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Is Using A RE Agent For Rentals The Smart Thing To Do If Concerned With NOI?

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John Thedford

Real Estate Investor from Naples, Florida

Feb 10 '13, 04:03 PM


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



Ned Carey Moderator

Wholesaler from Baltimore, Maryland

Feb 10 '13, 04:20 PM
2 votes


There is nothing wrong with what you are doing. In my are there are tenant placement people who are not full service property managers. All they do is find and screen tenants.

However keep in mind just because someone is a professional doesn't mean they do a good job. Some tenant placement people do not screen tenants well. So assuming you won't get a bad tenant is probably a bad assumption until you have a track record with a particular agent.



Medium_crab1_copyNed Carey, Crab Properties LLC
Website: http://baltimorerealestateinvestingblog.com/
http://baltimorerealestateinvestingblog.com/


John Thedford

Real Estate Investor from Naples, Florida

Feb 10 '13, 04:30 PM
1 vote


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



Jennifer Lee

Real Estate Investor from Gibsonia, Pennsylvania

Feb 10 '13, 04:32 PM
1 vote


I am not expert. But that is how I do my rentals. Lucky so far. One bad apple but we worked it out. No money lost.
1 month rent and I do the rest.



John Thedford

Real Estate Investor from Naples, Florida

Feb 10 '13, 05:01 PM


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



Doug Bohl

Hatboro, Pennsylvania

Feb 10 '13, 10:33 PM
1 vote


You got yourself a bargain! I have used three different agents in both Pa. and Fl. and all charged me one full months rent. When they find you a prospective tenant, you are able to run additional background checks yourself to verify they meet your standards.
When I get to the point of doing this full time, I will no longer use an agent, but for now, it is worth the money to make sure I get enough tenants that I can be picky. Bad tenant=nightmare.



Sandy Blanton

Real Estate Broker from Pensacola, Florida

Feb 10 '13, 10:39 PM
1 vote


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:)



Chris Clothier Verified Donor

Real Estate Investor from memphis, Tennessee

Feb 11 '13, 08:41 AM
1 vote


Originally posted by @Ned Carey:

However keep in mind just because someone is a professional doesn't mean they do a good job. Some tenant placement people do not screen tenants well. So assuming you won't get a bad tenant is probably a bad assumption until you have a track record with a particular agent.

I think that is really good insight Ned. You really have to dig into a companies operation to know if they are any good or not.

@John Thedford, the cost doesn't really concern me and I don't think it is an indication of their success at placing tenants. For me, there is only one way to do something right and if they can get it done for 1/2 a months rent as opposed to a full month's rent, more power to you. But, only time will tell how it works out and if you decide to move to a property management company that handles everything. Good luck with it and hopefully they perform for you.

Chris



Medium_new_mi_logoChris Clothier, Memphis Invest, GP
Telephone: 901-212-9647
Website: http://www.memphisinvest.com
www.MemphisInvest.com 1(877)-773-9998 Chris D Clothier


Steve Babiak

Real Estate Investor from Audubon, Pennsylvania

Feb 11 '13, 10:00 AM
2 votes


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 ...



Steve Babiak, Redeeming Properties, LLC
Telephone: 6109082183
...


Rob K

Real Estate Investor from Michigan

Feb 11 '13, 10:21 AM
1 vote


@John Thedford In my area, the first months rent is the normal compensation for placing a tenant. I'm not sure if your agent is keeping the entire half month, or paying some out to another agent that brings a tenant. Either way, you might be walking over dollars to pick up dimes.

I have a one man real estate brokerage that I use for doing my own business. When I have a vacant rental, I list it through my company and pay a half month to an agent that brings someone. (I save the other half since I am the listing agent). What I do is have the other agents show the house and have their prospect fill out MY APPLICATION and bring it to me with the application fee. I can then check them out and it's my decision if I rent to them or not. I rent out most of the houses myself, but I feel it's a bargain to have others show my properties in exchange for a tiny commission. It saves me a lot of time and I get MLS exposure.

Like @Steve Babiak said, they want to rent it as soon as possible and could take someone that might not meet your standards. I would suggest offering a full month, but YOU decide if someone is approved or not.

If you keep doing it the way you are, I would make sure that YOU have the final say on who is approved and not your agent. You could take recomendations, but still have the final say.



Jon Klaus Moderator Donor

Real Estate Investor from Garland, Texas

Feb 11 '13, 10:29 AM
1 vote


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.



Jon Klaus, SellPropertyFast
E-Mail: [email protected]
Telephone: 214-929-6545
Website: http://www.sellpropertyfast.com


Erik Kubec

Denver, Colorado

Feb 11 '13, 09:37 PM


My agent has been pretty good, but I have limited data: only been in the business of renting out properties for a little over a year and vacancies are really low around here.

Having said that, the first property they 'marketed' and signed the tenant for 1/2 months rent. I manage the property. For the next two, they sourced the tenant and are also managing the property. We have one more that we are just finishing rehabbing, and likely I will have the source and manage. My time is pretty limited, so I a happy to have them manage. Plus my cash flow margins are pretty good, so I am still cash flowing.



Ziv Magen

Real Estate Investor from Fukuoka, Queensland

Feb 11 '13, 11:32 PM


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...



John Thedford

Real Estate Investor from Naples, Florida

Feb 14 '13, 03:46 PM


What I have working against me it distance. My properties are 40 miles from where I live. After driving there a few times to show the properties and not getting a tenant application, I realized a good agent could probably get the job done. She brought a tenant for one house within the first week. Another sits vacant.

So far, I have a very high opinion of her and her firm. She is the owner/broker. She strikes me as very thorough. I do believe she has the ability to screen tenants better than I do. I don't have access to credit records, eviction records, etc and I do know they run those. She uses my lease which I am quite happy about. If things don't work out I will post that, but so far so good. From what everyone says, 1/2 the first months rent it a truly good deal if she does a good job screening them. I intend to find out more next week. Thanks to everyone for their insight. I am new to RE investing, and no doubt will learn some lessons along the way.

John Thedford



Will B.

Feb 28 '13, 10:02 AM


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?



Kelly N.

Real Estate Investor from SE, Michigan

Feb 28 '13, 10:12 AM


Hi,
We've got the same deal available here- they find a tenant for 1/2 month's rent, sounds very fair to me. Then again, for 8% gross rents they'll manage the whole year, so that's about 1 month's rent for less headaches... I haven't done either yet, but I am new to this and the property we bought has tenants already.

Kelly



Aaron R.

Chandler, Arizona

Feb 28 '13, 01:35 PM


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.



John Sheedy

Commercial Real Estate Broker from Scottsdale, Arizona

Feb 28 '13, 05:46 PM


Yes, I agree that using an agent is fine and all but I'd do the screening end yourself. The agent won't have as much skin in the game if you will as you do as the property owner. What does he/she care of the tenant gets evicted in six months, he already got half the first month? Utilize a RE agent if you must but make sure the tenant is compliant with YOUR screening criteria. Heck you could even let a RE agent know what your rental criteria are before they even bring you someone. I'm a landlord and in the tenant screening business myself so trust me it's something you want to keep an eye on. Evictions are a nightmare, so is trying to collect bad debt.



Jon Holdman Moderator

SFR Investor from Wheat Ridge, Colorado

Feb 28 '13, 06:44 PM


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.



Jon Holdman, Flying Phoenix LLC


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