Like most other businesses, the primary purpose of a letting agency is to generate an income source for the business owners. The standard and most obvious ways to do this are by applying management and letting fees to landlords for whom the agent manages properties. There are, however additional income streams that can be leveraged from the business. This article reviews both traditional fees and other sources of income that you may not have considered.
1. Management Fees
Management fees form the bulk of an agent’s income. There are two main fee models employed by agents. The first, and by far the most common, is a percentage of rents collected. As and when an agent collects rent, a percentage will be deducted before paying the remainder to the landlord. An alternative to this is to charge a flat fee, typically each month. Many landlords prefer, and may even demand, the percentage of rents collected approach, as simply applying a monthly fee may not provide the necessary incentive to an agent to ensure rents are collected on time!
2. Letting Fees
A landlord is charged a letting or tenant-find fee by a letting agency in order to source a tenant for a property, or to renew a lease for an existing tenant. The amount charged will depend on whether the agent will be providing a managed or non-managed service (let-only) when the tenancy commences. The letting fee associated with a tenancy that will require ongoing management from the letting agency will tend to be less than that for a let only as the agent will generate further revenue throughout the tenancy from management fees.
3. Guaranteed Rent Schemes
An increasingly popular alternative to the standard management fee model is the guaranteed rent scheme. Under this agreement model the letting agent guarantees to pay the landlord a fixed sum each month regardless of whether rent has been collected or even if the property is vacant. In addition to this, minor maintenance issues are often completed by the letting agency without passing the associated cost on to the landlord. This all sounds fantastic for landlords who may be concerned about meeting buy-to-let mortgage repayments, but what’s in it for the agent? Under standard arrangements a letting agent will pass approximately 90% of the rental income on to the landlord; under guaranteed rent schemes the agreed, fixed payment is generally in the region of 70 – 75% of the market rental value. Thus, if the agent manages the properties efficiently under this scheme then significantly increased returns can be achieved.
4. Tenant Fees / Fines
Generating additional revenue from tenants is a thorny issue and often paints the letting industry in a bad light if not approached in a fair and balanced fashion. With increasing legislation, such as the Right to Rent checks now required in England, tenant applications take time and effort to complete. As such, many agents charge application fees to tenants. Note, that within the UK it is now mandatory to detail any applicable tenant fees when advertising a rental property. For existing tenants it is also justifiable to apply fines for late rental payments given the phone calls, text messages and letters that may have to be issued to collect missing payments. If you intend to issue such fines then ensure that this is reflected in the lease signed by a tenant.
5. Supplier Discounts
As a letting agent you probably turn to the same set of trades people, e.g. plumbers, electricians and joiners, when maintenance issues arise. Have you ever thought of negotiating discounts on the invoices issued by certain suppliers due to the volume of business that you provide? As it’s the collective needs of your lettings business that places the multiple orders with each supplier, rather than individual landlords, you’re more than justified in retaining any negotiated discount. RentPro accommodates this by allowing discount rates to be defined for each supplier. Completed jobs will be charged in full to the relevant landlord. However, payments due to the supplier will have the agreed discount applied, with the difference becoming an additional revenue source for your business.
6. Third Party Services
All of us can fall into the trap of running our business along the same tried and tested lines as others in same market place. If you want to come up with innovative ways of growing your revenue streams then the best place to start is to review the people that you already do business with. Here are a couple of examples:
- Landlords – Commissions can be earned by offering insurance products to landlords. Elevate partners with Advanced Rent who’s product suite includes Deposit Replacement Insurance and guaranteed rent products.
- Tenants – Why not offer tenants media packages or energy provider options via a 3rd party? Companies such as Tenant Shop will pay a commission for each referral with the added bonus of notifying local councils, water suppliers and energy providers referral fees of new and vacating tenancies.
If you already use some form of letting agency software within your business then it should assist you in exploiting all the revenue streams discussed above. If you’re a new agency looking for property management software, or an existing agent unhappy with their current solution, then why not try Elevate’s 14-day no-obligation, fully functional trial to see how it can help grow your business?