Why should I use a rental agent to lease my property?
I used a rental agent for my first few properties. They added so much value to my life. I received a phone call when something went wrong and they handled the tenant for me.
Before we jump into what they actually do, we need to understand that they need to have some legalities in place. The Estate Agency Affairs Act (“Act”) dictates that an estate agent must have a valid Fidelity Fund Certificate (FFC). Rental agents should also be registered with the board. There are also some courses and qualifications that they are able to attain.
What do rental agents do?
The involvement of the agent depends on the contract that you sign with them. For example, if you want them to pay bills on your behalf, this can be negotiated.
Rental agents have a few functions. These include
- Managing the property on your behalf
- Managing the tenant – this includes property inspections, deposits and rent collections, managing contractors for painting, handyman work or emergency issues.
- Finding tenants and screening them.
- Managing the tenants on your behalf
Managing the tenant
The main reason you would want to use a rental agent is to manage the tenant on your behalf. Many people don’t have the time or the energy to manage tenants themselves. In some cases, tenants can be demanding, and the agent creates a buffer between you and the tenant.
The rental agent will also find the tenant on your behalf. They do necessary credit checks, black listing checks, bank statement analysis and follow up on references to make sure the tenant is the best fit for your property.
Managing the property
It happens that you need to do some maintenance. A good rental agent will give you a call to say that something has broken and ask permission to send someone out. You could choose to send out your own contact or use their chosen person.
Note that their contractor might easily be three times the price of a normal one!
They also handle all inspections. It is a legal requirement to do this for all incoming and outgoing tenants.
Managed and unmanaged leases
In some cases, the fee that rental agents charge per month cannot be justified. For example, a fee of 8-13% of the monthly rent is not unheard of. In my experience, if a good tenant has been selected, you might hear from them two or three times a year.
So, what are my options?
You could decide to self manage, use the rental agent to manage it monthly (managed lease) or just use an agent to find you a tenant (unmanaged lease).
If you do unmanaged leases, you will need to guide the agent to do all the checks and send them on to you for your approval. Check my article here to see the checks I do!
If you would rather not speak to a tenant ever or have too many properties to manage it yourself, it is fully understandable that you would want to use an agent!
Rental agency fees and costs
Generally, the costing structures work like this:
- For an unmanaged lease, the agent will ask a 1-month rent equivalent for finding the tenant.
- For a managed lease, I have paid between 50-75% of a 1-month rent equivalent for an agent to find me a tenant. I have found that between 8-13% of the monthly rent seems to be the going rate for a managed lease
- On a self-managed lease where you found the tenant yourself, you don’t pay any fees to an agent 😉
Self-management
If you will be managing the properties yourself, you would need to consider that there might be some issues that an agent could have handled on your behalf. This includes organising maintenance, contracts, inspections and complaining tenants.
You need to be up to date with legal requirements such as putting deposits in an interest-bearing account, how incoming and outgoing inspections should be handled and how much coffee you need to drink.
Conclusion
The core reason for using a rental agent is not because of legal jargon or that they will make sure the tenant pays you on time. They don’t do that. They just pass the buck.
The reason you would want to use a rental agent is that either you don’t want to manage it yourself or you don’t have the capacity. In some cases, people don’t have the capacity to learn how to do it themselves – and that’s okay.
I love the way rental agents cannot really define what they do in a managed lease, such as this article.
Having said all of this, I do think it might sometimes be worth your while to have a rental agent.
I personally think a combination of the two in a property portfolio is not a bad thing. Having some low-maintenance properties being managed yourself is not a bad thing and doesn’t require a lot of your time.
Happy investing!