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Managing Without A Letting Agent

According to NLA research, 57% of landlords use letting agents.  Of these 37% are regular users, 19% occasional users and 22% use full management.  So a big whopping 43% are choosing not to use agents and many will be taking advantage of the wide range of services out there now for this part of the lettings market.

There are many advantages to using a good ARLA or UKALA member letting agent.  If you have a full time job or family commitments or if you live a long way from your properties then having an agent on the ground is useful.  They should be up to date with the latest regulations and have a ready made maintenance team with a 24/7 contact service for tenants.  They can also create useful distance between the landlord and tenant which can be helpful when negotiating rent increases or dealing with tricky issues.

In terms of disadvantages, the letting agent fee will obviously eat into your profits.  The efficiency of letting agents is variable.  One local authority official told me that he could only hand on heart recommend 18 out of more than 200 agents in his borough, so be sure to shop around if you want to use one.  Some agents are not rigorous enough on tenant selection and landlords often complain about failure to provide proper paperwork and sloppy maintenance and repairs.  You may decide to just use an agent to find a tenant as this avoids you having to do lots of viewings and organise referencing.  If so, be aware that agents in London tend to charge percentage renewal fees for any subsequent years that the tenant stays on in the property.  You can try negotiating this with the agent – but do this before you instruct them, not after they have found the tenant.

If you choose not to use an agent, you need to value your time as a resource and decide if you are happy to invest it in tenant management.  I would argue that the distance created between you and the tenant when you engage an agent can also be a disadvantage.  If the tenant never connects with you, the landlord is left to their imagination.  Perhaps they have had bad landlords in the past and they imagine you are too – they have very little to go on.  Your lack of direct communication can feel like disinterest and why should they have any loyalty to you or your property if they’ve never met you.  I think your landlord tenant relationship is the most valuable asset in your business, so hand it over to a bad agent at your peril!  Using an agent can also de-skill you, because you don’t bother keeping up with all the latest regulations.

If you are going to self-manage, make sure you buy or refurbish properties with low maintenance in mind.  Don’t embed cisterns and shower pipe work, you’ll have to remove the tiles to get to them when they leak.  Make sure there is access to behind the bath panel and under shower trays, don’t box in the top up tap for the boiler.  The list is endless, but you get the idea…    If you buy leasehold you’re going to have to deal with a freeholder and management agent,  that means more work and fees, better to buy freehold if you can.  You will need to get a maintenance team together, as a minimum a builder, plumber, gas engineer, cleaner and gardener.  Managing relationships with them is the challenge.  Generally you are looking for price, quality and reliability.  Aim to get two and a half of those, it’s rare to get all three.  If you have one main maintenance contractor you can give him or her a set of keys and set up systems like job sheets.  I use dropbox so that my maintenance guy has all the job sheets and photos on his mobile, there’s more on this on my managing maintenance factsheet.

To find a tenant, you can get access to all of the online portals through providers like Upad.  Take marketing photos – landscape are best – of the property when it’s empty if you can.  I always have a set on file.  I think layout plans are good too, Upad can help with this and other extras.  Create selection criteria so that you are clear what you’re looking for.  It also stops you from bringing in irrelevant factors that might cause you to discriminate and breach the 2010 Equalities Act.  Tenants will contact you directly and I always conduct an initial sift by phone interview.  So I ask tenants how many occupants there will be and about their current living and employment circumstances.  You will only need to conduct viewings with people who pass your initial sift.  The viewing is really a second interview, ask open (not leading) questions. I ask if they plan to move anybody else in (sublet) and what they think of the property.  My properties have stripped floors and fireplaces, I need my applicants to enthuse about the style of the property, if they don’t I am less convinced they will look after it. If I am uncertain about an applicant I try and engineer an opportunity to pop over and see them at their current home, so I can see how they are maintaining that.

You’ll need to set up robust systems for managing the application process.  I recommend asking for a holding fee if a suitable applicant makes an offer.  If they change their mind, you can keep this to cover your costs as long as it is a reasonable, proportionate amount.  Otherwise it will go towards their first month’s rent.  I make a conditional offer with a proposed move in date, subject to satisfactory references and then use NLA Tenant Referencing to carry these out at a cost of under £25 per tenant.  Allow 2-3 weeks for referencing as referees can take forever to respond and you may need to request and reference guarantors.  If references are satisfactory, you can confirm the conditional offer to the tenant.

You will also need robust systems for setting up the tenancy.  I use the NLA Tenancy Agreement, mydeposits to register the deposit and I do my own written and photo inventory.  In order to retain your right to issue a section 21 notice in England & Wales, you must make sure that you have given the tenant the EPC, gas safety certificate, deposit protection certificate and latest downloaded edition of the government’s ‘How To Rent’ booklet.  I email these to the tenants and also ask them to sign to say they have received them as part of the inventory.  Include a check box on the inventory confirming you have tested the smoke alarms in the tenants’ presence.  All of this paperwork should be presented to the tenant at an induction meeting.  Don’t hand over keys until you have received a 5 or 6 week deposit and one month’s rent as cleared funds and the tenancy agreement has been signed by all parties.  The induction meeting is your opportunity to set the right tone for your relationship with the tenant.  Show them how to bleed a radiator, change a shower hose, top up the boiler, switch off the stop cock, mow the lawn and encourage them to report repairs to you promptly.

