How much income should a mature letting agency generate?
With a letting agency, the business is built around providing services for others and therefore, theoretically, can just keep on growing and growing. It does not have barriers such as producing deposits, raising finance or getting mortgages, like property investment does.
Instead, it is about managing the minutiae and keeping multiple parties happy, whilst offering a great service.
Some of the fastest growing businesses in the world today are service based, non-asset owning businesses, ones that offer great service to their customers free of barriers, such as:
- Alibaba, the largest worldwide warehouse that owns no stock…
- Facebook, the largest content machine that creates no content…
- Uber, the largest taxi firm that owns no cabs…
- Rightmove, owns no estate agency but valued at £95million…
What this means is that it has huge potential as a company format, and can easily become a Gazelle type organisation showing rapid growth, just as the others have done.
Already we have seen massive growth from Connells in the last 12 months, as well as Countrywode, Leaders and LSL, and Belvoir’s floatation a few years ago too. The route is well-trodden for those that want to follow the same path. The model is proven as scalable, worthy of time, effort and investment.
How much money can they make?
How much money a letting agency can make will depend on many things. In the main, it depends on the effort of the business owner, in marketing, promotion, and building the business.
Obviously the income reach and potential also changes as you move around the country, with different fee levels and business opportunities.
I once heard it said that “all successful agents charge the same” amount that they need to run their business at that time, which in my experience (with a few exceptions) is generally true.
Some decide early on that they are going to be a discounted agent. In my experience, those I have seen them come and then go quite rapidly, probably because they cannot afford to trade at such fee levels, and provide the service they need to operate compliantly.
Whatever the end goal for income of a single branch, in the end a single operation tends to plateau out. At some point in the future, you will have as many people moving out as you have moving in, therefore you cease expanding in the normal way.
However, there are ways to continue growth, like opening further branches or purchase of other agency stock. I’ve even set two separate agencies up in one street a few doors away from each other in Wolverhampton, each with a slightly different market focus.
So what would you be expecting to make on a single branch outfit? In the Midlands, we work on £750,000 per annum as a mature 5-7 year old branch. We would be expecting one third of that to come from the property management, one third from property sales and one third from upfront fees and other income approximately.
Of that, you would be looking at anywhere between a 25% and 33% profit margin from when the business reaches its peak size and expecting normal expenditure (not including costs for a Ferrari in there).
An exercise we do during out one-day Intensive workshop is comparing the business plans for a 5 year old branch that charges normal fees and a cheap fee business, and the comparison is quite stark. The fee cutting branch does not achieve any profit, it barely covers costs, yet the full-fee outfit shows £250k profit.
The real value however, is in the value of the letting agency.
If you have a mature, well-run and systemised business on your hands, the value of letting agencies is currently at an all-time high of 2 x turnover, which means a business with a £750k turnover could easily be valued at £1.5 million to an interested party.
Not bad for 5-7 years’ work, in my opinion.