Sometimes having prior knowledge of a stressful event can be more stressful than the event itself, just look at Brexit for example.
More prosaically, in the lead up to the fees ban we heard stories of impending bankruptcy as agents would fail to come to terms with losing over 20% of their income when profits are less than that.
Now the ban is here and the figures are in for the first month, we can start to see the reality, although it will take more time for the dust to properly settle and the new landscape to be fully revealed.
Of course, there are many rumours going around. Mass panic in the corporates, swathes of redundancies, local branches closing etc., etc.
And, of course, some agents will have fared better than others, but let’s start with some hard facts. This is what happened to us...
Oh yes, I guess I shouldn’t assume that you know who ‘us’ are, should I? You know what they say, ‘assume makes an ass of you and me’. By us, I mean 15 trading offices, all bar one or two on the high street, which between them manage around 2200 properties.
Before I do the big reveal, let’s have a bit of back story. First of all, there is more than the tenant fee ban to cope with, there is also the issue of landlords selling up and lower numbers entering the market as the withdrawal of higher rate tax relief on mortgage interest starts to bite.
A corollary of these market changes is that we are seeing the rise of the professional, corporate landlord. Their relationship with agents is also a complication which doesn’t look good for margins or for small agencies. Then you have the other headwind to deal with. Less people are buying to let for exactly the same reasons, especially in London and the South East where we happen to operate.
I know, I know, never mind about all that, let’s have the facts. So, drum roll please…before the ban, 14% of our income came from tenant fees. We still have some of it on existing tenancies, but we lost £24,000 on new move-ins. However, on a like-for-like basis, we increased our fee income over 2018 from £303,000 to £321,000 and our portfolio grew by five. Not a lot out of over 2,000, but still on the right side of the page.
So, the question you may be asking is how did we do It? And the one on my lips is how is your agency doing by comparison?
As I said at the start, we have had a long time to prepare for this and we have adopted a multi-pronged approach of new income streams, new products and selective fee increases.
The vast majority of our success has, however, come as a result of the introduction of the ARO, something we soft launched three months ago and are officially launching on August 28 at an event in London at the wonderful Royal Institute of Great Britain from 6.30pm to 9.30pm. Tickets are free and you are very welcome to attend, but book now to avoid disappointment.
We have some industry figures and luminaries attending, as well as some landlords and interested suppliers, there will be nibbles and drinks, a short presentation by me and a lively panel debate on the changes facing the PRS.
The event will be hosted by the incomparable Chris Watkin. If you can’t come, you can still register so we can keep you informed and you will get a full post-ARO update direct to your inbox.
So, what is the ARO? Well, the letters stand for Advanced Rent Option and it allows us to pay our landlords their rent a year in advance at no extra cost beyond our normal un-discounted terms.
I know what you must be thinking, what’s the catch, right? Well, apart from having to have the funds available, there is no catch. It does exactly what it says on the tin. The same service on a like-for-like basis, only the rent is paid to the landlord a year upfront.
You may have read a recent press article all about it. If you did, you may have been surprised by the cynicism, skepticism and modern trolling with which it was received. I know I was.
Oh, sorry, there is one catch, at least as far as other agents are concerned, anyway. You see, in order to offer the ARO, you don’t just need the money, you also need to adopt a different business model, a model we have been developing and refining over the past 11 years.
The crucial point is that in order to pay a landlord advanced rent you have to be their tenant in the first place, otherwise the money would be a loan, which would be very hard to administer and too complicated as a result of consumer finance regulation.
So, if you are curious, I’ll hopefully see you at the event. I’d be really interested to hear how you are approaching the current challenges and share some more details about the ARO.