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  • Entrepreneurs

    Letting agency for sale - What to do next...?

    Hi,

    I have posted topics in the past about considering starting up a business to either complete tasks such as 'tenant finding', manage properties, inventory checks, EPC's, photography of properties etc, either on behalf of the local landlord or agents who outsource the jobs.  However, this idea eventually went on hold over the past year or so, so that I could focus on my 9-5 job and to give myself an opportunity to concentrate on family / home projects, save more funds and so on.

    I was recently been made aware of a local letting agents who is considering selling his business and the only information provided is that the business brings in excess of £100k per annum.  Also, states that this is from having in excess of 80 managed properties, alongside the lettings business.

    I have also been informed that the owner would be considering an offer in excess of £50k (include fixtures and fittings in office).

    Can anybody who has experience in buying businesses advice me what research should be conducted as a potential buyer and what offer would be considered as reasonable?  Is there a method used to decide on what would be considered as a reasonable offer to make?

    Any advice would be appreciated

    Thanks

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    Traditional / Sophisticated / Developer

    the business brings in excess of £100k per annum.

    Turnover or profit?

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    Managing only 80 + properties, it certainly won't be £100k net profit, gross possibly, if they are properties averaging a rental figure of £1050 per month with a 10% management fee......

    I run a lettings agency with two offices, we manage just over 200 properties and we don't net half of that in profit!

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    Hi,

    Yes, that would be the gross profit and would include 10% mgt fees and also the fees obtained for finding tenants, check in reports and so on.

    The agency has been set up / established for about 10 years.

    A broker is involved, so not clear if this is a genuine  or forced / motivated sale.

    Any advice on what I should be doing next in terms of research / what questions to ask the brokers and how much to offer etc?

    Thanks

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    Traditional / Sophisticated / Developer

    Hi,

    You really need to try and deal direct with the owners, and sign a non-disclosure agreement to give the sellers peace of mind.

    Ask to see last 3-5 years accounts verified by a chartered accountant, including exact details of what fees have been collected for what services, locations and types of properties / tenancies (If spread over a very large area it will cost more to manage, same with HMO's), types of tenants in-situ (DSS or working/fully referenced makes a big difference), are they VAT registered, are their systems up to date (Tenant emergencies), what lettings software do they use (some are useless), ask for a breakdown of all fees they charge, are all managed properties up to date with all current rules and regs (Deposits registered, safety certs, etc, etc), how long is the lease on the office, main monthly overheads, what portals do they advertise on, how many staff, opening hours, are they lettings only, and why are they selling and whats their future plans...?

    Ask as many questions as you like, and if they keep skipping or refuse to answer then its a red flag. They can't expect someone to buy their business if they can't provide the details. Some things will be a pain in the arse for them to provide, but if they're serious about selling and they're running a tight business then they should be able to give you the details you need. And if you don't buy it then they'll have everything ready for other interested parties.

    As for a price to offer you really need to base it on the last 3-5 years profits, ignore how many properties they manage, unless you already have plans in place to upsell more services to their existing client base or you can streamline workflow and reduce overheads. They might be managing 100 DSS properties on difficult estates with nightmare tenants, or they might manage 100 4 bedroom detached properties with A1 working tenants in great areas - the whole picture of the agency makes a massive difference the value as you can imagine. Also be prepared for some existing landlords to jump ship as soon as the agency is sold, it will happen.

    If you haven't already, you'll need to get qualified and take the ARLA exam. It will open your eyes to exactly how many rules and regs there are to follow for an agent.

    £50k does seem very cheap if you ask me, they must be pretty low value properties I'd imagine. I didn't use a broker to sell my agency, I approached the much bigger players in my area and did a great deal direct with the buyer. Makes me wonder why this agent isn't doing the same.

    Good luck with it.

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    I am a human bean.


    Thanks for those points, definitely vital to obtain answers for, as it will clearly assist with knowing if the valuation is reasonably priced or not.


    The advert states to not contact the seller and that the appointment can only be conducted with the sole agents. 


    Therefore, based on the above, I’m assuming the owner only wants prospective buyers to contact the agents only.


    Also, it states that this is a private sale and that the current staff are unaware that the business is up for sale.

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    Traditional / Sophisticated / Developer

    Starting point would be to ask for:

    Profit & Loss and Balance Sheet

    Accounts

    Bank Statements to prove the above

    I'd also want eyes on the contracts between the agency and it's landlord clients.

    Also if there's a premises then I'd want to see the commercial lease.

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    The lease is up for renewal and is £7,500 pa and the business rates are £3,750. The location is near a train station, free car park area - so easy to get to for clients etc

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    Traditional / Sophisticated / Developer

    ``I run a lettings agency with two offices, we manage just over 200 properties and we don't net half of that in profit!``

    Blimey only £20 pcm per property per month net  then.  Surely not?

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    Jonathan Clarke. http://www.buytoletmk.com


    It's about that net of everything JC bearing in mind the average rent of our properties is £471 PCM,  163, £275 - £550 PCM and 39, £560 - £650 PCM rent range.

    2 Offices, 2 Full Time / 2 Part Time Employees, 2 Cars......it's a lot of work these days, for little return.......

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    Yes it all mounts up

    That`s one of the reasons i operate  from home I guess

    And yes rents achievable make a big difference to income dependent on area

    Mine fortunately range from  1 beds 650 - 750 pcm - 4 beds  @ 1250 pcm @10%

    I saw an  LA with 2000 properties who reckoned on 1 full time staff member per 120  properties

    Systematisation was the key he said but I recall thinking that poor person would be run ragged

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    Jonathan Clarke. http://www.buytoletmk.com