Almost half of the housing market rents. Almost 40% of all home-buyers come from rentals. Figures such as these increasingly demand that real estate agents be able to service rentals. But, what is the best way to incorporate rentals and renters into your business in a profitable and sustainable manner?
Here are some strategies to make rentals a maintainable and accretive part of your business, based on where you currently are in your career as a real estate professional…
I am a New or Less Experienced Agent
This group of agents is just starting in the business. Perhaps you are doing a few deals each year. New agents are still figuring out how to grow their business, learning the ropes and (hopefully) looking to make connections with everyone they meet.
For agents who are less experienced, or new to the business, rentals should be a core concern. Not only do rentals provide much needed revenue, but they also help agents who are starting out increase their “sphere” and gain much needed deal experience. Finally, renters are future buyers. Rental deals are an investment in the future of your business.
The reality is that most newer agents have trouble succeeding. The deck is stacked against you… it can be hard to convince someone to have you help with (what will usually be) the biggest investment decision of their life! And, since you don’t have listings, it also can be pretty hard to engage new clients (unless you want to pay up for leads!) Here are 3 suggestions to help establish your business using rentals:
1. Market FRBO (for rent by owner) listings
Life as an agent is so much easier when you have a property to market! FRBO listings are not represented by an agent, so you can use them to drum up business. Post these listings to social media (Facebook and other sites) and also send them out directly to your network! Top rental agents post 2-3 times per day. Block some time, get into a sustainable rhythm and after time you will see leads coming in. Check out Rental Beast’s massive catalogue of FRBO listings if you need listings to post.
2. Take any lead that comes your way
Every lead is a chance to tap into a new community of potential clients and to gain additional experience. There is no substitute for learning by doing and rentals are perfect–uncomplicated deal structures, smaller stakes, faster transactions! The first deals will be your hardest, but use these experiences to learn and start to build a repeatable process. Make sure you test:
1) lead response plans.
2) Ways to overcome client objections.
3) Ways to push the deal along.
4) Asking for business once you close (referrals!)
We suggest you take any lead you receive. While you may want to focus on a certain part of town to grow your for-sale business, no need to be geographically constrained with rentals. Increasingly, rental deals can be conducted completely virtually (from your coach). Even if not, the neighborhood expertise required for a rental is much less than on the for-sale side.
3. There is (sooo much) more value to a closed deal than just the commission
A commission is great, but rentals can be just as valuable, if not more valuable, as a “stepping stone” to future deals. Make sure you stay in touch with your renter, even if you don’t help them find a place… they will become a buyer at some point and you want to be front of mind when that happens. (Our agents with defined renter to buyer incubation programs report converting around 30% of their renters into buyers.) It may take a couple years, but this is an incredible way to create and maintain a pipeline of buyers. Also, never forget the landlord. Around a third of rentals are owned by private landlords. Make sure to ask if you can help out. This crowd is constantly looking to expand or contract their portfolio of investment properties. Finally, renters move approximately every 2 years. Make sure they contact you when they are ready. This is a great way to build a sustainable business that compliments your for-sale efforts!
I am… an Experienced Agent Trying to Grow a Semi-Successful Business
We think of this group of agents as those who may have hit a plateau slightly below where they would like to be. These agents are willing to hustle and are looking to grow their revenue and client base, but just can’t seem to take things to the next level.
Here are our top tips for this crowd:
1. The two M’s: mindset and maintainability
Warning: this group of agents usually has the hardest time adjusting to rentals. Why?… Rentals take effort and they require a slightly different skill set than for-sale transactions. This means you will have to put in more effort than you are probably expecting; after all, you are building a new revenue line. It also means you will have to humble yourself a bit and, to some degree, take the time to re-learn how to approach the business. Think little, but important, changes!
Think back to when you started in the business… it probably wasn’t easy! While we are not asking you to start at “Square 1,” you are going through the process of introducing a new business line. Prepare yourself! There will be failures, there will be frustrations, but, if you stick with it, there will be a pay off! Mindset is key, but maintainability may be just as important. Introducing rentals will almost certainly disrupt your current business.
After all, breaking through to the next level requires significant change, or it would have already happened for you. Your goal, as you become well-versed at rentals, is to use this understanding and tailor your efforts so that rentals support your for-sale efforts over the long haul. It will be a process to introduce this, but, as with everything else, it gets pretty easy over time as you better understand the rental marketplace and how it can be leveraged.
