The Low Down on Tenant Placement: DIY vs Agent vs PMC
DIY vs Agent vs PMCSeasoned landlords know that there’s a lot of moving parts when it comes to finding quality tenants - prepping the property, taking pics, writing ads, posting ads, handling questions, scheduling showings, dealing with no-shows, taking applications, screening applicants, preparing leases, collecting funds and handling keys and MoveIns, and more!
While some DIY landlords prefer to do their own tenant showings & screenings, others hire real estate agents to deal with this headache. Other owners hire property management companies (PMC) to deal with tenant placement as well as everything else.
Ever wonder who does the best job of tenant placement?
Whether you’re doing it yourself or working with a real estate agent or a property management company, each option has pros and cons you need to consider when it comes to tenant placement:
DIY
Organizational skills: Are you a super-organized, detail-oriented, and systematic person with a prolific memory? Great! Then handling your own tenant placement should be a breeze. For those who aren’t, however, fielding tenant’s questions and carrying out screening could become overwhelming quickly, especially if you have multiple properties in your rental portfolio.
Screening procedures: How advanced are your screening procedures? As an individual, it can be more time-consuming and difficult to carry out thorough checks on every tenant applicant, and some landlords don’t do any at all, but just rely on their gut instinct when it comes to choosing who to place in their properties. This can end up getting DIY-ers into trouble when they end up with nightmare tenants who emotionally appealed to them, but weren’t properly screened for their rental history and financial situation.
Your house, your rules: You have more decision-making power when it comes to selecting tenants - just don’t get too emotional about it! This is one of the biggest pitfalls of DIY tenant placement and can blind you to the objective merits of each applicant. Also, being systematic and objective in your approach to screening is important if you want to avoid potential discrimination claims.
A cost-effective approach: If you’re good at tenant placement, you can save money, because you won’t have to pay a fee to an agent or PMC. However, you may want to track how much time it takes and figure out your savings per hour of your time. Let’s say your rent is $1,000 and the cost to hire an agent or PMC would be that same $1,000. If it takes you 25 hours to do ALL the steps we mentioned at the start of this article, then what you’re really saving yourself is $1,000 / 25 hours = $40/hour. If you’re making more than $40/hour at your day job (about $80,000 annually), why would you pay yourself less to do this?
Real Estate Agent
Better advertising: since agents list properties for sale and rent all the time, they will usually have better resources than a DIY’er for taking pics, writing ads, and advertising. Putting a property on the MLS also gets its exposure via other agents. There may be issues though with agents prioritizing sales leads, which pay much higher commissions, over rental leads.
Screening criteria can be unclear: Agents will require that prospects go through an application process, but their systems and criteria for screening will vary from agent to agent, so always ask for documentation upfront regarding how they conduct their checks, and what specific criteria they screen for.
Salesman mentality: Agents are used to showing people around houses every day and highlighting the best-selling features of each home, so they’ll probably do a great job of presenting your property to potential tenants in a favorable light.
More transactional and sales-oriented: The main priority of an agent is making a sale to get their commission from your rental and less on the quality of tenants. Since they won’t be the ones managing the property once the keys are handed over, Agents don’t necessarily have the best interests of the owner in mind.
PMC
Professionalism and efficiency: While DIY’ers & Agents may settle for credit and criminal background checks, an experienced PMC will usually go the extra mile to screen for quality tenants. They should analyze a prospect’s income & job stability, do a thorough check of public records, be on the lookout for fraud and check all references.
Written, standardized screening criteria: DIY landlords and agents rarely have formalized screening criteria This may get them into trouble with discrimination claims, if they’re unable to justify their reasoning with objective documentation. A good PMC has this covered, which also covers choosing between multiple applicants.
Consistency: Tenant placement can be done on an ad hoc basis by DIY-ers and agents but PMCs will usually have an entire team dedicated to this, plus standard operating procedures (SOPs) to ensure the process is the same, every time. This kind of consistency is great when dealing with something like tenant placement, which is a regularly recurring part of owning a rental property.
PMCs have to deal with who they approve: Agents are often primarily concerned with getting their commission for renting out a property and get to disappear for the remainder of the lease. When a PMC approves an applicant, they know they’ll be managing this tenant on a day-to-day basis. So they’ve got an incentive to place quality tenants that agents don’t. The same goes for DIY’ers.
Owners give up control: When a property owner hires a PMC they leave the decision-making up to that PMC -- right or wrong, good or bad. Many DIYers think they are better than a PMC at screening for tenants, but that’s only true of cut-rate and other less than stellar PMC’s. DIYers that claim they are better at screenings than a good PMC are no different than the gamblers who never seem to lose in Las Vegas.
It’s business, not personal: The number one thing a good PMC does is make business decisions based on facts, not emotions or personal feelings. Just like with the mortgage and insurance industries, the person doing the approvals should not be in contact with the applicants. It’s the only way to make an unbiased decision good for everyone.
Any of these options can work, but at the end of the day, you have to decide how much energy and effort you’re willing to put into landlording, how much control you’re comfortable giving up, and how well you think you can screen agents and PMCs.
Your rental will only be as good as the last person you’ve leased it to. So, you definitely want to get this part right!
Are you leaning towards any one of the 3 options above? Let us know why in the comments.
Image courtesy of Andrea Piacquadio
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