party (tenant, agent, guarantor)
- Do your own research- due diligence
- DON'T PANIC!!
Mantra 1 - Always aim to trade in profit
- Be realistic about costs
- B2L finance, insurance, various fees
- As a very rough guide, maintenance 10%, voids 10% agency fees 10%
- Will the cost of maintenance be the same if someone else is Project managing??
- These figures may vary widely within a small portfolio
Mantra 2 - Identify risks, eliminate, reduce, spread
- Higher risk tenant groups
- Enforcement of HHSRS
- Gas & other safety issues
- Deposit Protection Scheme
- Difficulty getting possession
- Inventories & guarantors
- Insurance for buildings and professional indemnity but also consider
- Emergency breakdown, rent guarantee as appropriate
- Keep good records
Mantra 3 - Always look at any deal from the perspective of the other party (tenant, agent guarantor)
- From the start is it affordable?
- Is it the right place for them?
- Is the tenancy the right length for them?
- Do you agree with their perspective?
- What is the fallback plan if they default?
Mantra 4 - Do your own research- due diligence
The investigation of a business, property, service or person prior to signing a contract, or an act with a certain degree of care
Or to put it another way, will I get value from a purchase or cost?
Or, will I get paid what I am due as it falls due?
Mantra 5 - DON'T PANIC!!
- You are likely to make mistakes or miss something at least once
- You may well experience rent arrears
- If you do, the tenant may well refuse to go
- Sometimes they can be really creative at making life difficult for you
- Many landlords have experienced it at least once
- You will get through it and learn from it
What does a letting agent do?
(a brief list)
- Takes instructions to let, agrees terms
- Collects paperwork from Landlord
- Advertises as appropriate (increasingly web based)
- Responds to enquiries, brief assessment
- Conducts viewings
- Takes deposit & fees
- Undertakes (or outsources) references
- Drafts tenancy agreement, payment & signature
- Collects more fees
- Compliance paperwork, inventory, move in.
Landlords- who uses a letting agent?
- New landlords seeking guidance and support
- Landlords in full time employment
- Accidental landlords- inherited or jointly held property
- Liveaway landlords- overseas or moved
- But also
- Very large portfolio landlords (50+ properties)
- Retired or high equity landlords
Landlords- Who goes it alone?
- Landlords who have time to do the job properly
- Landlords who have gained experience of managing properties
- Landlords who have had a bad experience - But is this alone a good reason?
- Landlords who want to have control of their portfolio
- Cost conscious (or cash strapped) landlords
- Landlords who wish to meet and select their own tenants
- Local landlords seeking a strong working relationship with their tenants
Letting agent services
- Tenant introduction only (tenant find)
- They find the tenant, reference, set up a tenancy agreement
- Tenant introduction and rent collection
- As above, but with monthly rent collection
- You however take on all management issues
- Full management
- As above, but they organise inspection, safety certificates and maintenance up to an agreed limit
- Higher level of work means higher fees, less control
A letting agent is instructed to let 2 properties
One full management, one tenant introduction only
The same agent is approached by 2 tenants
One has a good job and appears to have a solid credit rating
The other has a more patchy employment history
If you were the agent, which tenant would you steer to which property?
You are a letting agent with a number of tenant introduction properties, from which you will earn a small fee
One landlord instructs only you on this basis, another instructs you and another agent
Which property are you going to steer a prospective tenant towards?
If you are going it alone
- Be your own letting agent
- Have a process, follow a check list
- Do you have access to all the documents and services that you require?
- Have you considered which services you will buy in?
- Have you considered property management software?
- Keep up to date with legislation & requirements
- Record keeping (again)!!
Tasks you can do for yourself;
- There are a number of online "self service" letting agents;
- Openrent, urban, rentify, lettingaproperty
- Check their terms & conditions
- Are you happy with their services
- Do you want to advertise only or take a package including deposit protection, references, tenancy agreements?
- Also consider gumtree, facebook, PDPLA referral system
Pre-viewing phone call (screening)
- Name, how many people will be living at the property?
- Claiming HB
- Smokers or non smokers
- Pets (don't discriminate but advise if the property is suitable)
- Referencing process
- Open the door
- Point out any key features, including no agency fees
- Shut up and listen
- Open question at the end- could you see yourself living here?
- Explain any process you follow like references and agency fees-
- don't waste your time or their money if the property is not suitable of if they are not likely to get through the reference process
- References- use a referencing agency
- Fccparagon, openrent
- Also reference the guarantor if appropraite
- Pass on the fees to the tenant
- Deposit protection
- Belong to a scheme- Mydeposits, DPS
- Video inventory agency, LC inventories
- What is the check out process, who handles disputes?
- Providing an up to date tenancy agreement
- Some online agents provide these services
Dealing with problems- arrears
- Act promptly
- Contact, don't harrass
- Use standard letters
- Signpost tenants to help
- Keep it professional
- Keep records
- Use the possession procedures available
- Seek advice & help if you need it
- You do not help tenants by ignoring arrears!
Dealing with problems- enforcement
- Don't ignore contact from a local authority or other agency
- Explain the context
- Carry out work if it is required
- Be prepared to negotiate timescales
- If in doubt, speak to PDPLA
- Whether you choose to use an agent to manage your property or portfolio
- For tenant introduction
- Put your toe in with a self service agent
- Use them to provide part or all of the work
- It pays to understand the whole process
- The 3 golden rules apply
- Use the mantras as a check
This is not an exhaustive list, just key points
- Enjoy owning and growing your business
- Learn from the good bits and the bad bits
- Review your strategy in the light of experience or as your confidence and circumstances change
- Use your PDPLA membership as part of the learning process and to share your experiences with the rest of us.
This presentation/article is reprinted courtesy of Alwin Oliver who retains ownership and copyright - reproduction is not allowed without his express consent.
(Obviously this is a personal view and as with all advice from the PDPLA, we are fellow landlords talking from experience - any advice we give is simply our view on a topic and if your business may depend on any issue you face, you should take appropriate professional advice and not rely solely on our views).