A recent scam to hit the property world concerned the practices of dodgy characters who set themselves up as property management agencies, operate for a few months by collecting deposits monies and rent, and then disappear with all the cash, leaving hapless landlords thousands of pounds out of pocket, most of which is unrecoverable. And then, as bold as brass, these ne’erdowells re-establish themselves, often in the same patch, call themselves something quite similar, but not exactly the same, and repeat the whole ghastly business. And then … they’ve gone again by the time the grindingly slow wheels of Trading Standards have been ushered into motion.
In the East End of London and Docklands, these so- called “phoenix” lettings agencies (they rise from the ashes, see) have gone into liquidation owing millions. And the sums can really add up. Such agencies charge between 10%-15% of the rental income as a management fee in return for finding tenants and collecting the rent and they hold deposit monies (usually one month’s rent) on behalf of the landlord. And in London you’re not talking about trifling amounts of money. The management charge is usually deducted from the first few rental payments, therefore it can often be months before a landlord begins to suspect all is not as it should be. Subsequently, telephone calls go ignored, correspondence is binned and solicitors’ demands fall on deaf ears. When enough plunder has been milked and matters start to turn sticky the offices are closed down and the company declared insolvent, the directors having no doubt paid themselves hefty fees and lived a lavish lifestyles in the process.
You see, anyone can set themselves up as a lettings agent. No qualifications are required and no membership of a governing body is obligatory. In fact, there is no governing body. It’s the Wild West out there (or East) and naïve landlords, especially first-timers, can fall prey to these scavengers. (It always puzzles me that when there are so many legitimate ways to make money in this country some people find it necessary to turn to crime.)
So, what can you do to protect yourself? Well, firstly, when considering appointing a letting agent you should contact ARLA, The Association Of Residential Letting Agents. They will send you useful free leaflets. The organisation will also provide you with a list of their members (approved, insured and vetted letting agents) in the area of your choice.
Or … you can do it yourself: place your own adverts for tenants in local papers, vet them yourself, draft your own tenancy agreement, collect the rents in person or by standing order. Indeed, a personal relationship between landlord and tenant works best, as opposed to demands from a faceless organisation. If you secure a good tenant who stays with you for years it can be awfully frustrating paying 15% of the income to a firm which effectively only writes you out a cheque every three month and sends out a new contract every year. Better still, buy an investment property from auction with a tenant already established. You may inherit someone who has lived in the place for years, maybe has family down the street, and is content to inhabit the place for decades to come, regularly paying rent into your account (gross, and not net of 15%).