The 21st Century Letting Agent – Protecting the Landlord’s Interests

by Roger Lancaster

11:06 AM, 19th January 2012
About 7 years ago

The 21st Century Letting Agent – Protecting the Landlord’s Interests

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The 21st Century Letting Agent – Protecting the Landlord’s Interests

In the previous article I tried to make the point that a Letting Agent should act like an Asset Manager, managing a landlord’s portfolio to maximise the benefit to the landlord. This could only happen if the interests of the landlord are directly aligned with the interests of the Letting Agent but if this did occur, it would revolutionise the letting agency sector.

However, even if the financial interests are aligned there are numerous other aspects of the service a modern agency should attend to in order to maximise the security of a landlord’s investment. After all, what good does maximising income do if the agency goes broke owing the landlord thousands of pounds or tenants with hundreds of pounds of arrears? A 21st Century Agent can actively work to protect the landlord by insuring they maintain the income to the landlord and protect against default.

To this end they should be doing ALL of the following.

Maintaining Income

  1. Pay the landlord the following weekfor the rents collected the previous week less fees and repairs charges, rather than wait till the end of the month plus usually at least a further 14 days as many agents do, benefiting their cash flow and putting potential losses in the case of default so much higher. With two agents a week going bust, this is of pressing concern and under this system potential loss is limited to two weeks rent at most, rather than two months or more under the process less able agencies adopt.

    Cash is king and it should be in your bank working for you and not in the agencies bank working for them. While it’s in their account it is vulnerable. Some will argue it is possible to pay the moment the funds are cleared and for those with one or two properties this is suitable. For portfolio landlords though, a single payment each week reduces banking costs and, allied with a proper reporting system (more on that in a later article), is more than adequate.

  2. Collect all Private Tenancy rent by DDas a condition of the tenancy. This has two benefits. Firstly, your asset manager rent collection team knows the day the DD is rejected that there is a problem and the Arrears Management Team can get onto it within 24 hours to find out what the problem is. They can then negotiate with the tenant a way out of the problem before significant arrears build up and there is no way out of the situation other than to evict the tenant with all the consequent losses/void periods this inevitably seems to entail.

    The second benefit is the control it gives to increase the rent at the appropriate time. It simply involves a letter or email to the tenant informing them that from x date the rent will be increased and that they need do nothing as your agent will amend the DD. The situation is controlled by the Agency and it involves fewer tenancy terminations arising from rent increases, therefore fewer voids and fewer refurbs. Most Letting Agents are reluctant to raise rents where no DD is in place as it increases their workload for minimal reward to the agency, meaning landlords miss out. Also, negotiating the new rent gives less scrupulous agents the chance to move a tenant into another property and a new tenant into yours resulting in two finders fees. This is why only one fee in 18mths is such a good idea from the landlords prospective.

  3. Ensure the majority of LHA rent’s paid direct to the Agency rather than the tenant by using detailed knowledge of the LHA system. On the few occasions that it is not possible to get the rent paid direct (around 5%), then a system involving a cash card account which limits the tenants opportunity to default should be set up as part of the requirements of the tenancy. The moment they change this arrangement it is flagged and again the Arrears Management Team can swing into action to minimise the damage and the arrears.
  4. Not withstanding all the above a 21st Century Letting Agent should always indemnify their client against losses arising from the failure of the agency to the tune of £25000 through a Bond and as members of ARLA.

The above activities will help protect the landlord against the financial ravages that an agent default and/or arrears can inflict on the profits of a landlord. I will also continue to ensure an uplift in the rental each year. However, getting the property filled with the right tenant as soon as possible and avoiding voids is crucial and I will suggest how the 21st Century Letting Agent can ensure this for their landlord in the next feature.



Comments

15:00 PM, 21st January 2012
About 7 years ago

Roger, this is a really interesting article and most of it I support wholeheartedly, however, there are two points I would question:

1) "Pay the landlord the following week" - I am curious why you suggest the following week and not within 24 hours?  We always credit our landlords bank account the same day the payment arrives, so 24 hours is still allowing plenty of time.  We arrange for the payments to be made five working days early to allow for weekends, bank holidays and the lengthy time the banks sometimes take to transfer the payment.  This therefore, ensures the landlord receives their rental payment on the day it is due.

