BiggerPockets

I just purchased 3 rental properties. Due to time constraints, etc I decided to use an agent to bring qualified tenants. I felt they have the ability to better screen tenants. They cut a deal with me for 1/2 the first months rent. After that, it is my responsibility to collect rents and manage the properties. I didn't think this was a bad trade-off because I know that if I get one REALLY BAD tenant that person could destroy hopes of any profit for a year or longer. I think I am doing the right thing. What do the BP group think??

John

hmmmm...I can't say I considered that. I do know they run an eviction screening and a police record screening of some sort. I will try and get a thorough answer as to exactly what they do.

The agent that I use just brought a tenant to one property that is a law enforcement officer. I was happy to see that...knowing that I was not going to be dealing with someone that just got out of prison for murder...especially murdering a landlord! I just learned something new with this tenant: you cannot deny a service dog. They are a K9 unit...and you cannot deny rental to a K9. They might have more rights than a human being.

Thanks for the input...
John

I found most agents in SW FL want to charge one month. When I promised them more properties they cut it to 1/2 the first month. I am a long term relationship believer. They know they wil get all of my business...and I know (or believe) that they will do a thorough job.

I hear a lot of people manage their own properties and wonder how they screen tenants on their own. My time is extremely limited so I felt paying 1/2 the first month rent was very reasonable. I have not run numbers to see the effect this has on my NOI. I am a beginnning investor and not what I would call "sophisticated".....but rather "seat of the pants". Six months ago I didn't have any plans of having rent houses. That happened quite by mistake. After I ended up with number 1, then I felt I could not make a lot of money with only 1, so now I am at number 3 and working on 4. I have a hard money lender giving me a helping hand. I expect to buy and read a few books including a couple that have been written by mods on this site.

When I have some spare time I might sit down and calculate what the effect of forfeiting 1/2 the first months rent is. The one factor that cannot be calculated would be the effect of renting it on my own without having the ability to do thorough background checks, and the possible results of getting a nightmare from hell tenant! I have seen the effects of that and it was NOT a pretty sight! I didn't feel 1/2 the first month was a lot of money, and most agents that I talked to charged the entire first month.

John

As the owner of a sizable property management operation, we charge 1 month's rent for this service. People doing it for half of that are really cutting themselves. If you're happy with the results of the 1/2 price folks, keep them around. If you have a bad experience, switch to a full fee professional organization.

Unfortunately for the public, the "cheapest" property manager is almost always the "most costly." IMO:)

My take on it is you might be having higher expectations of an agent than I do.

That agent is going to be paid the same for evaluating 5 tenant candidates as for evaluating 50 tenant candidates. Do you expect that the compensation will induce the agent to undergo far more effort to identify a qualified tenant, or do you expect that minimal effort will be put into it? I expect the latter, since most people are inclined to put in the least effort that they can possibly get away with.

So I will give you a true anecdote here. Last year, I was in HD purchasing some bulk door stoppers, since I put them at every door in a rental unit to minimize doorknob damage to walls. The guy working in HD in that aisle commented that I seemed to be buying lots of the door stoppers, and did I have some big project. I explained that I was getting a rental ready, and any leftovers would be used on the next one. He said he was getting rid of his rentals. I asked why. He said he was tired of crappy tenants not paying and wrecking the place on the way out. I said that the location of his rental was one where better quality tenants could be found, and that he should screen the tenants better upfront. He said he used an agent to place tenants in his rentals. I told him the same sort of comments I made at the beginning two paragraphs of my post here ...

So that is why, although it may be hard at times, I have chosen to handle the tenant selection myself (at least for now). That is one of the most important tasks in the rental business IMO; much of everything else can be outsourced with less trouble (like repairs for example).

Lastly, if you use an agent, often they will just use the "standard agent lease form" for the state you are in. These "standard agent" forms aren't set up to protect the landlord; they are set up to protect agents IMO.

Several strikes against using an agent there. Now, if your location is quite a distance, then you're probably going to need the services of an agent, but otherwise ...

I've used agents 3 times to place place tenants. 2 out of the 3 broke their lease before the first year was up, and I almost filed eviction on the 3rd, but they cured just in time. I want to do my own screening, not to pay for it and then do it again anyway.

Simple calculation - average rental period for the area and "good tenant" profile (in our case, for instance, in Japan, its 4-5 years in the singles' units we like most), take 25% off that time for unexpected downturns (or more if your area is notoriously unstable), and work out the percentage 1/2 or 1 month rent income is of that period (in our case more like 1-2 months).

I think, in the vast majority of cases, and particularly if you work out how many empty months bad screening or management can cost you, you'll see there's no doubt as to the financial gain potential a good PM or tenant placer can be worth.

And that's without even taking into account the personal toll of time and resources spent when you do it all yourself...

Owners have called us frequently about offering this hybrid service. Our screening is rigorous and so far, owners have been satisfied the handful of times we've done it.

Very interested in some other opinions too. Anyone else chime in?

Normally we will have our real estate agent list our property on MLS for rent. She will do it for free if we bought the property through her. We will then pay a $300 dollar commission to the agent representing the tenants (properties rent for 1200/month +). For the screening we do that ourselves. We email the application and do the credit/background check online. Any follow up is through email/phone calls. The screening part is easy.

If we accept the tenant then they will have to sign the lease to get the keys. That is the first time we meet and it is normally at the property. This keeps our time minimal.

Around here they typically charge half a months rent plus 10% of collected rents. With no actual vacancy and one turn over a year, that works out to 14% of your gross. If you're paying 10% a month plus a full months rent that's 18% of gross!

I show properties once a week. That's it. I tell all callers the same time, usually on a Saturday or Sunday. Once in a while, I actually have more than one group at a time, but its rare. Its not a bad thing when it does happen, they get a little competitive. I tell them to call me 30 minutes before the showing or I won't be there. I usually try to get at least four who say they will be there, which usually translates into two or three actually showing up.

I've used an agent once. The resulting tenant wasn't my worst, but was certainly not my best.

This is the number one reason why I don't own properties that are two far away to manage myself. I've been contemplating @John Thedford's area for a rent-now, live-in-later property. Now my old jitters are returning.