What is the lifetime value of a landlord to your lettings agency?
... then ask yourself, how much does it cost to get a landlord to use your
lettings agency?
Most letting agents will say each property will earn them between
£900 a year in North all the way down to £3,000 a year in central London, so
let us pick somewhere in the middle, Hertfordshire? I would hazard a guess at
£1,250 a year in fees if you add all the little extras where lettings agents
can earn money.
But I asked for the lifetime value of a landlord? I think it’s
fair to say most landlords do tend to stick with the same agent. It also fair
to say most landlords tend to hold on to their portfolio, most see it as a
future pension and the tax is silly if you sell up. So it’s fair to say, most landlords
tend to buy and keep BTL property for a while (I think twenty years is a very
fair figure) considering most landlords tend to hold on to property for a long
time. So if it is twenty years, our landlord is worth £25,000 (20 years x
£1,250) over the next twenty years. Do the numbers for your town.
But most landlords own a number of properties (many commentators
have a consensus that they believe just under 1.25 million private landlords
own the 4.2 million private rental properties in England and Wales), meaning, if our landlord is an average landlord, he or
she should own 3.34 rental properties , so our landlord is potentially worth
£4,175 per year or £83,500 over the lifetime of a BTL portfolio. Not every
landlord is worth £4,175 per year or £83,500 over the average lifetime of an
agency. .. some more and some less.
So what will it cost you to get that landlord to use your lettings
agency? Rightmove and Zoopla are there to get tenants, newspaper advertising doesn’t
work ... so quite frankly, not much at all, especially if people are recommending
you .. it’s free. Isn’t lettings great? Landlords cost hardly anything to attract
but can be worth £4,175 a year or
£83,500 over a lifetime!
Ok, less of the numbers for a second...
If you make a service people only need to buy say, once every
seven years, it’s very different than if you make a service people are going to
use every month for twenty years. .. But that is the argument between estate
agency (every seven years) and lettings (every month) .. and here is the worst
bit, they probably won’t come back to you in seven years to resell their house !
So, to carry this forward, why are Foxton’s willing to spend
to get established in a London suburb? The answer is probably conservatively £670,000
(£250,000 refit and six months without any fees and another six months with
reduced fees, with an office costing £35,000 a month to run). They are willing to
spend £670,000 on the set up a cold start to get one office set up because their
lifetime value is much, much more in lettings alone.
Foxton’s profit per branch for 2014 was £920,000 but that does
include resi sales. In 2013, (the last year we have the figures for), lettings
fee income for Foxton’s was £66.3m from 20,538 rental properties under their
remit in their c.50 branches (earning them £3,231 per property a year). That
means Foxton’s are sitting on a life time value of lettings fees of
£1,327,165,560 (£1.3bn).
But lets bring it back to branch level, as they have c.50
branches, assuming that each of Foxton’s branches has the same number of rental
properties, each branch would have 410
rental properties .... 410 rental properties at £3,231 in fees per year for the
next twenty years, means each office is sitting on a life time value in lettings
fees of £26.5million.
Not bad, when you consider you have sales income on top of
these figures?
When someone is competing with Foxton’s, they say, “It’s not
fair. The rent is too high.” Foxton’s says, “No, no, no. The rent is not too high
because we are creating 410 landlords every time we put in a new branch.” They
are taking the correct view in a competitive market.
So, Mr or Mrs Letting Agent, how do you compete against
Foxton’s or the Foxton’s equivalent in your town? Well the first thing is, have
you got £670,000? No I didn’t think you had.
But why do you try and play Foxton’s at their own game?
Cheap fees, 0% fees, flash offices, fleets of Minis, their brand name, their superb
marketing machine, their well know brand, their awesome landlord database,
their proactive business generation .... no you haven’t got that backup, that
money have you?
I have told you what an average landlord is worth. Work it
out for yourself.
Average fee’s generated from one property at your office multiplied
by 3.34 multiplied by 20.
Now, surely that figure is worth fighting for? (£4,175 a
year or £83,500 over a lifetime if you are in Hertfordshire). Most landlords
only tolerate their lettings agent (just like people only tolerate their
banks). All you need to do, if you want a slice of the action, is stop thinking
like letting agents, stop talking about yourself, stop talking about your firm,
your agency fees, your services, how much better you are than the competition,
how many properties you have let or sold this week or month ... no one (not even
landlords) care about all those things and they most certainly don’t care about
you Mr (s) Letting Agent, because people only care about themselves or people
they have direct connection/relationship with.
However, talk about something that does interest landlords,
and you will be onto a winner. All you have to do is talk about the local
property market, in depth, day in day out .. and I guarantee you will get a lot
more business, more landlords and unfortunately for those who sell property, more
sales valuations.
If you want to know how, these two three minute Youtube videos
http://goo.gl/pxe2SC tell
you exactly what you need to do.