A great way to put tenants off your property is to demand a big lump-sum payment before they can move in. This lump-sum is the amalgamation of:
- Holding deposit
- Tenancy deposit (five week’s rent)
- First month’s rent upfront
It isn’t uncommon for these fees to add up to well over £3,000.
Even though each sum may be justifiable, many tenants simply don’t have that kind of money available upfront, even though they could very well afford the monthly rent and go on to be great tenants.
Often, when searching for a rental property, tenants are still waiting for their previous security deposit to be returned to them from their last tenancy, adding further financial constraints.
High upfront costs put off more tenants than you imagine. Lowering them will help you attract more enquiries from tenants.
Here is how to lower the upfront cost to tenants without putting yourself at financial risk.
This is the first sum that a tenant will have to pay when moving into a property. Making it as cheap as possible will greatly aid enquiries from tenants.
The holding deposit has two goals. You should make it big enough to achieve these goals but no bigger. The holding deposit must:
- Put off timewasters
- Cover yours costs if you can’t move forward with the tenant
How much do you need to take to achieve these goals?
To achieve the first goal, only around £200 is needed. From our experience with millions of tenant enquiries, £200 will deter time-wasting tenants.
The second goal is ensuring you are covered against lost rent if a tenant pulls out last minute and your property is left empty for extra days. Let’s look at a worst-case example:
The out-of-London average UK rent is £779pcm. A worst-case scenario might be that a last minute drop-out causes a week of lost rent. At this price, you will only lose £179 [assuming ((£779*12)/365)*7]
We can see from this hypothetical scenario that large holding deposits are very rarely needed to cover the landlord’s risk.
If you advertise four weeks ahead of your property being available then you should have more than enough time to find new tenants in the rare event of your first tenants failing referencing.
With OpenRent, our average let time is just 9 days.
You can further protect against costly void periods with a landlord insurance policy that has void period coverage. This will allow you to charge a lower holding deposit, which will attract more tenant enquiries, and make void periods less likely!
Tenancy (or ‘security’) deposits offer less flexibility than other upfront costs. In practice, it is very uncommon to ask for anything other than the maximum five weeks’ rent specific in the Tenant Fees Act.
On the principle of lowering the upfront lump sum to pursue your property, we would recommend not asking for a large deposit just for the sake of it. Large deposits put tenants off your advert, so lowering the deposit will help you gain more attention. But there is a tradeoff with the amount you can claim at the end of the tenancy. It is very rare, however, that a whole deposit will be claimed.
Agency fees for tenants have been banned by the Tenant Fees Act. Before the act, they range massively. Government figures suggest an average of £318. Citizens Advice puts it at £337. Research by Shelter found 1 in 7 pay over £500 in fees.
OpenRent never charged agency fees to tenants.
First Month’s Rent
We would never recommend allowing a tenant not to pay the first month in advance. Therefore, there isn’t much room for maneouvre here.
We have found, however, that tenants are much happier paying for the first month’s rent when they pay it to a reputable third party.
The tenants feel safer when a third party is securing the rent because it means that, should their new landlord turn out to be fraudulent, they won’t lose their rent money. Even though you are a respectable landlord, it’s all about perceptions when winning tenants over at the beginning of your relationship.
You can do just this with OpenRent’s Rent Now service. With us, the tenant will be much happier to pay, as they know they are paying their first month’s rent to the UK’s largest letting agents, who will protect it for them until they have moved in.
This extra level of trust will help you receive more enquiries. We will then pass on the rent to you after a short holding period of 7-14 days.
- Remove fiscal barriers to enquiring about your property by lessening upfront costs
- Holding deposit
- Tenancy deposit
- First Month’s Rent
- The lower the upfront costs, the more tenants will be able to afford your property