How to make the lettings business easier
If lettings is getting you down, there are ways to ease the pressure, says Lisa Isaacs, so don’t throw the towel in just yet.
Landlords are seeing their own profits shrink, so can barely spare the cash for professional management and the Renters (Reform) Bill looms large. A tightening of EPC standards will follow and perhaps even a change of Government will ominously redraw the PRS lines. The gloomy forecast is for more landlords to exit the market. Will more agents follow them?
It doesn’t have to be a deft, decisive departure. There are ways of incrementally extricating yourself from the complexity of a lettings business. You may choose to take a number of steps towards a final withdrawal – a hop and a skip before you jump. Along the way you may find new efficiencies, more time and even increased profits and happily stay on board. You may also decide that the journey is terminal and only a leap out of lettings will do.
Technology takes the strain
“Whilst it might be tempting to consider outsourcing or downsizing first, there are a range of things letting agents can consider before they do,” says William Reeve at Goodlord. Agents are encouraged to consider more tech as a warm-up before they take the first hop, with automation able to drastically reduce the amount of hands-on admin.
Those who strategically build technology into their day-to-day operations can cut wasted time, free up their team to focus on client relations and boost revenues. William Reeve CEO, Goodlord.
For example, Goodlord’s lettings platform allows agents to reduce the number of steps per transaction from as many as 48 down to as few as eight. The product can also offer move-in service to new tenants to increase referral revenues, promote services to landlords, such as insurance, and move let only clients to income-generating ‘fully managed’ services without any friction.
“Agents need to make the most of technological innovations to streamline administration and make businesses fit for the future,” adds William. “Those who strategically build technology into their day-to-day operations can cut wasted time, free up their team to focus on client relations and boost revenues. It should be the first port of call when considering the next phase on your business journey.”
Reach for a helping hand Outsourcing is often regarded as a false economy but as the amount of lettings compliance and administration eclipses in-house time and resources, it’s a valid option, and provides an excellent halfway house for agents thinking of leaving lettings. “Ultimately, time is the most valuable commodity and this is exactly what outsourcing provides,” says Gill Waller at The Lettings Partnership. “Outsourcing can save agents money by providing increased efficiencies and allowing them to spend time building the business rather than just working in it. It also has the added bonus of giving agents access to skills and expertise that would otherwise not be accessible or affordable.”
Outsourcing can save agents money by providing increased efficiencies and allowing them to spend time building the business rather than just working in it. Gill Waller The Letting Partnership.
Outsourcing the more labour-intensive and problematic parts of lettings makes day-today operations more manageable. In the case of The Lettings Partnership, outsourcing client accounting not only releases agents from the burden of rent processing, it also affords peace of mind, knowing that they are complying with regulations and that landlords are paid on time.
Agents who feel daunted by the legal complexities of lettings can also lean on outsource partners. Third parties like Legal for Landlords devote themselves to a singular area of lettings so agents don’t have to. “Letting agents see us an extension of their property management teams; we enhance and add value to what they have in house,” says the company’s Sim Sekhon. Legal for Landlords’ expertise in compliance, Housing Act knowledge and daily interactions with courts, advocates and bailiffs make it an invaluable partner. In fact, it handles a minimum of 14 eviction cases daily, keeping up with evolving practices and regulations in a way agents simply can’t.
Our aim is to provide help, guidance and a wealth of knowledge, ultimately helping agents deliver exceptional service and navigate complex situations. Sim Sekhon Legal for Landords.
“What separates our team is their deep understanding of the challenges faced by letting agents and we’ve become one of the go-to names when agents need reliable support. Our aim is to provide help, guidance and a wealth of knowledge, ultimately helping agents deliver exceptional service and navigate complex situations,” adds Sim.
When outsourcing, agents can often struggle with how to broach the third-party involvement with landlords and tenants. White labelling is an option offered by some outsource partners, allowing all lettings and property management solutions to be offered under the agent’s brand.
As the amount of compliance and administration eclipses in-house resources, it’s a valid option.
White labelling is a great way to ‘let go’ but still trade on an agent’s reputation and create a seamless lettings service, but Gill at The Lettings Partnership is experiencing something different: “We have offered white labelling before but it seems that most agents want to be able to say they are using us – a specialist third party – as they see it as another selling point, giving their landlords peace of mind.”
A sideways move
The franchise approach thrives in property, with the arrangement presenting a number of advantages for letting agents and property managers who find themselves at a business crossroads. Joining ‘the fold’ gives professionals the relevant assistance if they have been struggling, often with a central office providing compliance, administrative and marketing assistance. Sometimes the support of a parent company is all an agent or property manager needs to stay in lettings – it’s a soft landing as opposed to a hard exit.
Belvoir is a familiar name in franchising that’s already helping a number of letting agents and property managers transition to a different business model. Its Director of Acquisitions, Recruitment and Property, Martin Bunney, has picked up on two pain points that are driving letting agents to get in touch.
Agents who are frequently off the pace or who haven’t got the resources to keep up with new rules can benefit from the IT, marketing and business support of a franchise. Martin Bunney Belvoir.
“Independent letting agents are finding it more challenging to remain compliant with constantly changing legislation,” says Martin. “Agents who are frequently off the pace or who haven’t got the resources to keep up with and implement new rules can benefit from the IT, marketing and business support of a franchise. Being an independent can be quite lonely too, whereas franchisees have the support of their franchisor and other franchisees,” adds Martin.
