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articles > Buying a Letting Agent Business
Article > Buying a Letting Agent Business

Article kindly supplied by John Paul

www.thecastledenegroup.com
Suite 1, Easington Business Centre,
Seaside Lane, Easington, Durham, SR8 3LJ

01915878132

 

We have been very fortunate, that despite the current economic climate, Castledene Property Management has enjoyed huge success. We have grown organically to over 600 properties but have recently acquired another letting agent that takes the amount of properties under our management to over 1000. This Article will explain the ups and downs of the acquisition and answer the most important question, to buy or not to buy?


Background

I had known the owners for a good few years from when I used to trawl the estate agents for looking for property deals, as they also own a chain of Estate Agents. They had a great reputation of being ethical and professional and so did their letting agent Interlet North East (NE).

Interlet NE has been trading since 1992 and managed over 400 properties, mostly mid to higher end in value, which is pretty much the opposite to what we manage at Castledene so it was a nice variation. They are ARLA accredited which is widely regarded as one of the most professional of accreditation bodies but most importantly, in my opinion, had been producing consistent profit over the last 3 years.

I immediately saw the potential of joining Castledene and the Interlet together. There would obviously be savings on certain items and since we have our own repairs department, we could obviously pass on those saving to the Landlords.

I approached them and asked if they would be interested in selling, I hadn’t the finance in place, but I didn’t want to waste time getting the finance if the business wasn’t even up for sale. It wasn’t actually up for sale, but had been speaking to interested parties over the previous few years when ever some one had asked them, but as a general rule were happy to keep trading as it.

We had a few initial meetings discussing price and details of the deal, which went remarkably well. They told me what they wanted and we went away to see if the business was worth it. I cant divulge any exact figures due to contractual constraints but I think it was great value for money.

 

Getting the Finance

Buying a business was very new for me and to be honest, when it came to raising finance, I wasn’t sure who could help. Initially I thought my broker would be the person to speak to, but he said very few commercial lenders are lending for this type of business at present. Then by sheer chance I was at a networking event (See it does work) and got speaking to an accountant. It turns out that quite a few medium to large accountancy firms have corporate financing departments which specialise in these sorts of commercial transactions.


I met with four firms to get an idea of what to expect and charges etc and picked one that I felt comfortable with. This is extremely important, as this can be a very stressful and tense time so you need some one on your side, who you feel at ease with and also to be open and honest with you.

The accountant helped put together a very comprehensive business plan, much more in depth and impressive than I ever could. They write it in such a way that it makes more of an opportunity for the banks and at least gets you through the door, which these days is hard enough.

Now if any bank manager says to you that they are open for business as usual, I can tell you, that in general, they are not. We initially had 25% deposit to put down and a few years ago this would have been enough for the purchase. Unfortunately the banks are extremely risk averse and politely declined.

We therefore had to go down the EFG (Enterprise Finance Guarantee) route, which is the old small firms loan guarantee scheme. This scheme is a fantastic idea where, in a nut shell, the government guarantees 75% of individual loans made by participating banks to SME’s. The only problem is that banks are not fully aware of the finer details of the EFG, to the point that some of the banks we spoke to didn’t think that it applied to property even though we pointed out that it did.

We eventually spoke to Lloyds who were very keen to help, and after many meetings with them, they came back and made us an offer. They would lend us 50% of what we were asking for. To be honest I was very disappointed as it was no where near we needed to be with regard to our initial deposit.

We went back to the owners, explained the situation and asked for some deferment over a set period of time. They were very understanding of banks reluctance to lend and we agreed on 15% over a two year period, which still meant we had to come up with an extra 10%.

It wasn’t easy but we tightened our belts and managed to come up with the additional 10%. We then had mountains of paperwork, guarantees, etc to complete in order that the banks were happy with everything.

 

Due Dilligence

Once we had the offer letter, we could then carry out the due diligence part of the transaction and after signing confidentiality agreements we then got straight into it, which I can honestly say was a real eye opener.


As a potential purchaser of a new business, you have to keep a cool head on your shoulders and not get excited by potentially YOUR new business. You have to stay impartial and be open and honest in your findings, ask as many questions as you feel necessary, so that you completely understand how the business runs and why it runs the way it does.

Don’t feel as though you can’t ask a question as you might offend some one. It’s a lot of money what your paying and if your not 100% right you might end up with a dog of a business. I basically asked as many questions as I could until I knew the business inside out. When I eventually took over the business and walked through the door as its new owner I felt as though I knew how it was run already (although there will always be surprises)


Be patient!

Another part of the process that I wasn’t expecting was the length of time it took for the solicitors to finalise agreements and contracts. You feel as though things are dragging on and want them to just get on with it. However they take their time for a reason, they should always have your best interests at heart and if their not happy about something, take notice of them and let them sort it out with the other side.

I was very fortunate that both sets of solicitors were not only good and proficient at their job but also realists. I would ask for certain points and my solicitor would say “ill ask, but you don’t really need to push that point” or “ let them have that one, we can use it as a bargaining tool”. It was a fun experience although I think ive aged 10 years during the whole process.


To buy or not to Buy?

Whether you buy a business or not is really down to two things:-

1. Your individual strategy
What do you want from it? Is growing the business this fast, really what you want?
Are you prepared for the extra work, and it will be extra work?
Are you cut out for the extra work, it can be very stressful?
Have you got your team in place to help, solicitors, accountant, business advisors etc?
If the business is to be integrated, have you got the systems in place to do so?

2. Can you raise the finance
Bear in mind the banks are not lending as much as they like to tell us
You might be able to get private finance but at what cost?

Its not just a case of wanting a business and going out and buying one, I think that’s a lot of people downfall. You have to seriously weigh up both sides of the deal and see if its worth it.

In this instance I felt that buying this agent was a great move for many of the mentioned reasons:-

• Established business with superb reputation
• Profitable business that can be improved
• Great staff who are good at their jobs and motivated
• Gets us to our goal quicker
• Increase the reputation and market share of Castledene

Over all it was a great experience and I can say I have learnt an awful lot. We are actually in talks with another, smaller, letting agent and hope to have that deal completed within a couple of months so you could probably say I’ve got the bug

It has certainly improved me in many ways, as a businessman but also a person. Patience was never one of my strong points, but I have learnt that in life, you can’t rush certain things.

“Price is what you pay, Value is what you get” – Warren Buffett

 

 

 

 

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