2. Develop a highly defined lead engagement plan
Typically, as this group of agents gets a better understanding of the rental market, they will look at rentals as a way to develop a pipeline of future buyers. The goal is to engage, place the renter in a rental unit and make sure to stay in touch and be front-of-mind when that renter is ready to buy. This all starts with a well-thought-out lead engagement process. The experienced agent will not necessarily take every lead that comes their way. In fact, they may only work with 1-2 leads per month. They are looking for just the right profile. And, when they do engage a lead that fits that soon-to-be-a-buyer profile, they will build a relationship. While some clients who are looking for a rental may immediately turn into a buyer, it is more common that this happens later. Targeting the right type of renter and building a great relationship as you help them find a rental is key to getting the future for-sale business.
3. Develop a highly defined plan for engaging landlords
Almost a third of all rentals are owned by individuals. This person will usually own more than one property. In other words, a great client! So, how can you leverage rentals to land this type of client? Top rental agents have this figured out. Our suggestion is to keep some basics in mind:
1. If your client fills a vacancy, make sure to engage the owner after the deal. You just brought life to their investment property, so cash-in on that goodwill and offer to help with any other vacancies they may have (now or in the future).
2. Bring them a deal. Find out what type of investment the owner targets and go find some candidates!
3. Keep them informed about market conditions. This can be as simple as adding them to a market newsletter.
4. Utilize rentals to establish a predictable cash flow
If you are like most agents, the calendar year gets a bit “feast or famine.” Some months are consistently busy and some months have very little activity going on. Some of our top agents take advantage of the fact that rentals turnover constantly (on average every 2 years) and are almost always based on a defined lease term, usually one year. For example, if you place a renter for a November move-in, that renter will almost certainly move in November of the following year (or the year after that). This is a great way to have consistent monthly income (in November or any other “famine” month you choose). If you are able to do a couple rental deals each month and nurture those relationships, that will pay consistent dividends over the years. Our recommendation (and we know this will be tough in the “off season”) is to have a goal of closing 1-2 deals each month this year and next. If you are able to do this, you are adding a high degree of consistency to your future cash flow and virtually guaranteeing your future business.
I am… an Experienced Agent with a Fairly Successful Business
Agents in this cohort have established, healthy businesses. They are typically in the top 30% of agents at their brokerage. For them, the question usually is how to introduce a new and meaningful revenue line and/or better optimize their time.
For the already-successful agent, rentals offer access to a couple new client types. The key is to carefully integrate rentals into the business in an incremental way that doesn’t break what already works! What we have seen work:
1. Develop a very highly defined lead engagement plan
Couple options here:
1. Target renters that are likely to be buyers, probably in the next 12-18 months. While you may only get a few leads each month, even 1-2 successes will be well worth the patience. Targeting methods may involve higher rents, looking for high income relocation clients, attempting to work with families and so forth.
2. The other highly surgical approach is to target vacancies that belong to private owners. The goal is to fill that vacancy and then engage the owner as a possible client. There are few better “ins” than helping an owner make money. See next section for more.
2. Rentals mean access to property owners (investors)
This is the real gem of the rental transaction. Depending on the market, it is highly likely that a rental will be owned by an (unrepresented) private owner. As a successful agent, you will likely have multiple ways you can bring value to this investor… help them fill a vacancy, bring them a deal, talk with them about what you are seeing in the market. In addition to engaging these owner/investors, you should also consider which of your existing clients may be interested in a rental investment opportunity. Who is more in touch with the market than you?
Once you learn how to speak the language of rentals and rental investing, you are adding a powerful weapon to your arsenal.
3. Rentals as a means to build out a team
Chances are, you simply don’t have time to focus on all the opportunities that come your way. Bringing on some junior help may be the answer, but that certainly introduces its own set of issues. Rentals may be a great way to engage less experienced team members, in a manner that benefits all. Rentals offer new agents a way to build skills and make money–meaning less reliance on you to provide financial and educational support. Also, in this role, these less experienced agents are able to pass on lucrative interactions, including a renter that should be a buyer or an interesting opportunity to engage with a rental owner/investor.