Welcome the second installment of the ‘Nine Rules of Lettings’.
Earlier this week, we started the countdown with Rule #9 (click here), where we looked at the size of the rental market. We discussed what was the best size of rental market for a letting agency to open up in (or grow in) by using the ‘big fish in a small
So, back to the question .. How do you judge if you have too many agents, what is about right, and even more interesting, when could there be too few agents (which would mean there could be an opportunity)? I am a sales man but I always like to have some science behind me. This is the science that I have adopted over the last few years. Remember, I have performed hundreds of hours (it was my full time job for two years) on this very subject and the results might surprise you.
Rule #8 - The property to agent ratio
Let’s do the science .. the numbers. This is quite easy to do. If you recall in Rule #9, we looked at the size of the rental market by finding the number of rental properties on the market. This number hardly changes over the year and is an excellent indicator of the size of the rental market. What we are going to do is divide the number of rental properties found in Rule #9 (ie the size of the market or in the analogy - the pond) by the number of letting agents (or as in the analogy - the other fish in the the pond ... your competitor letting agents) .. thus giving a ratio of properties per agent .. simple but very effective.
To find the number of letting agents, I like to use RM. I know there are agents who don’t use RM, but they don’t know what they are missing! Any agent worth their salt is on Rightmove. So, on RM, across the top of the page, where it says FOR SALE, TO RENT, HOUSE PRICEs etc etc, there is a tab called AGENTS, click on that that. Then type in the name of your town as you did for Rule#9. .. but before you click FIND AGENTS, ensure you click lettings only radio button (this doesn’t preclude agents that offer sales services .. it just means the sales only agents don’t muddy the waters with their numbers).. click FIND AGENTS and it will tell you the number of letting agents in your town.
So in the Milton Keynes case, we had 512 available rental properties (see the rule #9 page for that) on the market and using the formula above, there are 69 agents that offer rental services, giving a ratio of 7.4 to 1 ..
..... so is 7.4 to 1 any good?
Well, it depends on many factors .. but the main one is where you are in the country.
In South East and Home Counties, hundreds of hours of research found these numbers apply ....
- 5 (and below) – the ratio is very low, possibly too low. Either too much competition or not not enough stock
- between 5 and 8 – ratio is tough but is “do’able”
- 8 to 13 – ratio is about right.
- 13 to 20 – excellent ratio the higher you go
- Above 20 + almost too high. Check that there are no student rentals in the numbers, as this is a different market. If not, you might be sitting on a potential gold mine!
In the Midlands and North, these numbers apply
- 7 (and below) – the ratio is possibly too low. Possibly too much competition
- Between 7 and 10 – ratio is tough but is doo’able
- 10 to 14 – middle of the road ratio
- 14 to 20 - really good ratio
- 20 to 30 – excellent ratio
- Above 30 + almost too high. Check that there are no student rentals in the numbers, as this is a different market. If not, you might be sitting on a potential gold mine!
I must stress, there always exceptions to the rules. Certain London suburbs dont comply to these rules and posh towns in the Midlands and North dont tend to either. Always strip out any student stock .. it messes up the figures.
The Rule #8 ratio is another signpost to compare and contrast different areas.
However, dont forget, the most important thing to remember is that Rule #1 is more important than rules #2 to #9 combined. Even if Rules #2 to #9 combined are excellent, if you don’t have Rule #1 .. think very long and hard of opening up a lettings agency (or having the potential to grow)
The countdown will continue with Rule #7 next week
PS .. Joey the dog is now in fine fettle .. a pic of him with his mended ear