How much should you receive in rent?
Brett Alegre-WoodChairman, YPC Group
Hey guys,
The short answer is as much as possible.
In truth you should have a reasonable idea through your property club BUT do not take this at face value. I use a simple rule of thumb for my clients; I call it the 'two rents of property'.
The two rents in property
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The first rent is the rent you will be quoted by the property club on their investment spreadsheet. This is not the rent you are likely to receive, even if they tell you a letting agent has put it in writing, it's not worth the paper it's written on. l will explain this further soon. This rent has one purpose and that is for the valuer to write on the valuation report to minimise your financial input. In my experience you will rarely receive this amount of rent or you will need to fully furnish the place to a high spec which will cost you even more money.
The second rent is much more important to the ongoing viability of your property. This is the realistic market rent or the rent you are likely to receive. This will often be quoted as two figures, a high and a low figure or an unfurnished and furnished figure. A lot of clubs will never tell you these figures because they have not done the research right or they feel it may jeopardise their sales potential.
Regardless you need to know what you are likely to receive, don't just accept what a salesperson says. Commission can be a wonderful motivator.
So what can you do to find out the realistic market rent?
Selling up - Managing down
In my first experience at selling property l remember sitting in the training room and being taught about over selling to get the business then managing the client's expectations down. It is one of those tricks of the trade that has stuck with me throughout my life.
Consider that you are a landlord; obviously you want the best rent possible on your property. So as a good salesperson who wants your business over all the other agents that you are speaking with l am going to sell you on the highest amount l possibly can within the limits of my ethics. Now assuming all other things being equal which agent will you choose? You would take the one with the highest return of course.
So now that l have your business what do l do? l piece by piece and meeting by meeting manage your expectations of the rent you will receive down. Once l had you l would then mildly attack your property, the area, the current market and of course l would build up the competition.
The key to this is gently gently, softly softly. If you jump in a hot bath, you would jump straight back out in shock, but if you ease in bit by bit, you'll be in there in no time.
So how does an agent use this tool against you?
Quite simply if they realistically expect you to receive £500 per month they will sell you on £600 per month. Then drop your expectations down each time you meet. It never ceases to amaze me how many times we reject an offer of £500 in week one but in week four we accept £510.
The only accurate way to combat this is by conducting your own full due diligence.
Turn it around to your favour!
One of the best skills you can learn is to turn the game around in your favour. The agent may sell up and manage down but they play the opposite game when it comes to tenants. Here they play the sell down manage up game. Quite simply they will sell the appointment using the cheapest property then once they have you they will manage you up. The result is you spend the maximum you could afford.
What is important for this is that the initial figure can be taken as the realistic rent that your tenants will pay. All you must do is describe what you have to offer in detail and let them come up with the figure. The key to this technique is approach.
You must approach it as a tenant would. I always say that l am from out of town and am looking at moving in 4-6 weeks time and this is what l want. It works all the time.
I will ask from a landlord's perspective one day and get quoted £750 per month the next day l will ask from a tenant's perspective and be told £600-£650. Sometimes the gap is inexplicably huge and this raises the next issue.
£100 to me is £10 to them!
Assuming l pay 10% management fee that will mean that if my agent who is representing me lets my property for say £750 per month they will receive £75 but if the let it for £550 they receive £?55. I think you will agree that £200 per month is a huge gap in the rent but the flip side is that £20 will make very little difference to a lettings agency with 500-2000 properties on their rental roll.
It's this gap that means you probably will be settling for less rent than you may deserve.
The other factor is that most letting agents are juniors that have little or no actual sales training and are unskilled in selling a client on your behalf. Now you may think that all hope is lost but in truth this is just a part of the market you cannot change so you manage it the best you can and accept it.
Live with passion,
Brett Alegre-Wood
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