While we’re quick to assume all professionals want to quit lettings because the job has become all-consuming and overwhelming, Martin has actually noted a trend to the contrary, with some property managers wanting to stay and find a more lucrative path.
“One of the main reasons our franchisees turned to Belvoir is their frustration at working for someone else and making money for other people,” comments Martin. “Our property managers realise that their skills and expertise, together with the support of a reputable national franchise, could provide fantastic opportunities to leave employment and work for themselves, building assets for the future.”
Martin also points out that a recent Nat West survey reported that 80% of franchise businesses were still in business after two years, but this figure fell to 20% for independent businesses, so there is huge risk reduction and strength when joining a wider group. “We’ve already helped franchisees acquire over 100 businesses in the past six years and the Belvoir Group can provide financial support to make acquisitions.
Big brand backing
Succeeding in lettings is a mind shift Humberts is also keen to push, with franchise opportunities encouraging agents to open lettings doors rather than slam them shut. Becoming a franchisee may not always shrink a letting agent’s workload but it can make them more lucrative by being gifted new markets, better quality databases, bespoke market intel and existing clients – all with the backing of a bigger brand.
“Taking a franchise enables agents to break into a different market sector, possibly with a new client profile to that an agent is currently experiencing, which gives them an opportunity to explore a higher value market sector,” says Tim Stephens at the resurgent and franchisee-hungry Humberts.
While there is an appetite to exit the lettings sector, property is a seesaw – renting at one end and buying at the other – and there’s rarely equilibrium. The prediction of Nicholas Faulkner, Managing Director at Century 21 UK, is for agents to want to increase lettings activity – or re-enter the market – if sales take a severe tumble. Joining a franchise is a quick way of re-joining the lettings party.
The potential downturn in the sales market will result in many agents wishing to increase their lettings portfolio as this provides a stable income stream. Nicholas Faulkner Century 21 UK.
“The widely reported potential downturn in the sales market will result in many agents wishing to increase their lettings portfolio as this provides a stable income stream,” comments Nicholas. “Whilst the wider landlord profile is changing from small scale operators to an institutional PRS, the latter still relies on local agents for tenant sourcing and hands-on management. A number of UK-based Century 21 UK franchisees have specialised in lettings and management. This be particularly successful in areas with high student populations, especially where our international referral network has assisted.”
Merger model
Mergers can work when well executed, keeping businesses and staff intact and retaining the experience of the owners while they ease out of the business over time.
Southernbrook Lettings on the South Coast has facilitated the next step for lettings businesses. This large independent letting-only specialists is achieving rapid growth with an aggressive merger and acquisition programme. Three deals have completed in a matter of 14 months – a takeover of the established David Seymour offices in Gosport, Fareham and Portsmouth; a merger with Cocoon Lettings in Kingston and Guildford, and now a merger with Keats Lettings in Haslemere, Guildford and Liphook.
These mergers give agents access to Southernbrook’s state-of the-art system management and maintenance platforms, provides back-up support via staff with specialist management knowledge and creates a footprint for future growth. In return, agents gets to trade under their original name, retain control and continue with their sales operations.
The last resort – letting go
Sometimes an agent simply doesn’t have the stamina, the training or the support to keep a lettings business alive and in these cases, a sale may be the best option. Sales can also facilitate retirement or fund a new venture, so it’s not all doom and gloom.
Adam J Walker & Associates has sold over 500 letting agencies over the last 30 years, with businesses worth over £300 million pounds sold in the last 5 years alone, so it’s familiar with every type of sale. Selling a lettings firm, however, is not like selling a residential property and Adam says the biggest mistake an agency owner can make is to sell their own business. “Selling a business is totally different to selling a house – it requires expert knowledge and resources.”
Many agents managing their own sale believe they have achieved a good price for their business only to find it has sold for way below the market value. Adam Walker, Adam J Walker Associates.
Although a letting agency sale has many shared ingredients with selling a three-bedroom property – a marketing campaign, a database of buyers, an information pack and even photos – business sales are highly specialised. “There is no such thing as a Rightmove for business sales, as any advertisement would alert competitors to the sale and give them an opportunity to poach your staff and your landlords, which would be disastrous,” says Adam.
Unique to selling an agency would is a fixed period for asking questions, a formal closing date for offers, an intimate knowledge of the negotiating habits of database buyers (so they can be expertly managed) and a sale on a ‘zero cash, zero debt’ basis, so the debt is irrelevant.
Adam adds that a comprehensive understanding of accounting terms – such as accruals, prepayments, advance fee payments, working capital and apportionments – and an accurate information pack with comprehensive financial information are just as important when selling a lettings agency.
“Many agents managing their own sale believe they have achieved a good price for their business only to find it has sold for way below the market value, or that tens or sometimes hundreds of thousands of pounds have been clawed back through accounting tricks,” says Adam. “Agents can also waste money paying upfront for poor quality information packs – agents should run a mile from anyone asking for an upfront fee.”
Adam also sounds a note of caution for agency owners considering a merger with another business: “Most mergers fail because the shareholders cannot agree on the value of each of the businesses. And if no cash is paid, none of the shareholders are able to retire.”
If they get past these hurdles, Adam says mergers can then fail because the participants cannot agree on the trading name or who will hold each of the available jobs. Reporting lines, salaries and benefits can also derail mergers, underlining how the involvement of a business broker is essential.
