Should you manage your property portfolio yourself or outsource it to a letting agency?


In this article, I thought we would talk through the differences between self-managing your portfolio or outsourcing it to a management company, and the pros and cons around each of those.

When I started off from property, I used to self-managed myself. Then I started outsourcing it. Now, I have my own letting business that's completely outsourced as I've a joint-venture partner, who does the day-to-day management of that business, allowing me to focus on the things that I'm best at, which is finding great property deals and securing those deals for my portfolio.

When I started out in property, I thought I had to do everything myself, from finding the houses to the refurbishing of the houses to the managing of the properties, managing of the tenants. But what that does, is, yes, you can save some money on without having to pay management fees, but you're losing a lot of time. And time is the thing, that is our most valuable resource, because we only have the same amount of time in the day as everybody else on the planet. So, it's about being smarter with your time.

Starting out, what I did for my first few properties, was:

  • Secure them.
  • Look for the tenants myself.
  • Do the viewings myself.
  • Meet the tenants at the property.
  • Decide, if they were the right tenant for me or not.
  • Maybe, you do references on some others. I didn't even reference. I just made a good call decision on them, which isn't the right thing to do. You should always do a reference check at least on your tenants.
  • I prepare the contracts.
  • Write the contracts.
  • Meet them to move.
  • Take the deposit money.
  • Lodge their deposit money.
  • Do the inventory inspections myself.
  • Any repairs that are needed while they're in the property, I'll go and check, if it needed doing. I'd organise somebody to do the repair, if I could do it myself.
  • I'd deal with all the day-to-day issues.

That was what I thought being an investor, being a landlord required. But there's a huge difference between an investor and a landlord. I was pretty much being the landlord, which is, the day-to-day managing of the property. When what I actually wanted to be, was, an investor. An investor, is, somebody who finds property deals, but outsources everything else.

So, my job today, is, finding great deals, and finding money to do those deals. And what I've found, is, since I moved away from the self-managed, I've actually started to do more deals, because I've had more time. But more mind space as well to be able to think about what it is I wanted to do next, where it is I wanted to take my business to.

But I'm not saying, don't self-manage, because there are some real good pros to self-managing.

And one of them, is, learning what the agents need to do. Even though I did it myself, and it may have taken a lot of time. I probably did it for too long when I started. But I do recommend that everybody should do a little bit of self-managing their properties.

Because what you'll do, is, you'll find out the sort of problems that your tenants have. Problems that I don't generally hear about now, that I've got a managing agent managing it for me. Even though it's my own managing agency, I still don't hear about all the day-to-day issues.

And my tenants are my client. I need to provide good accommodation for them. And we should all see our tenant, not as a tenant to his pay rent, but as somebody who's our client. We're providing them with the accommodation. We're providing them with a service. And we need to give them that service to the best of our ability.

Self-managing allows you to see inside the life of an agent, and what sort of things they deal with. Then you can ask them later when they are managing properties for you. If they're looking out for all of these things. It does obviously save you on the management fees as well, but that can be of a detriment to doing more deals, and having more time to do more deals. So, it’s not the main reason that you should self-manage.

For me, the main reason for self-managing is to gain experience around how to look after a property so that you know that your agent is doing it in the right way, and you can speak to your agent in the right terms.

Yes, you can get to pick your own tenants, which is a really good benefit as well. But the main thing is learning what an agent does. Because you see that out there, there are good agents and there are bad agents. There are specialist agents who specialise in different things as well.

Managing a single-let property is completely different to managing a multi-let property. And quite often, agents who do single-lets to a very, very high standard, are absolutely terrible at managing multi-let properties, because it's a completely different animal. It's a completely different game.

I give you an example of that actually. I'd looked at a property for a mentee of mine, just over a year ago now, where they were really struggling to find tenants for rooms in a house they had. And I said, well, I take a drive pass the property, because I was in the area one day. And I'll see, if I can figure out what's wrong.

And as soon as I drove on to the street, I immediately identified the problem. That was he had this 6-bedroom house that he was renting out by the room. He had given it to a local agent. He lives away from the area. So, it was remotely given to the agency. But he didn't really do the right due diligence on that agent, to make sure he had the right agent for a multi-let properties.

And as soon as I drove on to the street as I said, I've seen the board outside the property, which said, "For Rent." Note, it said for rent, it did not say, "Rooms for Rent". Any person passing by that sign, would automatically think it's a house. So, it wasn't that, there is nobody looking for rooms in the area. But it was more of the marketing didn't attract the right type of call.

