Watch: How letting agents can double HMO profits with guaranteed rent

Stephanie Taylor (00:04.171)

So what I’m talking about today is controversial. And I know that this presentation is the best presentation you’re going to see in the next 15 minutes. And you’ll either love the ideas here or you’ll hate them. So we’re talking about how to double your profitability from HMO management using guaranteed rent. And the reason why this is an issue is that

In HMO management, the margins are getting squashed. For many letting agents, it’s commodity pricing on the fees, there’s increasing costs, decreasing revenue, and with landlords going costs going up, landlords are much more price sensitive. And so that’s leading to letting agents not being able to invest as much in HMO management services as they want to.

But what if there was a way to provide that exceptional service at a cost that landlords love and provide an exceptional service to both landlords and to the housemates? And that’s what I’m going to be talking about today. I feel I can’t really go further than the limerick, but I want to say a few words about who we are. And with my sister, Nikki, we’re co-founders of HMO Heaven, an award winning rent to rent business.

We have our own portfolio of blocks of flats, HMOs and commercial properties. And we’re also, as you said, hosts of the top podcasts on Rent2Rent, writers of the number one book on Rent2Rent and many other things. But what we’re most proud of is that in Google, we are the number one Rent2Rent mentor in the UK. What we’re talking about today, how to double

that revenue from HMO management in an ethical way that works in a win-win-win for everyone. So I’m going to talk about two ways that a standard high street letting agent can introduce guaranteed rent to their business. One is by doing it themselves and the other is by outsourcing. And I’m going to give you a whistle stop tour in the few minutes that we are sharing here today. We’re also going to talk about the risks. Why aren’t letting agents

Stephanie Taylor (02:25.12)

introducing guaranteed rent when as you’ll see there’s a huge opportunity in it and letting agents are really well placed to make the most of that opportunity. So just before we go deep into this I want to say a few words about what do I mean by guaranteed rent. People often ask this question and what I mean today because it can be used in different contexts is that it’s about renting an HMO

offering the owner of the property a guaranteed rent, taking on payment of the bills yourself, and if you manage the property well, you make profit, and if you don’t, you won’t. So it’s really taking on the risks from the landlord to you as the agent, and what that does is it takes the lid off what you can make on that property instead of capping it at the commission amount.

So let’s go right into an example. I’ve got a picture here because people say, well, does this really work in practice? And would landlords really go for this? So here’s an eight bed property that we took on. And I remember walking in the door and it was that temperature that many of you will know, it’s called HMO tropical, well-known thermostat setting. So it was a wall of heat and it smelt really bad. And there were only three out of eight rooms that were taken in this property.

And the landlord, the owner of the property was beside himself with what to do. He was really stressed about it because he lives, he was a remote landlord, had this one HMO and it was working really badly for him. In fact, it was costing him over a thousand pounds a month to keep that property running. You can imagine the relationship with his wife was not good at that time. And he’d tried various different letting agents, but when the property’s in a bad condition, even the best letting agents in the world is not gonna be able to do anything with it.

So many letting agents would see that property and say, do you know what, I’m not taking that property on. This is a problem property. But with a guaranteed rent situation, I’m using rent to rent and guaranteed rent interchangeably, meaning the same thing that I described earlier. With a rent to rent situation, as the agent, you can actually put money into that because you’re getting the upside. And owners, well, let me explain what happened. We did a refurbishment. We let the landlord know what needed to be done.

Stephanie Taylor (04:49.239)

He paid for some of it, we paid for some of it. We invested, although you don’t necessarily need to do this as a letting agent, we invested about 10,000 pounds in this property. And at the end of it, the landlord is receiving over 2,000 pounds more per month. So it’s turned this property that had been a problem for not just one month, not just two months, but four years into a property that now works for the owner, it works for us, and it works for the housemates.

