In This Guide
Administration
Being a landlord
Buy to let investment
Choosing the property
Finding tenants
Letting property
Lettings agents
Levels of service
1. Levels of service
2. Let only
3. Letting and rent collection
4. Property management
5. Added value extras
6. Cost comparison
Preparing the property
Problem tenants
Tenancy
Levels of service
Cost comparison
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Using people to let your property is an expensive business and it can seriously eat into the returns on your investment. Below, we compare the annual fees and charges that are likely to be incurred on a property being let for £150 per week at the different level of service. This is only meant as an indication, as the percentage fees and additional charges can vary quite substantially.
The additional costs, such as those incurred in relation to the inventory or the inspection reports are usually optional but advisable costs. Remember that you will have to pay VAT on everything including the fees and all of the optional extras.
One other point - don't forget that you can try to negotiate with the agent. If you have a number of properties, or are letting a home of a particularly high value, you may be able to squeeze the percentage fee down slightly.
The fees for a let-only service usually run at approximately 10
percent of the annual rent. There is normally a minimum threshold,
below which a flat fee is charged regardless of the rental value.
If the tenant stays in occupation after the initial letting, you
will have to pay the agent second and subsequent fees, though
this usually drops to around 7.5 percent of the annual rent.
|
Monthly rent Fee @ 10% Tenancy agreement Inventory VAT Total |
£650 £780 £50 £75 £166.25 £1071.25 |
The fees for a letting and rent collection service can run at
anything from 10 to 14 percent. This may seem quite steep, especially
when there are no problems with the tenants paying rent. However,
administrative costs can quickly build up in the cases of problem
tenants, and the lettings agents are covering themselves against
this risk.
As with the let-only service, there is normally a minimum threshold, below which a flat fee is charged regardless of the rental value. If the tenant stays in occupation after the initial letting, you will have to pay the agent second and subsequent fees, though this usually drops by a couple of percent.
|
Monthly rent Fee @ 13% Tenancy agreement Inventory VAT Total |
£650 £1014 £50 £75 £199.33 £1338.33 |
Fees for property management generally range from 14 - 20 percent
of the annual rent, again with a minimum threshold. Unlike with
the other levels of service, the fee usually stays the same if
the tenants renew.
You will usually find that a proportion of the fee is paid up front (often equal to the company's letting fee), with the remainder being paid early in the tenancy in a number of instalments. This can mean that even when your property has been let, much of the income for the first three months is taken up with payment of letting fees, management fees and establishment of the float, leaving you without a great deal of return. You need to be prepared to absorb this expenditure whilst still being able to cover your outgoings.
|
Monthly rent Fee @ 15% Tenancy agreement Inventory 3 inspection reports VAT Total |
£650 £1170 £50 £75 £90 £242.38 £1627.38 |
Plus float of £200
The managing agents will withhold a property management float
somewhere in the region of £200 - £250 to cover the cost of minor
repairs to the property and other sundries.
If the tenancy agreement is terminated before the end of its term
by anyone other than yourself, the lettings company will normally
refund some of the fee that you have paid them, on a pro rata
basis. Again, they will normally insist on a minimum fee, so if
your tenants move out after two weeks, you could end up seriously
out of pocket. Furthermore, it will normally be part of the contract
that you only get this refund if the lettings agent is given the
opportunity to re-let the property.
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