One thing I have a lot of experience in, is what makes a
good (or bad) area/ town or city to open up a new cold start lettings agency in.
Having helped open over 26 cold start lettings agencies in the last two and
half years (doing over 40 hours research on each office) up and down the UK, I
have come up with my own 'nine rules' that I apply when deciding whether a suburb/town/city is a good (or not) place
to open up a cold start letting agency. I was also able to apply the rules to existing
letting agencies, and the 'Nine Rules' were just as applicable to them. Therefore, existing
letting agents will also be able to learn from the nine rules as a gauge on how
viable/easy it is to grow their own lettings agencies.
I intend to commence a countdown of the nine rules over the
coming weeks and hope new and existing letting agents can
learn from them. We will start with No.9 today and countdown to No.1 over the
coming couple of weeks. The most important thing though is this. Rule No.1 is
more important than rules No.2 to No.9 combined. What is rule No.1? ... well you will have to wait. What I would
say is this though, even if Rules 2 to 9 combined are excellent, if you don’t have
Rule 1, then unless you have the bank balance of Russian Oligarch or a larger
than life Sir Alan Sugar type, you will find it nigh impossible to break into
that market.
Why are these rules so important? Well think about it. The rental
market is growing incrementally each year by quite a small amount. Think I’m
wrong ? Want to prove it for yourself?
The UK census said the percentage of rental properties in
the UK grew from 10.6% in 2001 to 15.6% in 2011. Even in the larger cities where that % was higher, all have grown at the same rate in the last 10 years. That growth, according to the HM
Government Office for National Statistics , is that on average, 0.5% per year of
any town or city’s households have gone from private ownership to private
rental, between the census years of 2001 and 2011. Sounds a lot, but do the
numbers and you will see, it isn’t..
So, how many households are there in your town? To save many hours of research, I found that
as a rough guide, if you divide the population of your town by half, the number
of households would be in that sort of ball park (often just under and never
over). To find the population, just type in your town to Google and look on the
Wikipedia page.
Lets use Milton Keynes as an example. Milton Keynes,
according to Wiki, has over 229,000 population, which means it will have around
100,000 to 110,000 households. ( I did a quick check on the 2011 census and
Milton Keynes has 98,584 households – so we are in the right sort of ball park).
Now, how many rental properties, lets use the UK average of 15%, so it will be
around 15,500 to 16,500.
Again, as a check, Milton Keynes has 15,930 rental
properties in 2011 census – so again, we are in the right sort of ball park.
Roll the clock back 10 years, and if Milton Keynes also adhered to the national
average, there would have been roughly 10% of properties in the private rented
sector, so around 10,000 properties.
So assuming we have 6,000 properties which have become
rental properties in the last 10 years in Milton Keynes, that’s only 600 new
properties a year.. sounds a lot but there are 69 agents in Milton Keynes that
do lettings according to Rightmove, which means if the new business was spread
evenly, each agent would only get just over 8 new properties a year .. not many
is it?
If you want to grow your lettings agency, either from a cold
start or an existing business, in a nutshell, if there are only 8 new
properties a year in the size of town of Milton Keynes, you are going to have to persuade EXISTING landlords of
EXISTING rental properties with EXISTING letting agents to use your agency. You
are going to have to entice the landlords from other agencies to YOU. How do
you do that? Well I hope you have been reading my blog and if you really want
to do this quickly and efficiently, you can always call me to discuss this in
more detail. If you think the ideas I
put on this blog are good, just wait for the stuff I am going to be rolling out
in the coming months .
.
So, lets crack on with the show and start with Rule 9 ...
Rule 9 – size of
the rental market.
You would think the bigger the rental market, the better the
chance you will earn more money. YOU COULDN’T BE MORE WRONG. This is the biggest thing people fall
foul of in lettings. Looking at a lot of data and the extensive research I undertook
on every town in connection with the 25+ cold starts I was
involved with (upwards of 40 hours a time), I find the best way to describe it
is do you want to be a ‘small fish in a big pond ?’ .. or do you want to be a ‘big
fish in a small pond?’
The big pond has lots of food in it (landlords/rental
properties) but has equally big fish (lots
of other existing letting agents of all sizes from small, to medium to huge –
and if you aren’t careful – the big fish (big letting agents) will eat you— (the
small fish) before you have time to get big yourself.
On the other side of the coin, start a lettings agency in a
small town ( i.e. a small pond) and you won’t have other big fish (other big
agents trying to close you down) to eat you but small ponds don’t have much
food to eat in them to sustain you for long – so you might be the big agent in
the small town, but if it has a population of 2500 and only 1100 households,
you’re not going to grow much beyond 100 properties on your books- and even
then you would have 65% of the market .
It’s a balancing act of choosing an area/town or city which
is not too big and not too small (rental market wise).
The quickest way to
find this out is to type into Rightmove the town you are you are considering
and see how many rental properties there
are to let and see what number appears. Quite interestingly, this number will
only go up or down by around 10% either way over the year.
So, in this case, we look at Milton Keynes (click here to go to the Rightmove page) and it says 677.(depending when you click on it, it will be around 640 to 690)
Then subtract the number of commercial properties there are
(scroll down the Rightmove webpage and look on the left hand side column, just below 'Filter your Results', and where you can see Detached, Semi, Bunggies and then you will see the word Commercial - take a note of the number)
There are 150 commercial rental properties when I did this blog (yours will be roughly the same), so 677 subtract
150 = 527
Then multiple this figure by 25 (why 25, because there is
always 4% of the rental market on the market at any one time and 4 divided by 100 is 25)
527 x 25 = 13,175 rental properties.
527 x 25 = 13,175 rental properties.
You say the 13,175 isn’t the 15,900 figure? No, it isn’t because
only 80% to 85% of landlords use a letting agent .. factor that up and it comes
up to right sort of number.
So instead of having to do that complicated sum every time, I
have devised a very easy way to do Rule 9
- Go to Rightmove and search for all the available rental properties in the town. (Just like a punter would search) So, using Milton Keynes, that's 677.
- Then, subtract the commercial properties
- You now have a number, so in our case, 527
If that number is .....
- 50 and below – Very small. Take great care. I have seen it work well but be very careful. Small Pond
- 50 to 75 – just about big enough. Depends if Rule 1 is good
- 75 to 125 – now we are starting to look good
- 125 to 250 – decent size market. Wouldn’t want to have a small marketing budget. Ideal for most people, especially people new to the market
- 250 to 500 – full size market. Will need a decent budget for marketing
- 500 to 650 – take care .. market getting very large (large pond) – Rule 1 has to be good. Large marketing budget required. think twice
- 650 upwards – should only be considered if you have a very large marketing budget and Rule 1 is very good, nigh exceptional
Rule 8 will follow towards the end of the week.