Letting agents play a crucial role in the rental property market, acting as intermediaries between landlords and tenants. They help landlords find suitable tenants, manage properties, and ensure legal compliance. But how exactly do letting agents make money? This guide breaks down the various income streams and fees that letting agents use to generate revenue.
One of the primary ways letting agents earn money is through tenant find services. This fee covers the process of marketing the property, conducting viewings, vetting potential tenants, and securing a signed tenancy agreement.
Example: For a property rented at £1,500 per month, a letting agent charging 10% of the annual rent would earn £1,800.
Letting agents also make money through full property management services. This is ideal for landlords who want a hands-off approach and prefer to leave all aspects of property management to professionals.
Example: For a rental property with monthly rent of £2,000, an agent charging 12% for full management would earn £240 per month.
Letting agents may charge landlords a renewal fee if a tenant decides to extend their lease at the end of the tenancy agreement.
Prior to the Tenant Fees Act of 2019 in England, letting agents could charge tenants for services such as referencing, administration, and contract preparation. However, this practice is now largely prohibited, and letting agents can only charge tenants for specific services, such as:
Letting agents often offer additional services to landlords and tenants, which generate extra income:
Inventory Checks: Letting agents charge for creating an inventory of the property’s contents and condition before tenants move in and when they move out.
Rent Guarantee Insurance: Agents may sell rent guarantee insurance to landlords to protect against potential rental arrears.
Maintenance and Repairs: Some letting agents charge a markup on maintenance work done by contractors.
Deposit Protection Services: Letting agents may charge a fee to handle deposit protection schemes, ensuring compliance with legal requirements.
Property Marketing Services: Offering professional photography, virtual tours, and floor plans to enhance property listings. This may be an additional one-off fee.
Letting agents often collaborate with third-party companies to provide services such as:
Agents earn referral fees or commissions when landlords or tenants use these recommended services.
With the rise of platforms like Airbnb, many letting agents have expanded into managing short-term rentals. This typically involves:
Fees for managing short-term lets are usually higher, often ranging between 15-25% of the rental income.
| Service | Fee Type | Example Cost |
|---|---|---|
| Tenant Find Service | 8-12% of annual rent | £1,200 for £1,500/month rent |
| Full Property Management | 10-15% of monthly rent | £240/month for £2,000 rent |
| Tenancy Renewal | 5-10% of annual rent | £600 for £1,500/month rent |
| Inventory Report | Fixed fee | £150 - £300 |
| Rent Guarantee Insurance | Commission-based | £100 - £200 per policy |
| Short-Term Let Management | 15-25% of rental income | £400/month for £2,000 income |
1. Do letting agents charge both landlords and tenants?
Before the Tenant Fees Act 2019, letting agents could charge both. Now, agents primarily charge landlords, with limited fees allowed for tenants.
2. Can I negotiate letting agent fees?
Yes, landlords can often negotiate fees, especially if they own multiple properties or are willing to sign a long-term contract.
3. How do letting agents earn money if a property is vacant?
Letting agents only earn management fees when a property is occupied. This incentivizes them to find tenants quickly. However, some may charge a small fee for property upkeep during vacant periods.
4. Are letting agent fees tax-deductible for landlords?
Yes, letting agent fees are considered an allowable expense and can be deducted from rental income when calculating taxable profit.
5. Is it worth hiring a letting agent?
If you’re a landlord with multiple properties or living abroad, a letting agent can save you time and hassle by managing tenants, maintenance, and legal compliance.
Letting agents generate income through various fees and services, primarily from landlords. While tenant fees have been restricted in recent years, letting agents continue to offer valuable services such as tenant find, property management, and additional maintenance services. If you're a landlord or tenant, understanding how letting agents make money can help you better navigate the rental market. For personalized advice and expert letting services, contact Fraser Bond today.