I stopped on the street. I got out of my car. And I stopped a few people who were walking by, and I asked them, if they know of anybody rents rooms in the area. Out of the 10-15 people that passed me by, about 2 or 3 of them were renting rooms in, either that street, or the nearby streets.

I then went to the corner shop up at the end of the street, and asked them, if I could put a "Rooms for Rent" sign up. The lady behind the counter said, absolutely. Because actually, the lady who's coming in on the next shift this afternoon, is, looking for room in the area. So, I got her details. Passed them on to the landlord. Within a few days, she was one of the first tenants to move into the house.

The key here is, and the message here is, make sure that you've got the right type of agent, if you do outsource. It's not just the choice between self-managing and outsource, but it's the reasons you would do self-management, are, the reasons you want to outsource. And then, if you do choose the outsourcing, that you pick the right type of agent for the type of property that you've got.

Self-managing

So, let's say you decide to do some self-managing. One of the first questions people say to me on self-managing, is:

  • What sort of systems do I need?
  • How do I do all of the management of the tenants?

And here's what I did for my first 10 properties. I use, and you need to write this down, this is a hugely eye-opening piece of software, Microsoft Excel. Why do I say Microsoft Excel? It's because there's all these massive fancy apps out there, that you can use. But if you've 10 properties, even 10 single-let properties with 10 tenants, you can manage them on a spreadsheet.

What I see people are doing, is, they spend hundreds of pounds, ten and fifty hundreds of pounds a month on software to manage one house. You don't need the software to manage one house. Quite often, people spend a lot of time procrastinating over what software to do, what websites to have, all these sorts of things that stops them from doing a viewing to actually secure a deal in the first place.

What I say to you, if you're listening, is, just get your first house. Manage it on Microsoft Excel. Get a second or a third one. And once it gets to the point, where you cannot manage it in Excel anymore, then look for a software system to do the management.

There are some great software systems out there. Once you hit cost of 10 plus properties, you want to look at systems, things like Arthur or Go Tenant. They're two really good property management software systems, that will track your rental incomes coming in and out, the tenant changes, your deposit secured, when the rent is due. You can link it to your bank account. They’ll also link to your accountancy software.

I use an accountancy software called, Xero, and that links to my bank account and downloads my monthly bank statements. And we can allocate Xero. I've a bookkeeper that will then allocate my bank statements into Xero, and any bills that have gone out of the account. So, everything is allocated to a specific property. But you don't need those sorts of systems from one house. One property you can just manage off on Microsoft Excel. Just get started. Get perfect later.

Since we've set up our lettings business, we've moved on from the Arthur, Go Tenant type software, and we now use a property management system, which is, specific for letting agents. That's the system that we use. It's called, Jupix. I don't recommend it, if you're managing your properties yourself. You don't even need this system. This system allows us to send reports monthly to all of our landlords, and track everything from our client account, but it's a much higher-level system. My JV partner in our lettings business takes care all of that. I don't even personally know how to log in to the system, or find anything in there. All I want to know, is that, it's happening, and that I get a monthly report from it.

But when you scale-up to the level of having your own agency, and that's something you should all be looking at as well. Because 4 years ago, when I started in property in the UK, trying to build my portfolio, I wasn't thinking I'll own my letting agent ever, never mind in 4 years' time. But we scaled at such a pace, that it just became the natural thing to do.

Because the choice became, not do I self-manage, because it was now too big a piece to self-manage, or do I give it to an agency, the choice was now, do I give to another estate agency or letting agency who'd take 10 percent plus VAT off me, or do I manage them inhouse, have our own staff, and have another business that we could then scale as well, and potentially even franchise in the future. But it was cheaper to take the properties inhouse and manage them in our own agency, and take on other landlord’s properties as well than it was to give them to another agency.

But here's the thing, when we started to take on other landlord’s properties, those landlords’ properties, the management fees from those, pay the staff and the agency. So I get my own properties managed for free.

You won't be that starting off there. But there's no reason why anybody reading this article shouldn’t get to that level. And all I did, was, I followed the model of Progressive Property. So, they manage all their houses inhouse through Progressive Lets, which is one of their companies. And I just learned from Rob and Mark at Progressive, and implemented what they’ve done, built up my own agency in the same way that they have built up theirs. And you can too.

So, let's look at the beginning. If you're starting out, you decide to do your first one or 2 properties self-managing, it will save you some money. But maybe, the first one or 2 properties are the very ones you should give to a management company to manage. Because when you're starting out, you don't know the legislation. You don't have the skillset to know what type of tenants to find, how to look for the right tenants.

