Fees for successful tenant referrals: What do you do?

Question

Do any of you pay others (current tenants, friends, family, realtors) a fee for a successful tenant referral? We're talking about renters/tenants only, no sales, wholesaling, etc.

By successful, I mean that the tenant passes my application process, signs a 12 month lease, pays the security deposit and moves in. I'm considering also stipulating that the tenant stays in place for at least 3 months before the referral fee is disbursed.

From reading other BP forum posts, I see that it's considered illegal in some states, but what about classifying the referral as a thank you gift and keeping it non-monetary, like a gift card?

Very curious what you seasoned veterans do. Thank you in advance for your feedback on this!

Nicole A. · Answer

May I ask why you feel so strongly that you should be paying people for referrals? Or doing parties?

If you're a good landlord that provides safe, clean, attractive housing and you have a good *business* relationship, the word will spread. When people like something a business offers, they tell their friends (regardless of getting anything out of it).

Laura Sulak · Answer

@Nicole W. I don't feel very strongly that I should pay people for referrals. As I said above, the subject came up when I was simply asking a friend for a favor. I also said above that I personally would never ask a friend to pay me a referral fee. I don't think it was in very good taste for her to suggest that. It did, however, get me thinking about referral fees and then, of course, I headed straight to BP to read and ask.

I do have beautiful, attractive properties and take great care of them and my tenants. I've spent 20 years building good relationships in my community through service and being a good friend and neighbor, but I am a new real estate investor, and two of my units are vacant (one from a the sudden death of a tenant), so I'll take all of the help I can get.

It's a long story, but my friend's daughter is an incoming surgical resident at our teaching hospital here. I want to eventually build a reputation for providing outstanding housing for the many, many residents, medical students, nurses and other medical professionals in our community. I'm just in the building stages, so I reached out to the closest person I know who has a direct connection. I had no idea she would suggest the exchange of money... I would never dream of asking a beginning, struggling investor to part with their hard-earned money. And I'm a single parent. My life is good, I'm just juggling a lot, and she doesn't seem to understand that.

@Ralph R. I definitely don't mind paying a real estate professional a referral fee. I'm open to that avenue, too. I was just wondering what other people have done. Great idea to thank the other professionals who help along the way. I've sent a thank you gift card to the person at the title company who helped clear up some gray area in a transaction. I'm a big believer in thank you notes and gifts.

@Jd Martin  I agree! I work very hard to provide beautiful, safe housing options. I take care of problems and issues right away, because I want to build a reputation for providing folks with a great place to live. I've just not been in business long enough to have any kind of real estate reputation at all, so the question of referral fees came to mind.

As for my friend, well, it's complicated. Again, it's a community thing. I can't turn my back on certain people because we're still connected on so many different levels. She's just not someone I can stop speaking to yet. Honestly, I thought it was pretty rude to ask for money, too.

Thank you everyone for your input! I always like hearing different points of view, even if I don't agree with them or make the same choices. That's what makes real estate so great-there's not just one "right" way to do things!

JD Martin · Answer

We do as @Nicole W. does. We provide excellent, updated housing at great rates and care for the places diligently, and we get references unsolicited.

I would probably see less of that "friend". My friends, I'm glad to help them out without payment, for me or my progeny.

Ralph R. · Answer

@Nicole W. @Laura Sulak

Ive been Land lording many years and have never paid for a referral. or even considered it.  great way to loose friends if a tenant causes damage or moves out before 3 months is up and you withhold your fee.  besides that could be construed as your friend acting as a Property Manager, which requires a license in most states.  Better pay the PM fee, then you get a professional you don't have a friendship at risk, and they get the midnight calls, AND you can write it off as an expense.  your referral fee is most likely not deductible unless you want to get your friend in trouble for not reporting it.  I pay PM's, loan fees, Bank fees, real estate commissions, CPA's and attorneys, and advertising fees for vacancys then write off the expenses.  then if the bank office news paper etc do a really good job I send a box of chocolate covered strawberries, a gift card, or something nice to their office once in a while.  This way I get good professional service, and don't involve friends or relatives in business.  the gifts arnt necessary but sugar gets you more than vinegar right?  your friend is just trying to scrounge up a couple dollars for her daughter IMHO.

RR

Jeff B. · Answer

hmm; seems strange the Big Brother would care let alone restrict Finder's Fees.

No biggie for me as I've always had past tenants refer their friends - - without even offering same.

Laura Sulak · Answer

Very weird... Back to the books (Google) for more research on this one!:)

Kim Meredith Hampton · Answer

@Laura Sulak yes, our apartments here too can pay $25, so why can't we in residential???? Weird

Laura Sulak · Answer

@Kim Meredith Hampton Thanks for the advice! I'll do more digging into Texas law. A party is a great idea, too.

The subject came up when I was asking a friend if her medical student daughter knew of any other students/residents who were looking for housing. She said she would ask her daughter, and she was the first to suggest paying a referral fee to her daughter if she found someone for me. (Personally, I would never ask a friend to pay me a referral fee...)

I know some apartments in the area give gifts/incentives when a tenant refers another (refer a friend), but I wasn't sure about single and small multi-family.

Thank you for your input!

Kim Meredith Hampton · Answer

@Laura Sulak please be really careful, it is illegal in a lot of states no matter what you call it; gift, dinner, gift card, money. It all equates to the same thing. Read your laws regarding this. Really the only ones that can receive a monetary gift would be the Real Estate agents. I really wish we could do this too, but we are blocked from doing so.

Maybe you could throw a once a year party for people that refer to you??

Fees for successful tenant referrals: What do you do?

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