I co-founded a letting agency all the way back in 2014. Although I've never been hands-on in the business, overseeing hundreds of tenancies has taught me a lot of lessons.
At this level of scale, patterns and anomalies start to emerge that you wouldn't necessarily notice if you were just managing your own portfolio. In this article, I'll share some observations that you can apply to your own property business if you’re a self-managing landlord.
1. The 80/20 rule applies to properties and tenants
If you’ve not come across it before, the 80/20 rule is a phenomenon observed in many areas of nature which states that 80% of the results can be attributed to 20% of the causes. In business, this can be adapted to say that 80% of your profits will come from 20% of your customers – or, conversely, that 20% of the work will take up 80% of your time.
This is certainly true for property management, although in fact it’s probably more like 90/10 or higher: you can easily manage at least 9 properties with good tenants in the time it takes you to manage 1 bad property with a “problem” tenant.
In our case, we inherited a handful of properties that were already tenanted so we weren’t able to apply our normal referencing process. These few properties have taken up a terrifying proportion of our time: trying to get the rent paid, and even just get in contact with the tenants for routine matters has been a huge drain on our resources.
From this experience I’m now even more convinced of the importance of taking the time to locate (and reference) the right tenants in the first place – especially if you’re self-managing and it’s your own time that’s being taken up.
2. Why wouldn’t you take out a rent guarantee insurance?
With my own portfolio I’ve been very lucky in that I’ve barely ever had any problems with late rent payment. But when you hold enough properties for a long enough time, some problems will happen – and now I’m involved in a letting agency, I’ve seen first-hand what a pain this is to sort out.
Your most valuable commodity in life is your time, while the lifeblood of any business is cashflow – and non-payment of rent affects both. For that reason, we've worked with a leading insurer to develop a market-leading policy for our landlords with no excess and no delays before the payout is made. We only ever end up claiming on a tiny percentage of our portfolio, but it's still worth it.
If you're buying insurance, remember that not all products are created equal: some require the tenant to become a month in arrears before they start paying out, and for all policies you need to be very clear about what’s required of you so the insurer can’t use the small print to wriggle out of paying your claim.
3. Landlords have a lot of regulations to comply with
You will (hopefully) know that landlords are legally required to provide tenants with an annual gas safety certificate, and that you need to protect their deposit in a government-approved scheme.
But did you know that you should also have conducted a risk analysis for legionnaires’ disease, checked your tenants’ immigration status and provided them with about 50 pages of bumpf to make sure you can legally serve notice on them?
The most challenging thing, though, is that when you start out as a landlord nobody ever sits you down and tells you this stuff! That's why I wrote the book How To Be A Landlord, which actually does tell you – and does so in an entertaining, straightforward step-by-step way.
If you employ an agent, they should take care of all of these things for you – but you need to be aware that the burden is legally yours, so if your agent messes up it’s you who will end up in court. While I wouldn’t recommend paying an agent then spending all your time calling them up 10 times a day to make sure they’ve done everything they’re meant to do, I do think it’s worth knowing what your responsibilities are so you can watch out for anything they’re not doing properly.
4. Professional tenants take a lot less managing
I know people who have the most brilliant systems for managing LHA tenants, and make it look effortless. But it’s certainly not effortless – so unless you can find a brilliant specialist agent or invest many years in figuring it all out, you can expect professional tenants to give you a much easier ride.
Before joining us, our General Manager worked in an area with a high proportion of LHA tenants, and she’s been amazed by how much easier it is to deal with our professional tenants: there are fewer deposit claims, fewer maintenance issues, and arranging appointments like inspections is much less of a chore. And that’s before you even consider the challenges of dealing with the council part of the equation when it comes to getting LHA paid.
While this is true in general, of course there are exceptions: there are many fantastic LHA tenants and dreadful professional tenants. That’s why whatever demographic you’re targeting, it’s worth taking the time to find the right tenants and consider guaranteeing the rent.
5. Staying on top of repairs is vital
It’s tempting to cut corners and save a few quid if the tenant isn’t kicking up an almighty stink about something you know needs to be sorted, but if there’s something wrong it’s always better to sort it out there and then. You’ll end up paying for it eventually anyway – so you might as well get it out of the way, prevent it from getting any worse and keep the tenant happy.
And good tenants really won’t settle for substandard service. We manage one property which unfortunately – though no fault of the landlord or the tenant – had issues with mould. As it happens, the property is new and still has a builders’ guarantee, so rather than being able to take action immediately it’s taken a while to make the claim and get something done.
One set of tenants couldn’t live with the problem and moved out as soon as their contract ended – leaving the landlord with the expense of finding new tenants. This wasn’t his fault because there was nothing more he could have done, but under normal circumstances it would have been advisable for the landlord to take action immediately, keep a good tenant and fix a problem that would need to be resolved eventually anyway.
6. The best landlords know what they want but give up control
We work with landlords at all points on the “level of involvement” spectrum, from the extremely intense to the proverbially horizontal. It’s a tricky balance to pull off, but our best landlords make clear what they want and make sure they get it, yet leave us alone while we do it.
It’s a good approach to take with any letting agent, and also with estate agents and tradespeople: be clear about your expectations and make your displeasure known if something isn’t working to your satisfaction, but don’t feel the need to micro-manage. Have faith in your ability to have chosen the right professional to work with and their ability to get the job done, and only spend your time and energy by getting involved if it’s strictly necessary.