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

Question

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

Steve Babiak · Answer

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 ...

Ned Carey · Answer

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.

Jon Klaus · Answer

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.

Rob K. · Answer

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.

Chris Clothier · Answer

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

Sandy Blanton · Answer

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:)

Doug Bohl · Answer

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.

Jennifer Lee · Answer

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 · Answer

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

Jon Holdman · Answer

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.

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

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