With even the best investment on paper, you're not going to actually start making any money until you've got a tenant in place and paying you rent.
If you relish that part of the job – your role as “landlord” rather than “investor” – then you'll have no hesitation in jumping in and managing everything yourself.
But there are many other property owners who don't really want to be landlords – they'd be far happier if the money could just roll in without the need for tenants at all. Then there are others who wouldn't mind doing it themselves, but doubt their ability to get it right.
If you don't want anything to do with finding and managing tenants, you can of course use a letting agent – but that comes with costs and concerns too.
So what should you do?
Types of letting agency service
Letting agency services come in two main flavours: Let Only, and Fully Managed.
A “let only” service is where the letting agent:
- Markets the property
- Does viewings
- Finds a tenant
- Reference checks them
- Draws up the tenancy agreement
- Conducts the inventory
- Moves them in
Then once the tenant is in, you're on your own.
Fees for a Let Only service are typically charged as either:
- A percentage of the annual rent (5-8% is typical)
- A one-off fee (maybe £300-600)
As agencies soon won't be able to charge fees to tenants, my belief is that Let Only services will become more expensive for landlords – but we'll have to see what happens.
Full management should – as the name implies – cover everything that needs to be done in the course of dealing with your tenants.
- Collecting and passing on the rent, and chasing it up if it isn’t paid on time
- Inspecting the property regularly, and updating you on its condition
- Taking care of your legal obligations, such as gas safety certificates
- Arranging any maintenance that's needed
- Responding promptly to tenant requests and keeping them happy
- Handling rent increases, renewals, check-outs and so on
Fees for full management are usually charged as a percentage of the rent, with something in the range of 7% to 15% being common. They might also charge separately to find tenants in the first place, or this might be absorbed into the management fee.
Should you self-manage instead?
So with a rent of £500 per month, you could find yourself forking £50 over to a managing agent each month. Or with a Let Only service, every time a tenant moves out you're set back by several hundred pounds.
Does that mean you should just do it yourself and save the money? The answer comes down to a few different factors:
- Valuing your time
- What you enjoy
- Your confidence
Valuing your time
Let’s say you use an agent to perform a Let Only service, and they charge you £300. If you value your time at £100 per hour, then it’s a good deal for you if the process would take you longer than 3 hours.
Given all the correspondence, viewings, referencing and paperwork that it involves, I think it almost certainly would take longer than that – even if you’ve got your systems down to a really fine art.
The same logic applies to full management too. By way of example, let’s say your property commands a monthly rent of £500, and you’re paying a pretty typical management fee of 10% – so £50 per month. If you value your time at £100 per hour, then it’s a good deal for you if managing your property would take more than 30 minutes per month.
Some months it would probably take two minutes to check your bank balance and that’s it, but in a month where there’s an issue and you have to start ringing around for tradespeople, it could easy take several hours.
The concept of assigning a monetary figure to your time isn’t something that people typically do, but you should – given that it’s the only truly finite resource you have. If you have a job, it’s easy to do: take your annual net salary, and divide it by 1750 (the number of working hours in a year, based on a 35-hour week) to arrive at your hourly rate.
It’s an important measure that can put a whole new spin on whether it’s better to spend an hour washing the car yourself to save paying £4 to have it done at a car wash. But it’s not strictly accurate, because as a typical employee you generally can’t choose to work one more hour and earn one more hour’s pay. What you’re doing more usually is giving up your leisure time, which is why it’s important to consider what you enjoy too.
What you enjoy
Some people love the business of being a landlord. I know plenty of people who get a huge kick out of interviewing potential tenants, keeping them happy, and leaping into action whenever there’s something that needs fixing. For these people, using a letting agent would be a terrible idea: it would deprive them of something they enjoy, and they’d be paying for the privilege.
Others just couldn't have any less interest, and view the property as a pure investment – like a share certificate or a lump of gold. They'd not only resent every time they had to do anything for a tenant, but they'd also do a poor job of it – because if they've got no interest, they probably wouldn't learn what they need to know to do the job properly.
Ultimately, most of us are investing in property now so that we can enjoy a better lifestyle in the future, but let’s not forget about that lifestyle now: if you enjoy being a landlord, don’t let anyone stop you, but there’s no sense in being a martyr just to save a few quid.
Assessing your confidence
The final factor is confidence: how much do you back yourself to successfully complete all the tasks that go along with being a landlord? The consequences for getting it wrong can be severe – legally as well as financially, as there’s a mountain of legislation to comply with, and it’s changing all the time.
This is where enjoyment comes back into the picture, because you’re more likely to keep on top of best practices and changes in the law if it’s something you enjoy doing. But that aside, managing a property involves a broad range of skills, so you need to judge how confident you are that you can make a good job of it.
It doesn’t take much of a knowledge gap to leave you exposed. For example, if you fail to correctly register a deposit, you could be sued for up to three times its value. Or you might end up overpaying for a repair because you don’t have the contacts or the knowledge of how much it should cost you.
It’s natural for your confidence to start out low then increase with experience, so you might want to use a letting agent for your first property, keep an eye on what they’re doing while referring back to this book, then decide to take on the job yourself when the tenants move out.
Conversely, some people are highly confident and prefer to jump right in at the start, do everything themselves to figure out how it all works, then pass it over to a letting agent after a year or two when they’re in a better position to judge whether they’re doing their job properly.
So, should you use a letting agent?
There’s no doubt that using a letting agent is the right choice for a lot of people – otherwise there wouldn’t be so many of us in business.
But then there are also a huge number of landlords who happily self-manage, so it’s really a case of knowing yourself and taking account of the money, what you enjoy, and how confident you feel.
And remember: once you’ve started going down one route, it doesn’t mean you’re tied into it forever.
One thing you definitely want to avoid is deciding to use an agent, then finding that they do a terrible job – meaning that you have to spend more time battling with them than you would managing the property yourself, while paying for the privilege.
Read my book, How To Be A Landlord
As a property owner you should be up-to-speed with lettings law and all the responsibilities that come with being a landlord, even if you delegate those responsibilities to an agent.
Because if you don't know, how can you tell if the agent you've appointed is doing a good job? Remember: if they make a mistake with serious consequences, it's you who's legally responsible.
That's why I wrote my book, How To Be A Landlord. It shows you exactly how to do it yourself, but is also a nice easy read for someone who just wants an overview so they can check their agent is doing a good job.