When it comes to rental properties, turnover costs you more than anything. The repairs, new paint, sourcing renters, keeping up with your mortgage while the home sits empty…it’s a lot to take on. Luckily, some real estate agents will take this burden off of your hands by becoming property managers. In exchange for maintaining the property and sourcing renters, your manager will take a commission that can end up being a hefty cost. While for some business models, property managers or real estate agents may be beneficial, I want to talk about how to rent out a property without a real estate agent.
To avoid paying for property managers or real estate agents to handle the upkeep of your rental, try to find long-term renters who are willing to invest their effort in repairs and maintenance of the home. In exchange for their independence, I recommend offering a lower rent than the current market offers. This way, you avoid the steep commissions of a real estate agent and still have a well-kept rental property.
This might not be the best method for your business model as every investor will have unique circumstances. So let’s talk about what a real estate agent or property manager will do, what they’ll charge, and how I avoid the situation altogether by getting long-term renters who prefer I stay out of the way.
What Does a Real Estate Agent Do for Rentals?
Real estate agents won’t work the same way they would if you planned to sell the property. For a typical real estate transaction, your agent will get anywhere from 3% – 6% of the sale. Since there’s no sale happening with a rental, real estates need to earn their commission a little differently.
For rentals, real estate agents become what’s known as property managers. We have a whole article about what a property manager does, but for a quick run over, the job of a property manager is to, well, manage the property.
Property managers are in charge of the whole rental process. They’ll list the property for rent, acquire and screen new renters, and get the lease signed. Once a renter is moved in, the property manager will be in charge of the general upkeep, hiring contractors, fixing broken items, and collecting rent. They’re essentially you’re stand-in as the property owner.
A Few Things to Consider About Using a Property Manager
While having a property manager be your go-between can be a great way to stay hands-off, that doesn’t mean they’ll do it for free. Property managers are paid through a consistent, commission-based structure.
Managers will take a cut of each month’s rent, usually anywhere from 10 – 25%. In addition, they’ll also receive a larger cut of the first month’s rent for any renters they bring in. On top of that, they’ll collect a fee for repairs, upkeep, maintenance, or anything else that requires their time and effort. They may also get a kickback from contractors they use on a consistent basis.
Now, most managers will more than earn their commission and absolutely deserve to be paid for their time. It’s also good to have a property manager handling things if you’re living out of state, as it may be hard for you to handle emergencies or things like that. That said, having a property manager may not be the most prudent cost to have in your real estate portfolio.
My hesitation about having a property manager is that they are incentivized to generate new “problems” for your rental property. Using contractors who do shoddy work means having to keep bringing back people to fix things, and the manager gets a cut of that. Property managers also are incentivized to have a higher turnover of your tenants because they’ll get an extra commission on the first month’s rent.
I’m not saying that property managers as a whole are unethical. Far from it, I’m sure. But I prefer to remove the whole issue altogether by not needing a property manager to maintain the home. How do I do this? By finding long-term renters.
How to Get and Keep a Long Term Tenant
In the rental properties I own, the majority of my tenants stay five years or more. I’ve built a rental property business that works in such a way that keeps my tenants happy and eliminates the need for something like a property manager.
My business works like this: I buy properties that are designed for long-term use. In my area, this means purchasing single-family homes which have multiple bedrooms, a yard, and laundry rooms. One-bedroom condos, apartments without laundry facilities, and other places like those are what I consider to be more “temporary” style living spaces that families will outgrow quickly. By having three or four-bedroom standalone houses, I can create rental properties with enough room for a family to see it as a long-term residence.
In addition, I make sure that my rental properties are some of the nicest on the market. Clean, well-kept homes are a much bigger draw for renters than shoddy, dimly lit properties.
My nice, big rental homes are also $50 – $100 cheaper than their competitors. This might seem counterintuitive for new investors because you want to get as much as you can so you can pay off that mortgage and start accruing profits. But to me, the cost of having to constantly find new renters, to fix up the property for new move-ins, and all those other things are much more expensive than the $100 I don’t get every month from a multi-year tenant.
Why I’m Picky About Who I’ll Rent To
Being the cheapest and nicest on the market means that when it’s time to find a new renter, I get a mountain of applications my way. Having so many interested people means I get to be picky and have some higher demands for what it takes to rent a home from me.
I want my renters to stay with me for the long haul, but also to be as hands off as possible. While it’s true I own the property, I still want the renter to have some sense of “ownership” in the home they’re living in so I screen them accordingly. My rental applications have questions like:
- “Do you own a toolbox?”
- “Do you own a lawnmower?”
- “Can you do basic repairs?”
If they answer “no” to these, thanks but no thanks. If an applicant answers “yes” to this, I’m more inclined to rent to them. By trading off lower rent for more involvement in how the place is run, I’m able to stay hands-off as much as possible and put my time elsewhere. To me, that’s well worth the $100 a month investment.
Now, I want to say that if there are major problems with the home, I wouldn’t expect my renters to take care of those. I have a list of contractors my renters have access to who I trust to take care of most situations. In turn, the contractors know to keep an eye out to see if the home is being maintained (in a general sense…I’m not asking them to snoop) and let me know if they notice any issues.
If you want to use a real estate agent or property manager to handle how your rental properties are run, there are a few things you need to keep in mind. Consider the costs associated with managers and determine whether or not it’s worth those commissions, or if there are other ways you can have your properties maintained for a lower cost. Like I said, I opt for lower rents in exchange for more independent renters but this doesn’t work for every investor. Weigh the pros and cons for your unique situation and decide which course is best.
Have you used a real estate agent for rental properties? Leave a comment and let me know what your experience has been like.