I just want to show you this because people always want to see the numbers and you can see here that the rent to the rent is at the top £1,200. The landlord, the owner of the property was absolutely delighted with that rent because as I say, it’s £2,200 more than the rent that he was previously getting and being able to breathe that sigh of relief. Now I know that we’re in this room, we are all investors, so if I was in a room of car experts,

You would not sell your car on We Buy Any Car. But I would sell my car on We Buy Any Car because of the convenience. And for landlords, it’s the same. Not every landlord this would suit, but for many landlords who just want to know that that money is coming in every month. And that £12,282 is what we make per month, and £1200 goes to the owner. And I like to think in blocks of five. Why five is the magic number is…

With children, know that five years can make a huge amount of growth and it’s the same in property. And over one year, it’s over 15,000 pounds of cash flow. And over five years, over 76,000 cash flow from one property. But what I want to come on to is the misconception in property that many of us have before we go into it. And that is that the cash flow is created in the property that you…

create that HMO, you make it beautiful, you’re very careful with your design, you want it to be a great experience as Dave was talking about earlier for the people living there. And then you give it away without checking the property management credentials. And what we saw earlier is that that very same property under one set of management, it’s the gross revenue coming in, the gross rental coming in was 1,000 pounds.

Stephanie Taylor (07:13.716)

Under our management, it’s over 3,300 pounds. You might say, well, that’s not the same property as it because you did use it up. And we did use it up. But every bad HMO started off as a newly refurbished property. Every good property can go bad under bad management. And every bad property can become good.

and a good management. So the potential is in the property, but you realise that potential with the property management. And that’s why we need to bear in mind the cash flow is created in the property management, not in the property itself. And a consistently profitable HMO, we all know that, is only consistent with that consistent management. And that is what’s so hard to find for you as a HMO investors.

HMO landlords and that’s what we as HMO letting agents offer. If we can offer that consistent high level of service and a guaranteed rent situation where you’re able to get paid more for actually what you do and when you’re better, your rewards are better from a letting agent perspective, it really works well. It’s a win-win-win. We’re not taking anything from anyone. We’re creating something that wasn’t there before.

And that’s what makes it a win for the housemate, beautiful, affordable home. A win for the landlords in that guaranteed rent. We’ve been running this business for over seven years and we’ve never missed a single guaranteed rent payment to any landlord in all that time. that’s what they love. And it’s a win for us because of the figures that you’ve seen that I’ve shared with you already. So let’s come on to what are the risks? There are risks inherent in this strategy.

And that’s why it is a rewarding strategy. It’s higher risk. And agents often say to me, I wouldn’t want to do this. In fact, I was discussing this on the transfer over and with a letting agent saying, no, it could be risky because of the voids. It could be risky because of high utility costs. It could be risky because, or it could be a non-starter because landlords wouldn’t accept these lower rents. So I’m going to take each of these in turn.

Stephanie Taylor (09:34.603)

and say how you as a letting agent are so well placed to mitigate these risks. So voids are when the room is empty. When you’re on a 10 % commission on a 600 pound room, if a room is empty, you’re losing 60 pounds a month. But if you’re on guaranteed rent, if a room is empty for a month, you’re losing 600 pounds a month. Doesn’t that incentivize you to keep those rooms full and to keep your systems in place for your void? So we do find that guaranteed rent means that you have

fuel voids. And we have a system that we use and it really changed the game. We brought this in a few years into it, it really changed the game in what we were doing. And I encourage you, if you’re not already working on this and you think it could work for you, to try it out for yourself. So like many of you, we have, there’s two phases to it. The first phase is that all of our housemates have the same rental period, which goes from the first day of each month to the last day of each month.

