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LONDON LETTING AGENTS LOSING 80% POTENTIAL INCOME PER TENANCY

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A new research report has revealed how London letting agents could be missing out on thousands of pounds of potential income each year by not focusing on providing full property management to landlords.

Professional supplier to the lettings industry, ARPM, has developed a detailed report titled ‘Why let-only is a losing game for London letting agents’.

Combining various statistical and anecdotal evidence, the report reveals the downsides of let-only – a service typically favoured by agents in the city – and includes comprehensive example calculations that demonstrate how letting agents can increase their average annual income per tenancy by up to 80%.

Key findings:
• Ban on charging tenant fees will result in £400 less income on average per new let for London agents
• Longer tenancies mean there are fewer opportunities to earn income from let-only and tenant find services
• Let-only book contributes zero to business’s capital valuation
• Focusing on full property management can increase average annual income per tenancy by up to 63% in the capital and business valuation by 600%
• Untapped market of almost one million landlords who only use letting agents for tenant find services or do not currently use the services of a letting agent at all
• Increasing need for professional property management support amongst landlords – 80% of whom admit to finding it impossible, very difficult or quite difficult to keep up with constant regulation changes in the Private Rented Sector
• Private renting is now the most prevalent form of tenure in London and 36% of landlords who invest in London buy-to-let property live outside of the city

The report investigates the current state of the Private Rented Sector, the struggle for landlords to keep up with ever-changing legislation and suggests there is an increasing need for support from professional letting agents to let properties legally and safely.

At the same time, the negatives of focusing on let-only services are highlighted, particularly the lengthening time between new tenancies, inconsistent cash flow and the fact that income from a let-only book rarely contributes to the potential sale value of a lettings business.

To demonstrate the potential significant financial benefits to letting agents, numerous calculations and scenarios have been provided using specific fee, rental income and portfolio size assumptions.

The examples show how converting let-only landlord clients to full property management can increase annual income by 29%, rising to 63% each year over an average tenancy of 20 months in London, or 80% over an average tenancy of 3.9 years nationally.

The positive impact of increasing a managed book on business value is also revealed, as well as the additional benefit of opting for higher monthly management fees that incorporate let-only services, rather than a high upfront let-only fee and lower monthly management fee.

For letting agents who have limited resources to deliver additional property management, the report also shows the financial impact of outsourcing such services, something which ARPM has over 11 years’ experience in.

Simon Duce, Managing Director of ARPM, commented:
Having worked with many London-based agents over the past decade, we know from experience that they often favour let-only due to the large upfront cash injection they are able to secure without any ongoing commitment.

“In a fluid market where lets were often six months, tenant mobility was high and tenant fees could be charged, this was a plausible business strategy. Now that the market is slowing down and fees have been abolished, it’s a much less financially secure model to follow.

“Turning their attention to full property management is definitely something letting agents should be doing, and we wanted to highlight the potential financial benefits to them of doing so with this report.

“However, we also know that many agents lack the resources to instantly increase their service offering, so also wanted to show the healthy increase they can achieve to their bottom line by outsourcing property management. And in the financial examples we use, letting agents could instantly increase their income by 17% annually and 38% per average tenancy without any impact on their internal resources or workload.

Shared by: Charlotte Flake – [email protected]

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