Agents: Can Property Management Become an Income Stream for You?
November 27, 2018
Northwest Real Estate Services
Now that you have your real estate license and are busy with buyers and sellers, you’re inevitably asked to locate rentals for clients, or find tenants for landlords! Should this become part of your toolbelt of services?
First, let’s talk about supply and demand. Selling real estate is full of ups and downs, and the market ebbs and flows. At times you may be very busy, earning steady commissions, while other times living through some slower periods with less income flowing.
The good news is this: people will always need rentals. When the interest rates are high, and buyers are scarce, there is still a demand for rentals. When the market is hot and homes are selling fast, there’s STILL a need for rentals. The rental market is less subject to shifts in demand because there’s always a need. This means that your income from property management may stabilize wild swings in your income from sales.
There are several ways to generate income from what is commonly referred to as “property management.” The first is securing tenants for landlords, and your services may stop there; you’d receive a finder’s fee after showing the property and screening the tenant. The second way to generate income is to continue to handle the rental property for a landlord as an ongoing service during the rental period. There’s even a third way to generate income through property management, which involves finding rentals for potential tenants rather than working for the landlord, and the tenant pays you a finder’s fee, which is quite common in larger cities.
So how does a real estate agent get started in property management?
It’s easier than you think, because as an agent, you are talking to the public daily. It’s inevitable that someone will ask you if you are aware of any available rentals, or an investor may ask you if you could give them advice, find tenants, or handle their rentals on an ongoing basis.
Let’s look at some steps to get started:
- Check the licensing requirements in your state. Laws vary as to WHO can be a property manager, and whether or not a principal broker must be part of the process. Be sure to check with your broker for their participation. If required, they should be familiar with the regulations which apply. For example, Arizona requires a real estate licensee to perform property management services, and the agent must be under the supervision of the designated or self-employed broker. This process utilizes a property management agreement, which states the terms and conditions of the broker’s services and is signed by the broker and owner. In Arizona, even the residential leasing agent or manager of a property must have a real estate license if they perform property management activities at more than one location during a work day or if they receive special compensation for their services.
- Decide the depth of the services you want to provide. Do you want to locate tenants for landlords? Do you want to find properties for tenants? Or do you also want to manage properties for the duration of the lease? Take into consideration the time you have to dedicate to these services. If you choose to simply match tenants with properties, you’ll need to determine which lease format to use, and consider how to screen tenants. The process of qualifying tenants could be an application that requires references to speak with, or using internet services designed for this purpose. Some internet screening services are as low as $30 per screening and can be paid by an applicant as part of an application fee. This is a smart investment because it provides a nationwide data search, which is necessary today with more people moving across state lines. If you decide to offer full rental management services, consider what it involves. These services will likely include all the steps in the rental process:
- Advertising available spaces
- Showing properties to potential tenants
- Taking applications and screening applicants
- Coordinating signing of leases and any other required paperwork (lead based paint disclosure, for example)
- Collecting security deposits
- Collecting rents and maintaining records with monthly, quarterly, and/or annual reporting to owners
- Handling repair and maintenance calls
- Negotiate your fees up-front and use a contract. Ask your broker what fees might be typical for these services in your area and what their share might be due to their state-mandated participation. Clarify with rental property owners up-front how much your fee will be and at what point it will be collected. Don’t forget to use a property management contract! This will clarify terms so that all parties are clear on the terms of the property management services.
- Learn “how” to provide these services. There are excellent courses available in property management that will give you a quick primer on the “ins and outs” of the services. Learning about types of leases and rental processes will help you jump-start this part of the real estate business. You may also find someone in your real estate company or sphere of influence who would make a great mentor for you to shadow and “learn by doing.”
- Talk to investors who may want your services. No matter the depth of service you plan to provide, it’s easy to start with investors who are also landlords. Chances are good that you already are acquainted with owners of rental properties, and they may already use such services or be ready to start using them. So, just ask! Ask them if they are doing their own management, and if they would consider turning over some of the responsibilities to you. If you have represented buyers in purchase of rental properties, you already may have a client base!
- Talk to potential tenants who are looking for rentals. These potential tenants are already calling your real estate firm, inquiring as to available rentals. They may be calling in response to advertising that is already running regarding an available property, or generally inquiring. Talk to your broker or manager about handling some of these calls.
Property management can be a stabilizing income stream for you
While the sales for properties may be hot, or not, and commission volume will also vary, consider property management services as a stabilizing income stream for you. Having a more regular paycheck by offering ongoing rental services can provide welcome stability to your income. And you’ll be an all-round real estate resource for your clientele.