Buy-to-let Management Costs

According to the government’s Private Landlord Survey 2010 a little more than half of all landlords (57%) handled both the letting and management of their properties themselves. For anyone new to the game there is a lot to learn. There is plenty of useful advice available.
The Landlord Handbook published by ANUK (Accreditation Network UK) provides comprehensive advice to landlords on managing buy-to-let properties. It includes guidance on starting and ending tenancies, tenancy agreements, letting and managing agents, repairing obligations, gas and electrical safety, taxation, and all the regulations governing the private rental sector.

There is a variety of organisations providing advice and services to landlords that can be found by a search of the internet, and anyone new to the business would be well advised to make good use of them. Examples include the Residential Landlords Association, LandlordZONE, the Association of Residential Letting Agents, Property Hawk, and Buytolet.com.

Most lettings agencies also operate as estate agents. They provide a range of options for landlords:

1. Letting only: This is where an agent markets the property, advises on rent levels, finds a tenant, undertakes reference checks, provides a tenancy agreement, draws up an inventory, and moves the tenant in. The agent usually charges the landlord a one-off fee for this, often equivalent to one month’s rent. The agent may also charge the tenant an administration fee, although this is illegal in Scotland, and there are proposals to outlaw it in England & Wales.

2. Letting and Rent Collection: where the agent finds a tenant and also collects the rent.
They usually charge a one-off letting fee and then a monthly fee (often a percentage of the rent – perhaps 5%) for collecting the rent.
3. Full Management: where the agent acts as a full letting and managing agent. The agent deals with all management issues: letting and starting the tenancy, rent collection and repairs. The cost is likely to be 10% to 15% of the rent, plus VAT. The cost of repairs is not included, and you will be relying on the agent to get a good price from the repairs contractor.

4. Guaranteed rent agent: offering a guaranteed rent to landlords, irrespective of whether the property is rented out or not. The landlord assigns the property subject to the terms of the contract, to a company (or social housing provider) who pays an agreed fee for the duration of the agreement. Any tenant renting the property is the tenant of the company and not of the ‘landlord’ who becomes the superior leaseholder.
It is important to check exactly what fees will be incurred by using a lettings or management agent, and worth asking whether they also charge the tenants. Watch out for repeat fees if the tenants renews their tenancy. Do the fees they quote include VAT or is that additional?

The role of agents is changing as a result of the success of companies like Zoopla, Rightmove, Findaflat, Moveflat, Gumtree, and many others through which rental properties can be advertised via the internet at a fraction of the cost of using an agent. Similar things are happening in the buying and selling of houses.

As a result many of them have had to raise their game, and provide a much more effective service, particularly in selling or letting properties.
The Association of Residential Landlord Agents provides advice on finding an agent, as well as being an excellent source of information on the rental sector through their regular newsletters.

There is very little guidance available on the costs incurred in DIY management, beyond the obvious things like property insurance, and accountancy fees. You might budget around £1,000 per unit pa until you can base them on your own experience.

The annual management costs of social housing providers vary enormously. According to the Global Accounts published by Socialhousing.co.uk for English social housing providers for the financial year 2011/12 they averaged £908 per unit. Going back over the previous four years it was £873, £884, £893, and £844.

This excludes depreciation and impairment costs (which buy-to-let landlords would not normally take into consideration).
The costs that a housing association managing several thousand properties would experience are rather different from those of a small private landlord, so may not be much use as a comparison.

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