Once the tenancy is up and running, if you are self managing you will need to deal with any issues that arise.  Periodic inspections will help you to manage proactively as you can spot any problem and get a general sense of how the tenant is managing the property.   With most of my tenants, I am reassured at the inspection that all is fine and whether there are likely to be ongoing problems.  You need to adopt a customer service approach where you are helpful and maintain professional boundaries.  I aim for Marks & Spencer customer service, don’t quibble over a few pounds and if the tenant is good reward them if you can.   So if an appliance breaks done and it’s more than 5 years old, replace it.  A new machine will cost little more than the repair.  Behaving like a cheapskate does not make good business sense and good will between you and your tenant is to be nurtured as a valuable asset.

A challenge for all property managers is dealing with tricky situations.  Typical scenarios are tenants moving extra people in, causing excessive noise or other anti social behaviour, untidiness which might cause excessive wear and tear and failure to report maintenance issues.  You can find more information on how to manage these issues at my dealing with tricky tenants blog.

If you’re managing without an agent, make sure you manage the end of the tenancy effectively to avoid voids and avoid a difficult exit.  If you’re using 12 month agreements, that gives you a legitimate reason to discuss the end of a tenancy if there are problems and you don’t want to renew.  For good tenants, the offer of a further 12 months gives them security and encourages them to stay for longer.  I aim to speak to tenants about 3 months before the agreement is due to end and if they are uncertain, firm things up 2 months before the end.  It’s better to be legalistic and slap section 21 notices on the table only as a last resort.  If I’m worried a tenant might not leave when they say they are, I usually write a letter confirming when we have agreed they will leave and say I’m attaching a section 21 notice because I’m an accredited landlord and I like to make sure I do things correctly.  But the emphasis is on what we’ve agreed between us, not on “you must go because I’ve served a notice on you.”  It’s very hard to evict a tenant well if you simply want them out.  They may resent you, stop paying rent and trash the property.  It may be better to say you want to sell the property or have relatives who need to move in to it and then be a bit flexible on the move out date.

I issue a check out letter to tenants about six weeks before they are due to leave, confirming the exit time.  It also includes a checklist of all the things that can be issues at checkout and advises them on how they stand the best chance of getting all of their deposit back.  Cleaning is the biggest cause of disputes between landlords and tenants at exit, so I always recommend good professional cleaners.  If you are on good terms with the tenant, there should be no problem allowing viewings, but be respectful.  It is their home and you should only conduct them with their permission at a time that works for them.  This is also an opportunity to identify any works that might need doing and get your maintenance team lined up so that they can do them as soon as the tenant leaves and minimise the void.

There is a lot of paperwork at the end of a tenancy.  You’ll need to complete an exit inventory and take photos, especially if there are any issues.  If you plan to propose deductions, you’ll need to negotiate that with the tenant, then return the deposit and unprotect it. Avoid going to dispute resolution unless you’re chasing a big sum.  It’ll take a lot of time, cause huge stress and you’ll get very little back unless you have very robust evidence.

There’s also managing the utilities and council tax – you’ll probably have to take over accounts inbetween the exiting tenant and the new tenant – which is quite labour intensive.  I tend to email the utilities, council tax and water company but you’ll need a spreadsheet to keep track of them.  I find it takes energy companies an average of two months to open and close an account for 5 days inbetween tenants and the likelihood of them making errors is high.  Avoid Npower at all cost as they will put 2 credit searches on your credit file, one for gas and one for electricity and that will impair your credit score, which is a serious matter if you are planning to remortgage a property.  Opening 2 accounts within a six month period makes you look risky to lenders even if you just owe Npower a few pounds for a 5 day energy account – ridiculous isn’t it?  Most other energy providers don’t do credit searches in these circumstances.  Don’t email utilities until the new tenant has moved in.  That way you can send them one email saying when the old tenant moved out and the readings, how long you were responsible and who the new tenants are plus their opening readings.  Sending one email with all the details minimises the likelihood of errors.

So is managing your properties without an agent worth all of the hassle?  Well it’s worth looking at the savings and then considering how valuable your time is to you and all of the other pros and cons I have outlined.  If you were renting a property for £2,000 per month, you would typically pay an 8% let only fee of £1,920 or a 14% management fee of £3,360.  Without an agent you would probably spend £99 advertising through Upad, £25 per tenant for referencing and £75 for annual membership of the NLA so you can use their advice line for any help you might need.  It is a lot cheaper and your direct connection with the tenant is very valuable.

This blog is a summary of the presentation I made at the Property Investor Show in London in October 2016.

 

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