A lot of nonsense has been written about how to value a lettings business. Some people say that they are valued on a multiple of profit. They are not. I sold a letting business recently for £3.65 million which was trading at a loss! Some people say that they are valued on a multiple of adjusted profit or adjusted earnings before interest, tax, depreciation and amortisation (EBITDA). This is also wrong.
Some people say that letting agents are valued on a multiple of turnover. This is partly right but is overly simplistic. Two letting businesses with exactly the same turnover could vary in value by 100% or more according to how this turnover is made up. Turnover from managed properties is the most valuable because the future income is most secure. Turnover from let-only or tenant find-only properties will sell for less than half as much. Turnover from landlord admin fees will sell for less than management income because it is dependent on when the next change of tenancy occurs which cannot be accurately predicted. Turnover from tenant fees was ignored altogether after the tenant fee ban was announced but most letting agents have successfully passed these charges on to landlords who in turn have increased their rents.
It follows therefore that a statement such as “Letting agents are worth 1.5 times turnover” will often be wrong. The only way to value a letting agent accurately is by calculating a different multiple for each type of turnover.
If you would like an accurate valuation of your letting agency, please go to www.adamjwalker.co.uk or call me, Adam Walker, now on 07785277262.