Residential property investors, unlike say investors in government bonds, face a huge number and range of costs that need to be controlled. If you buy a bond you just stick it in a drawer and collect the coupon, or interest, twice a year. But if you own a buy-to-let property t hen you have to deal with all manner of things ranging from selecting tenants and collecting rent to dealing with calls in the middle of the night to fix the heating or unblock the toilet. There is a huge hassle factor involved in buy-to-let investing that puts many people off it. One way of getting around it is to use a managing agent.
What are the advantages of managing agents for buy to let?
The biggest advantage is that it takes away much of the stress involved. A letting agent will have the job of finding tenants and ensuring that they are high quality. That will often mean checking their credit score and telephoning their references such as an employer and previous landlord. You could do these tenant checks yourself but many people don’t so it probably makes sense to pay to be sure it gets done rather than not done. Many letting agents will also offer rental guarantees as part of their service. This means that if the tenants turn out to be bad apples and don’t pay their rent, the insurance policy will kick in and cover legal costs and compensation for their rent until they have been evicted and sometimes even until new tenants have been found. The other big advantage is that they will have to deal with calls late at night if there are problems. They will often have a list of reliable tradesmen such as plumbers and electricians on hand to deal with these faults.
In many cases the quality of the work that is done will be higher than if you hired an electrician or plumber yourself. Simply put, an electrician who gets tens or even hundreds of jobs a year from a single managing agent will work hard to keep the agent happy. He will arrive on time, do the work promptly and do it properly. On the other hand, if he (or she) thinks that they will just get a single job from you to fix one problem then they may well arrive late, keep you waiting and take their time doing the job. If you think about all the times you’ve ever called a plumber who didn’t arrive. The odds are that he was working on a more important job for a managing agent so left you out to dry.
What are the disadvantages?
The biggest disadvantage is cost. Many managing agents will charge a fee of about 4% to 6% of the annual rent to look after the property for you. If you have a big mortgage this can leave you somewhat stretched, especially since the typical fee to find a tenant is about 8 percent of the annual rent. That means you could be paying as much as 15 percent of your gross income in fees before you’ve even dealt with your other major costs such as servicing your mortgage. Your maintenance costs will also be much lower if you are handy with a hammer and paintbrush and do much of the work yourself. That said, if you are calling in tradesmen to do the work for you then you may well end up paying more yourself for the job than you would if it was through a managing agent for the reasons I outlines above.
Some people may also feel a loss of control in using an agent. If you are very hands on and want to meet your tenants yourself before agreeing to anything then you should probably stay with your instincts and remain hands on. Either way you probably still want to ensure you minimise some of the risks by ensuring that you have proper landlords insurance and rental guarantee cover. Buy to let investing is uncertain enough as it is without you having to increase the risk that you take on. Using a managing agent can help you reduce some of the uncertainty, but it is certainly not the only way.
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