What I would suggest, is, at the beginning, give your first couple of properties to an agency, and then closely monitor them. Ask them, interview them around what sort of things they do. How they find the tenants? How they lodge the deposits? And make notes on all this stuff.

Then once you've 3 or 4 properties, look to self-managing one of them yourself. But do all of the stuff that you've learned from the agent. So, you're getting the agents to manage the house, but you're also learning off them how you could self-manage yourself. You get the contracts off them, everything you need.

Then take one property and self-manage it. Maybe, you only do that for 6 to 9 months, even a year. You get an insider view of the sort of issues that a tenant may have. You get to speak to the tenant. Find out if they’ve got any issues, what types of problems they may have. Learn all about the tenants, the deposits scheme and the inspections, all the things the agency does.

You get not only a good understanding of your tenant, but you also get a good understanding and an appreciation of the work that the agency actually does for you, because letting agents do a lot of work:

  • They’ve all of the marketing, before they find a tenant.
  • They’ve the viewings so they’ve to show up and meet everyone, not just the tenant that moves in, but they’ve to meet-up every tenant that wants, that shows an interest in the house, they have to meet.
  • They have to fill in forms in the office around that tenant.
  • Get references for that tenant.
  • Prepare the contract for the tenant that does eventually get the property.
  • They lodge their deposit money, the tenant’s deposits scheme, which we said earlier.
  • Get all of the inventory stuff done, before they move in.
  • Meet them at the property on the day of their moving.
  • Do the regular inspections on the property.
  • Deal with all those day-to-day issues.

The agencies do quite a significant amount of work. And then, if there's any issues with the tenant, where they don't pay their rent, then there are the rent chase up letters. Maybe, even organise and take them to court, if you unfortunately needed to do an eviction. That's not a regular thing with property in all of my years in property. Only once have I ever had to take a tenant to Court. And when I did, the tenant didn't even show up. So, it was award possession to me immediately by the Judge for the tenant didn't even show up for court. When I got to the property to give the possession order, the tenant had already left. But they put me through the cost of going to Court.

But the agents can sometimes help prevent that for you, because they know how to deal with tenants in those situations. So, they can remove them from the property, and help do it in the right way legally. Stuff that maybe is not your skillset, but you can shadow the agent, and learn all of this stuff in the background. So, you become knowledgeable on what they do.

Now, I didn't just set up my own agency, and knowing all of this stuff. I don't want to be a letting agent. I also don't want to be a landlord. But what I wanted to do, is, be a business owner. So, I look for an agent that was not on the High Street, but was marketing for properties online. And I found this local guy who was running an agency, a letting agency from a satellite. office He had built up just under 50 properties from this satellite office. But he wasn't on the High Street. He was renting the office space. It's like a virtual agent. And there are lots of virtual agents out there.

I approached them. And I asked him, if he would be interested in moving his 50 properties to the High Street, where I would provide him with a building that we were converting into an agency so he could come and sit in our office on the High Street. Now, this was a property that I bought, and we've put the downstairs into a letting agency, and the upstairs as apartments. But the apartments upstairs will pay for the whole mortgage on the building. So, I own the building.

But the plan was to put the agency downstairs, but not manage it myself. This guy had come, and moved into the downstairs building. It's a 50-50 partner with me on the agency. But, if I was to go out and find my own manager for an agency, it would cost me 30-35 grand a year for a Lettings Manager. However, I've got a JV partner that has a vested interest in the business, who I don't pay a monthly wage to, but he gets 50 percent of the profit. So, his wages are limited to whatever he can build the business to.

A real win-win. He's got the footfall on the High Street, and he's got the office space. He still gets to manage his own business. And I, in return, get all of my properties looked after within the agency. I can keep a closer eye on them, but not have to do any of the day-to-day management. You can look at getting your own agency a lot cheaper than you think, getting the staff pretty much for no money, and building your business around being creative.

Hopefully, I've given you some ideas on how you should start, which option you should take, and how you could scale-up at having your own business some day.

Kevin McDonnell

Kevin McDonnell is a serial entrepreneur, author, property investor, public speaker and is regarded as the foremost expert in the UK when it comes to creative property investment strategies.

About Kevin

Kevin McDonnell is a serial entrepreneur, author, property investor, public speaker and is regarded as the foremost expert in the UK when it comes to creative property investment strategies.

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