What with your loss of tax relief on mortgage interest payments, an increase in stamp duty and capital gains tax imposed at a higher rate than on other home owners, landlords may be feeling under increasing pressure from a government that seems bent on punishing those who have bought to let.
It’s little wonder that tales are already beginning to emerge about landlords facing the difficult decision of raising rents or of selling up altogether.
It is the kind of pressure forcing landlords’ even greater attention towards that central performer in any buy to let business – and that is the tenant.
It is the tenant, of course, who provides the income on which the success of the whole business turns. That only happens, of course, when your accommodation is occupied by tenants who are paying the rent that falls due, reduce the amount you need to spend on repairs by treating the property with care and respect, and by staying long enough to minimise those void periods when there are no tenants there – and therefore no rental income to receive.
Although you might strive to achieve all these objectives through your own efforts as the landlord, there are professionals who make it their business to manage every aspect of your contract with your tenants – from finding them in the first place, to checking their references and credit standing, drafting the tenancy agreement, accepting a deposit, conducting an inventory and being generally on call for the duration of any tenancy. These professionals are the letting agents.
They may play an invaluable role in helping you manage the very core of your buy to let business – your relationship with your tenants. Depending on the instructions you give, some letting agents may also take on responsibility for managing the required repairs and maintenance of your property.
Clearly, these are professionals you stand to make a considerable difference to the success or otherwise of your buy to let enterprise. Choosing a letting agent, therefore, is an important decision and one which this brief guide is designed to help you make.
The guide considers the following questions and issues about finding and using a letting agent:
Tackle the task along these lines and you may secure the type of professional which not only makes your job as a landlord far more simple and straight forward – releasing you often to get on with other or more important issues – but also contributes to the overall financial strength and success of your buy to let business.
Letting agent or DIY?
One of the aspects likely to have attracted many an investor into the buy to let market is the apparent ease of taking on the role of landlord and the seemingly straight forward job that needs to be done.
How difficult is it going to be, after all, to let other people live in a property you’ve bought – or otherwise come into – and collect a rent from them each month for the privilege of their doing so?
The answer, of course, is that the job is likely to be considerably more complicated than that. It is likely to demand considerably more time and effort than you first imagined – and the cost of getting it wrong might be rather more expensive than you bargained for.
At the heart of the landlord’s role, of course, is a contractual relationship with those individuals relied upon to generate an income for any buy to let business – the tenants.
Finding tenants, ensuring that you have picked the most dependable when it comes to paying the rent and the most trustworthy when it comes to treating your property with respect is the foundation on which the landlord tenant relationship is based. As part of that relationship, you need to draw up some form of formal contract between the two of you to agree the terms and conditions of the rental, draw up an inventory on the condition of the property and its contents, take a deposit from the tenants as security against any breakages or damage, collect the rent each month, and generally respond to tenants’ requests for attention and action on your part for the duration of the tenancy.
This is a job you may indeed take on yourself, or it is one which you might choose to delegate to a profession – so let’s take a brief look at the two options:
- from the moment you take on the role of landlord, you also assume a raft of responsibilities and obligations – and your compliance may be a question of law or local regulation;
- a broad description of these responsibilities and obligations is contained on the official government website;
- if you are going it alone on a DIY basis, you need to satisfy yourself that you have a clear understanding of each of these formal requirements and make sure that they are followed;
- when you know which side of the law you are standing, it is time to find those tenants who are going to be providing the income for your business by paying the rent;
- one way or another, this requires letting potential candidates know that you have the accommodation to let – you need to advertise its availability in other words;
- it means you need to design and write the copy for your advertising and then purchase the space in local newspapers, broadsheets for tenants, online listings, shop windows, or by word of mouth;
- showing prospective tenants around the property is a two-way process in which it is not only they who are inspecting the accommodation, but you who are interviewing them and trying to decide whether they are going to make reliable and trustworthy tenants;
- to support any decision you reach, you then need to make a number of background checks to test their likely reliability – usually by taking up references, preferably from previous landlords when these are available, and by evaluating their financial standing in order to pay the rent each month;
- when you are satisfied, you have to draw up a tenancy agreement which sets out clearly the terms and conditions on which you are letting the property – and which protects your own interests as the landlord;
- as security against any breakages or damage caused by your tenant you typically collect a deposit, which then needs to be deposited with an approved, independent third party for safe keeping;
- so that there is an agreed statement of the initial condition and contents of the let property, you have to draw up and conduct a detailed inventory of the premises;
- you arrange collection from your tenants of the rent due each month – or as often as the tenancy agreement requires;
- you may need to gain access to the property during the course of any tenancy, either to inspect its condition or to make repairs; and
- you have to be available to answer tenants’ queries about ongoing issues during the tenancy – especially with respect to organising repairs;
- quite reasonably alarmed by this – by no means exhaustive – list of things that must be done, many landlords decide to delegate responsibility by delegating much of the work to letting agents;
- whilst you remain responsible for compliance with the law and local regulations governing any tenancy, a letting agent is there to remind you of your obligations and to ensure that necessary measures are taken;
- critically, a letting agent’s professional judgment and experience of working in the area is likely to help you determine the maximum yet realistic rent you may ask for the property;
- the agent then usually takes on the responsibility for advertising the letting and finding suitable tenants;
- references are taken up and credit checks of prospective tenants are typically carried out by your letting agent, who also draws up the tenancy agreement and arranges for it to be signed;
- the agent receives any deposit and ensures that it is placed with an approved, independent third party – but it remains your responsibility as the landlord to ensure compliance with this legal requirement;
- your letting agent usually compiles and conducts the inventory when tenants move in – and again when they move out at the end of a tenancy;
- the agents serve as the first point of contact from any queries or requests for repairs that are raised by tenants occupying the property; and
- depending on the nature of your contract with the letting agents, they may also assume responsibility for arranging a schedule of maintenance and repairs and for organising any work which needs to be done during the course of a tenancy.
