Acquiring a lettings agency can be a lucrative investment. The buyer is provided with immediate access to a portfolio of rental properties and established relationships with landlords and tenants, as well as an existing revenue stream.
However, financing these acquisitions requires careful planning and having the correct funding structure in place. This guide explains how lettings agency acquisition finance works and the key factors you should consider when buying an agency:
Your finance options
Acquisition finance relates to the funding solutions available, in this case for lettings agency acquisitions. If you wish to purchase an existing lettings agency, here are the various funding options available to you:
Business loan
Within our panel of lenders, we work with specialist property finance companies who offer tailored solutions for lettings agencies. Like a traditional business loan, typically these lettings agency business loans require security, although you may be eligible for unsecured business loans.
If you successfully apply for a business loan to purchase a lettings agency, you can purchase the agency yourself with the loaned funds.
Asset-based lending
Leveraging your current existing business’s assets, such as rent-roll income or a commercial property you own. These assets will serve as collateral to secure the loan.
Vendor financing
The seller may agree to deferred payments, reducing the need for your business to invest significant upfront capital.
Key Factors Lenders Consider
Business track record
The agency’s financial stability, client contention rates, and compliance with regulations are some of the factors which come into play when lenders assess the business’ track record.
Profitability & cash flow
Strong cash flow and recurring revenue streams attract lenders and improve your likelihood of securing finance.
Management experience
Buyers with industry experience are viewed favourably compared with buyers who are new to the property industry.
Security & collateral
Some lenders require collateral in the form of personal or business assets in order to secure the loan.
Exit strategy
Lenders may want to see a plan for future growth, or resale of the business.
Structuring the deal
There are several ways to structure lettings agency buyout finance:
Asset purchase
Buying the agency’s key assets, such as the rent roll, contracts, and the brand – while leaving the liabilities with the seller.
Share purchase
Acquiring 100% of the lettings business’s shares, including any liabilities and obligations.
Management Buy Out
Your management team secures funding to purchase the lettings business from its current owners.
Earn-out agreements
The buyer pays an initial sum, and makes further payments linked to the performance of the business.
Each of these structures has varying financial and tax implications, so professional advice is advisable to find the most suitable structure for your business.
Lettings Agency Acquisition Finance Example Figures
Example Case Study: Finance for Management Buyout of Lettings Agency
Finance Requirement: £500,000 to purchase entire portfolio and associated obligations.
Background
ABC Lettings Ltd is an independent lettings agency that wants to acquire a competitor agency to expand their portfolio. The agency owner plans to purchase the agency in a Management Buy Out structure, acquiring 100% of the business assets while taking on the obligations of the newly purchased agency. The total cost for this buyout is £500,000.
Challenges
While ABC Lettings has a strong balance sheet, the business required external funding to complete the purchase. The owner approached Mill Wood, looking for a competitive management buyout business loan that would allow him to finance the purchase without significantly disrupting cash flow.
Key considerations:
- Ensuring manageable monthly repayments
- Securing a loan with a competitive interest rate
- Fast turnaround time to purchase the lettings agency in the timeframe the seller imposed.
Solution Provided
After assessing the business’s financial position, business plan, and projected revenue, we secured a management buy out business loan of £500,000 through one of our lenders that offers tailored finance for the property industry. The loan structure included:
- Loan Amount: £500,000
- Term: 5 years
- Repayment Structure: Monthly instalments with the option for early repayment without penalties.
- Monthly repayments x60: £11,010 + VAT
- Total Repayments: £660,600 + VAT
Outcome
With funding secured, ABC Lettings Ltd was able to purchase the new lettings agency swiftly. The addition of a new lettings portfolio improved ABC’s profits by 45% in the first year, strengthening the business’s competitive position in the local market and positioning them as a market leader in lettings.
Conclusion
This case study highlights how strategic lettings agency finance can support your growth by enabling your business’ expansion without impacting day-to-day cash flow. If you’re looking to finance a lettings agency buyout, contact us today to explore tailored funding solutions for your business.
*please note, this is not a real case study, each finance application is unique and figures are representative of a typical application – they will differ with each agreement*
Summary
Lettings agency acquisition finance can facilitate the growth of your lettings agency portfolio, allowing you to acquire a lettings agency without the need to pay for the purchase of the agency in one lump sum.
In understanding your funding options, lender requirements and how to structure a lettings agency acquisition, prospective buyers can structure a deal that best suits their business objectives and financial capabilities. Speak to Mill Wood today if you’re looking to finance a lettings agency acquisition.
