Tenants: Take the easy option
It's never been cheaper to let others collect the rent and deal with tenants. Chris Partridge reports
Wednesday, 14 February 2007
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Fees for managing rental properties, traditionally a lucrative source of income for letting agents, are falling fast thanks to intense competition. Management fees, which cover inventory checks, rent collection, and cleaning and maintenance arrangements, usually run at 10 to 15 per cent of the rent. As a result, most buy-to-let landlords manage their own properties.
The huge growth of the private-rented sector has attracted many new agents to set up, and competition is intense. Management fees are set to fall, and new types of service are being offered.
The latest trend is for letting agents to charge a flat fee for a year's management. Christian Harper of Oliver Finn is pioneering flat fees in west London, believing letting agents are overcharging. "Fee structures were set in stone 40 years ago, but rentals have risen significantly since then and fees have risen much faster than the costs of the service," he says. "The majority of agents regard management fees as a complete licence to drink cash."
Instead, Harper charges a fixed fee of £1,500 regardless of the rent, and is refreshingly open about the cost structure behind this. "I outsource the management to a specialist company that charges us £360 per property per year, plus £60 for the gas certificate and £140 for the inventory. I make about £900," he says.
He readily admits that the £1,500 would be on the high side for very cheap properties, but he works in Chelsea where that's a bargain.
Jan Bartlett, a spokesman on rentals for the National Association of Estate Agents and owner of Premier Lettings in Oxford, believes flat fees will suit new developments. "I think there will be a growing trend with new properties for a flat fee to be charged basically to collect the rent, because with an unfurnished flat with new appliances there will be little else to do," she says.
Flat fees could put landlords in danger of being ripped off by fly- by-night letting agents, however. "There is a danger that if cowboy agents charge a fee up front, they could disappear with the money," she says. "That is why all letting agents should be licensed."
Lee Grandin of Landlord Mortgages is using technology to reduce management charges. Using the company's call centre and website (lettingagent.com), the marketing and administration is done electronically, including reference checks, drawing up the tenancy agreement and collecting rent by direct debit.
"We then leave landlords to do what they do best, showing tenants round and handling minor repairs, like fixing a pipe or putting on a door handle," Grandin says.
By splitting the responsibilities of management between the company and the landlord, the fee can be kept right down. "We charge 3 per cent of the monthly rent, which is nothing compared with traditional letting agents," he says.
Another London letting agent, Atkinson McLeod, has been expanding its management business with a classic "loss leader" scheme - free management for a year. While the scheme was in operation during the past couple of months, about 50 new properties were taken on in Balham alone.
Chris Dyke, lettings department manager in the Balham office, says: "The idea is that people will like the service once they have sampled it, and so far 85 per cent of landlords on the trial scheme have signed up for the paid service." In the second year, however, the management fee reverts to the usual rate of 10 per cent.
But Atkinson McLeod director Dan McLeod is ready to cut prices: "We are happy to see management fees come down, as long as we get the lettings."