It is clear, therefore, that a letting agent’s duties and responsibilities may be comprehensive and far-reaching – so how do you go about finding one?
Finding an agency
On the face of it, finding a letting agent appears to pose no real problem – some have a shop front on your local high street and advertise quite extensively in the local press.
As the long list of responsibilities and duties typically taken on by a letting agent suggests, however, finding the most suitable, competent and experienced letting agent is likely to prove critical to the effective – and profitable – management of your buy to let business.
You might want to take a look in some of those shop windows, therefore, to see the type of properties currently on the books of local agents and whether these have any similarities with your own.
When you have shortlisted the most promising, you then need to ask the agents more searching questions, not only about the properties currently on their books, but how long they have been there and their success rate in letting those properties at the advertised rates – an agent who allows your property to stand empty, without any tenants for any length of time, is of course going to cost you money in terms of lost rental income.
Apart from the detailed questions you need to ask the letting agent, there are also those you might ask like-minded professionals in the business of buying to let. These might include your fellow landlords in the area – especially those with similar properties that have been let through agents – or other professionals such as your bank manager or accountant.
Legal services experts, Landlord Law, suggest that you choose a letting agent with membership of the National Approved Letting Scheme or the professional associations which are party to that scheme, such as the Association of Residential Letting Agents. In addition, and in anticipation of any dispute which might subsequently arise with your appointed agents, you may also want to choose one that is registered with the Property Ombudsman.
What to ask a letting agent
One of the first questions you are likely to ask any prospective letting agent – and maybe your main reason for looking for one in the first place – is to establish just how much you might reasonably and realistically charge for rent. As the landlord, of course, your interest is in maximising the rental income. This is also in the interests of the letting agent – whose fees may be based on a percentage of the rental income you receive – but tempered by the knowledge that rental levels also need to be sufficiently realistic to attract and retain the tenants you need.
Professional letting agents are generally sufficiently competent in this regard for your buy to let mortgage lender to have consulted one when determining the estimated commercial viability of your business – and the affordability of any mortgage, therefore – based on the income likely to be generated.
Your questions are also aimed at establishing just how effectively an agent is likely to perform.
This is likely to include questions about the number of properties currently managed by the firm, the number on its books, but also more searching questions about the number of lettings in which tenants are in arrears with their rent. In the last case, follow up with questions about the action the letting agent is taking to recover those arrears.
A letting agent’s principal job is to advertise your let property, select prospective tenants, arrange viewings for them and enable you to move safely to a tenancy agreement.
The kind of evidence you might be looking for includes:
- the actual advertising media to be used – local newspapers, emails to prospective tenants who have registered an interest in renting in the area;
- listings online through some of the most visited websites such as Prime Location, Right Move and Zoopla;
- any internal advertising likely to be carried out within the agency itself;
- whether a professionally designed “To Let” sign is to be erected outside your property;
- do agency staff work a full six days a week in order to show prospective tenants around; and
- what security is maintained for the keys to your property – whether they are simply handed over to tenants to let themselves in or whether any visit needs to be accompanied by a member of staff.
References and credit checks
Naturally your interest is in the property being occupied by tenants who pay their rent on time and who treat the accommodation with the care and respect it deserves. Being able to retain the same tenants over the relatively long term also reduces expensive voids when the property stands empty between tenancies and no rental income is being generated.
Ask the letting agency, therefore, how they propose to screen prospective tenants. What efforts are made to test and establish the reliability of any references taken up and what credit checks are made on the tenant’s ability to afford the rent demanded.
Inventories and inspections
Your letting agent is intended to be your eyes and ears, looking after the property on your behalf.
How is the initial inventory compiled, therefore, how detailed is it – does it include photographs, for example – and at what stage are incoming tenants required to agree the contents of the inventory?
On an ongoing basis, how often and at what intervals does the letting agent intend to inspect the property for damage, breakages and general wear and tear?
Finally, you might want to ask any prospective letting agent why you should choose to instruct them, rather some other agent in the area.
What added value are they able to offer you in the running and management of a successful buy to let business for example.
Agree the terms
When instructing any professional to act on your behalf, there are typically two essential questions to ask:
- exactly what services are going to be provided – both the nature and extent of those actions that are going to be taken; and
- how much must you pay for those services.
It is no different when it comes to agreeing terms with a letting agent.
You need to establish what you must pay for the services provided and whether these extend to letting only or involve a full management contract (where the agent assumes responsibility not only for all aspects of the tenancy but also a managed program of repairs and maintenance.
Fees are likely to vary widely, not only according to the level of service provided, but also from one agency to another – so it pays to shop around and attempt to negotiate the best rate.
How long is your agreement with the letting agent intended to last? More to the point, however, is whether there is any cancellation fee or minimum period of notice required if you choose to switch agents – you want to avoid being locked into too restricted an agreement.
In addition to the letting agent’s fees – whether these are based on a fixed price or percentage of the rental income generated – it is usual for you to be charged for additional, individual services.
Examples of these additions might include:
- an initial administration charge whenever a new tenancy is agreed and the tenants move in;
- additional charges for compiling and conducting inventories and drafting tenancy agreements;
- charges for arranging such statutory documentation as the annual Gas Safety Certificate, Energy Performance Certificate (EPC) and the tenant’s How to Rent checklist.
You need to make sure that you are aware of all of these additional charges and whether they appear reasonable.
Instructing a letting agent may take a lot of the weight off your shoulders when it comes to running a successful buy to let business.
Whenever you employ professional services such as this, however, it is important to establish just what you get for exactly how much you pay.
This guide has been aimed at helping you address just these questions.