And all of our housemates, probably like many of you, they have a one month’s notice period. The difference that we made was that people then can only give notice, one month’s notice for the last day of each rental month. That gives us 12 days a year when people move out. So there’s 12 days a year when people check out the last day of each month, and there’s 12 days a year when people move in.

first day of each month. So that still gives the tenants or the housemates the same thing, a month’s notice. But for us, it really smooths our operations because all of our contractors, cleaners are there on the last day of the month going around the rooms that need to be prepared and the same for the first day of the month. Now, for some of you, that may not work. You might want to have more than one per month, but having it

like that, really smooths that and keeps the voids to an absolute minimum. It’s so simple and yet so powerful. And I speak to so many letting agents who aren’t doing this and feel it would help them. The next is the utility management. We’ve seen the utility management go sky high, haven’t we? But with this trio of things, with these three things…

Stephanie Taylor (12:00.761)

You can really keep your utilities in a way that you can still be profitable. You’ve got the right contracts with your landlords. You’ve got smart thermostats. Many of you will have that already. And for those who want as well, you can go into bulk buying for utilities that give you that fixed outgoings.

And I wanted to show you a property, this is a property we’ve had since 2019. And so I’m just showing you 2019 to current date that your profitability will fluctuate over time. So it started off at 790 during COVID, it went down to 638. And currently it’s at 823. And that’s also having the bump of higher utility costs. So when you analyze the deals correctly,

you’ve got the buffer within it. So your profitability will change, but it can go up as well. as you know, rental rents have gone up as well, which is, which is the income. But this is the one that I think we all struggle with the most because it does seem really laughable. Why would a landlord accept less rent? And I think it’s this, it’s going back to that, we buy any car scenario. If you’re a car,

If you work in the car industry, you’re not selling your car in that way for convenience. And if you’re a property investor, maybe you’re not doing this. But if you’re a part-time landlord with a business and a family and you’re remote, maybe this absolutely suits you down to the ground. If your costs are going up and you want to know what rent you’re getting, maybe knowing what you’re getting absolutely suits you down to the ground. Now, most property owners, and maybe most of us, you know what your salary is.

You know what’s coming in, whether it’s coming in from business or whether it’s coming in from employment. But you might not be able to put your finger right on the pulse of what is going out every month for a particular rental property. What’s going out in management? What’s going out in minor maintenance? What’s going out in agent fees? What’s going out in voids? Or what’s not coming in in voids? Most landlords, especially with multiple properties, won’t be aware of what that number is for a specific property.

Stephanie Taylor (14:16.753)

And that’s the number that we need to be able to educate people on and say, actually, your net rent after all the bills, which we are now going to pay on your behalf, your net rent is this, and we’re going to offer you the same or more than that. So here’s an example of one of the landlords that we took on what their gross top line renters of 2200, but what they were actually getting when we removed the cost that we’re now going to take over.

what they’re actually getting is £1,293 and then we can offer something on a par with that. So that’s all to say that for many landlords that we work with, the guaranteed rent is actually higher than the net rent that they were getting.

It’s not just about the money. Yes, the money is very important. It gives you that peace of mind. It means you can sleep. It means you can argue with your wife about the £1,000 a month that’s being lost on a property that’s been carrying on for a long time with no sign of a way out. It’s also about light bulbs because more than one of our landlords have complained about getting charged more than once £50 for a light bulb to be changed because an electrician is called out because agents…

especially when they’re on these very low commissions, actually cannot resource for a staff member to go and look at a problem or look at an issue and find out what’s going on. A contractor is called. So it’s about having that full service as well where they know they’re not going to get that call. They’re not going to get that call that it’s going to be done for them. And people then think, well, this sounds like a really raw deal for landlords. I don’t think landlords would be loving this. And we’ve got hundreds of reviews on Google.

from landlords who are absolutely delighted with the service they’re receiving. Many of them have been landlords for decades and they’re delighted to find a long-term answer which fulfills what they need which is high quality long-term management and they know what they’re getting in their bank account every single month. So that is DIY and we talked about how to mitigate the risks in doing it yourself, how to mitigate the risk of void.

Stephanie Taylor (16:32.71)

mitigate the risk of utilities and get over that hump of why would a landlord accept in inverted commas lower rent. So some of you may be having landlords come to you, you may not want to take on that management. And there’s another way to do this as well, where you outsource to a guaranteed rent or rent to rent business to do that on your behalf and you get paid while then not managing a property. So that’s another way.