2)  "Collect all Private Tenancy rent by DD"  Although I totally agree with the reasons you give for collecting the rent by this method, I feel I should just mention that I believe it is not something that many smaller agencies would be able to do.  The reason is because for an organisation to become 'approved originators' of direct debits, it is a requirement that the beneficiaries are subjected to careful vetting procedures – and, once approved, they are required to give indemnity guarantees through their banks. This meant that the beneficiary must be able to produce confirmation from their bank that there remains a constant 'float' of considerable size.  This may have changed in recent years, and the rules and regulations for becoming an originator may now be more manageable for smaller organisations, I hope so and it is something we are certainly going to look into in the hope of changing from standing orders to direct debits. 

Having said all this, I still think it is a really good article.

Mark Alexander

16:41 PM, 21st January 2012
About 7 years ago

Hi Jan

Regarding your second point, there is some really useful information over on the Property Tribes forum about collecting rents and how small landlords and agents can now do this without having to jump through all the hoops that you have mentioned. There are plenty of providers mentioned and linked to in the discussions. I hope you find this helpful. Link to a recent Property Tribes discussion about this, there are several others too, can be found below. I have also Tweeted the link.

http://propertytribes.ning.com/forum/topics/collecting-rent-from-tenants 

17:35 PM, 21st January 2012
About 7 years ago

That's great Mark thank you for this information and the link.  We'll check out all the info' about direct debits that you refer to that is on PT soon and see if we can take on DD's - it sounds as though things have moved on since I used to deal with SO's and DD's. 

23:11 PM, 23rd January 2012
About 7 years ago

Roger,

Do you think a 21st century letting agent should include rent guarantee insurance, as well as malicious damage insurance in the standard charge?
 
(I am starting to think this insurance should be provided by the agent, as the actions/skill of the agent has such a great effect on the risk – a good agent should be able to therefore source the insurance for a lot less than most landlord can.)

23:31 PM, 23rd January 2012
About 7 years ago

There is no way a LA would have this as they know a vast amount of their applicants pass the normal credit checking but would fail a RGI check.
Indeed you may have seen LRS advising they were sending out tenant alerts for tenants who had passed credit checking on the same day.
The RGI companies are therefore starting to realise the importance of network referencing in addition to  normal licensed credit checks.
Remember if the tenant sourced by the LA turns out to be a wrongun; the LA response is to say they passed credit checking and wash their hands of the problems the LL then faces.
Which is why RGI is crucial.
I would imagine that a LA who offered tenants who all pre-qualified for RGI they would attract a lot of business from LL.

13:06 PM, 24th January 2012
About 7 years ago

Hi. Thanks for the compliment. Much appreciated. Mark has dealt with your second point in much more concise and efficient manner than I could possibly do so thanks Mark.
For small landlords paying on day of receipt (clearance of Funds) is perhaps OK. As a larger landlord I would much rather receive one payment each week plus a report detailing the breakdown than a large number of small payments. Keeps bank charges down while still protecting me. I quickly know if a payment has been missed whereas a day to day payment missing could easily be overlooked. A regular weekly payment  I feel is quite adequate for most landlords
Roger

13:09 PM, 24th January 2012
About 7 years ago

Hi Ian. Interesting concept but in my experience RGI is not always what it is cracked up to be and much prefer a rent guarantor as I detail in the next section of this article. Almost easier getting the money from a guarantor than the RGI underwriter.
Roger

13:14 PM, 24th January 2012
About 7 years ago

Hi Paul
Good point well made. This is why selecting an LA that adopts the standards I am setting out here should be a priority for Landlords. Trouble is that Landlords go for the cheaper option a lot of the time and get exactly what they pay for. Running a top quality agency does not come cheap. Neither does RGI.
Roger

15:21 PM, 24th January 2012
About 7 years ago

You can get RGI on a rent guarantor with no problem
There are numerous offers out there.

15:23 PM, 24th January 2012
About 7 years ago

Fraid I have to disagree with you on RGI sourced by LL for their tenant or a tenant guarantor.
£99.00 for the first year £89.00 subsequent years providing nothing changes on AST.
To me that is not expensive to be covered for £50000.00 per claim including legal costs and for about 2 months after tenant has been evicted whilst any repairs are carried ot to property to make it lettable.
Do you know where I could get it cheaper!

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