Making the figures work, keeping the cash flowing, being a profitable landlord – is it possible any more? Honest answer (from an agent who’s also a landlord) is, yes. If you do it properly, that is. Get the facts, find the value then do the maths.
Whether you have just one rental or a larger portfolio, your ‘property business’ needs to be commercially viable. It’s important to get a number of different factors all working in your favour. This includes wrestling with the negatives such as the Tenant Fees Act and the gradual withdrawal of tax relief to be fully implemented by April 2020.
Another frequently asked (and understandable) question from landlords is “do I manage the whole thing myself or pay an agent?” Agent fees always come under fire so, do you avoid them altogether by taking on the lettings role yourself?
Let me help you answer these key questions by taking you through the financial implications of property letting. What I’m about to share with you is based on our experience as a letting agent and as a landlord.
Letting agent fees
We might as well start with the gritty subject of agents’ fees. The real elephant in the room, however, is that most landlords don’t know the extent of the charges they really pay over time!
Most landlords can’t see beyond the monthly management fee. Yet, over the lifetime of a tenancy, a landlord may be paying their agent as many as 12 extra fees on top of the monthly management fee. And to be clear, often these fees are mandatory.
Our landlord clients are not obliged to pay any fees over and above our monthly management fee. Many of our competitors’ typical mandatory extra fees are included within our monthly management fee. We do advise our clients to consider paying for a Professional Independent Inventory and Rent Guarantee & Legal Expenses Cover, but they aren’t mandatory.
We regularly benchmark our fees in the Milton Keynes area and, taking these non-optional fees into account, we charge around 24% less than the cheapest, 110% less than the most expensive.
So, top tip to becoming a profitable landlord is find out what you’re really being charged! Those extra charges on top of the management fee will really mount up over the period of a tenancy.
Value for money
But don’t just look at what an agent charges. What do we do for our fees? The profitable landlord recognises the value we can offer you – reassurance and the removal of a large, legislation-heavy workload is what your agent should be offering.
Calculating cash flow is simple – subtract all your costs from the gross rental income (eg the amount your tenant pays) and what’s left is your income. What’s not so simple is understanding the exact nature of those costs (example, agent fees above) and how to reduce them.
A good letting agent manages the whole process; getting the right tenant into your property and ensuring you have a steady and sustainable income. All the while, addressing duty of care and helping you observe your legal obligations and not exposing you to costly penalties.
Forecasting based on the full facts
Every landlord needs reassurance that they can meet their obligations before making plans for the future and / or further investments. Being in possession of all the facts – or relying on the diligence of a professional agent – is the only way you can plan your finances and keep the cash flowing:
- Contingency plans in place to cushion you against the unforeseen or unplanned.
- A pragmatic tenant relationship combined with well-planned maintenance to reduce sudden outlays.
- Charging the optimum rent for the property, the area and the market (getting the highest rent is important, but it’s only one of many aspects of property letting that work together to create a profitable business).
- Access to the best third party products and services, such as insurance options.
It isn’t possible to be prepared for every eventuality. However, there is much an agent can do to help you even out the highs and lows caused by seasonal slumps, market fluctuations and the unpredictable nature of tenants.
Paperwork and procedures
Admin – the downfall of many a landlord to which enforcement of the Tenant Fees Act can simply add more grief. This is what works:
- Understanding the legislation surrounding property letting and knowing where the pitfalls lie.
- Having the procedures and processes in place to anticipate and avoid anomalies.
- Paying attention to detail using both diligent people and well-deployed technology.
The admin and paperwork involved in letting a property is considerable. It’s the difference between suffering financially (from things forgotten or missed) to taking advantage of opportunities that exist and can turn you into a profitable landlord.
Tax is complicated so a solid understanding combined with an attention to detail are paramount to staying both profitable and on the right side of the law. For example, the revenue vs capital expenses decision and the phasing out of mortgage interest relief. You need to find a tax expert who’s knowledgeable about the property letting sector – we’re a rare breed!
Being a profitable landlord is definitely within your reach
Our top tips distilled into just two bits of advice:
- Agent fees matter but probably not in the way you think! You need to be seeking the most ‘value’ from your agent, not the lowest ‘price’. Concentrate on the real value your property represents for you, such as freedom and financial independence.
- Have a very broad (and deep) understanding of every aspect of your ever-changing residential property business.
And back to the all important question “should I be managing the whole thing myself?”
Now you have insight into what’s involved, can you do it yourself? Or have you got better things to do with your time? The right letting agent works with you as a team and gives you the freedom to do other things.
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