And how it works is you partner with a guaranteed rent business, they then manage the property, you then get paid. And here’s an example. Not all of the properties are in a terrible state like some of the ones earlier. This one was actually fairly recently refurbished. It just needed a little bit of a refresh. You can see there that the tenants have brought some of their own furniture in and things like that. And after…

the refresh, obviously it totally turns the property around. So on that property, this is firstly an example of what the owner of the property was looking for in rent, 1400, what their net rent was, what our offer on that property was, was more than their net rent, so £900 a month. So say, so your agent fee then, if you were to introduce to

a rent-to-rent business who’s offering £900 a month for that property, then your fee structure could look like this. £900 is a one-off introduction fee. Then you may have an annual fee payable or you may prefer a monthly fee payable. And all of that would be coming to you for an introduction. So once you get the right rent-to-rent business to work with, or the right few rent-to-rent businesses to work with, it really can bring in passive income. But…

there is some work involved because I’m sure you’re all thinking, yeah, but there’s a risk to that. There are. the two biggest risks that agents have told me about are that fear of being cut out. So it’s a rent to rent business goes straight direct to the owner of the property. And then the fear that your rent to rent partner might not meet their obligations, they might not pay their rent, they might do other things that they’re not supposed to be doing. So how do you get around that?

Stephanie Taylor (18:55.278)

And I’ll come back to that QR code. But really, the first thing is in looking for the right rent to rent business partner, you want somebody who will do a good job and will talk to you about how to choose that partner. But I think the main thing is to have an annual management process, at least annual.

And that goes through getting all the compliance documents so that you can satisfy yourself that they’re doing everything they need to do. At the moment, the law says if a rent-to-rent business doesn’t meet their obligations, that that’s on them and not on the owner of property or on yourself as the agent. But if you have that annual process, then you know that, for example, they’ve got the HMA license, they’ve got the right insurance and so on, and that can be a process that you do annually.

Again, it’s really important to have the right contracts and the contracts will set out what your obligations are, very few, and what their obligations are, which are many, and what happens to exit things. And of course, we’ve been doing this for years for our own business, but also for the many other rent-to-rent businesses we work with. So we’ve had a whistle-stop tour. We’ve gone over the two ways that you can use to

harness the power of guaranteed rent in your business. And we’ve got the reasons, the risks basically of why people are not doing it. And we’ve talked about how to mitigate those risks and be able to take advantage of the huge opportunity that there is for agents. And I want to give a couple of examples of what if, you you doubled the income. Now, I was speaking to somebody just outside.

who said they just started this on some of their properties. They’ve had some properties which are a little bit tired and they realise they can invest a few thousand pounds in those properties as the agents because they know they’re getting that uplift which will more than pay back. And sometimes if you have landlords who are not ready to invest, this can be a great way to do it. So let’s take this example from earlier. So we’ve got 2783 coming in. I’m just showing you the difference between the 15 % commission

Stephanie Taylor (21:15.558)

model you’d have 418, the actual guaranteed rent you’d have over 800. Now this only works if you manage the properties exceptionally well, which you can afford to do when you have the guaranteed rent model.

Again, looking at this of the monthly cash flow of 1282 that we looked at earlier. On this, the 15 % commission model would be £500 a month. The guaranteed rent model is £1,282 a month.

So that brings us to the close of the leverage in the guaranteed rent for agents who understand how to mitigate the risks. And I do have this QR code on my last slide as well, which is that if you do want to know more about this, we have information about how to do it, how to find the right businesses to work with, to partner with, and how to do it yourself to ensure that you have

the most chance of success. And as I say, this is the first time I’ve done this talk on how letting agents can do this, how letting agents can take advantage of this amazing opportunity to be able to, I feel, get paid for the value that you add, and while also really suiting the people you work with, i.e. landlords and housemates, for a real win-win-win. Thank you very much.