Most residential real estate agents likely envision focusing on owner-occupied homes when they first earn their licenses. But another area of real estate that is worth considering is rental properties. Selling rental properties differs from selling owner-occupied properties in several key ways, and rentals are not without their challenges. But there are many upsides as well. Here are X factors to consider when deciding if the rental market is one you want to pursue as a real estate agent.

Looking at Markets Differently

If you have been in the real estate game for awhile, you probably have a great handle on your local markets. You can pull from memory which areas are selling at the highest and lowest price points, you can estimate how long a house will be on the market, and you have a sixth sense when it comes to setting a list price. You can picture the ideal buyer, and you know if your seller will like the offer you just received. All of this goes out the window when you dive into rental properties. Now what you need to focus on are factors like vacancy rates, the going monthly rent rates, tenant demographics, and local rental trends in general. Now you are looking at a property through the eyes of the buyer as well as the likely tenant. It may take some time to get comfortable with these data points, but it’s certainly not insurmountable.

Thinking Like a Tenant to Help Your Buyer

This brings us to our next point, which is that you will need to have insight for your buyer regarding what the prospective tenant is looking for, and what they will be willing and able to pay. This will be a big factor in whether the property is a good deal. For example, a property located near schools but only has two bedrooms may not be a great investment if the typical tenant in that area is looking for a three or four bedroom home. Likewise, knowing what the typical tenant in that area is likely to pay in rent helps you work the financials backwards to give your buyer insight into whether the house in question is a good deal. For example, if the list price is $400,000, and the buyer is securing standard financing with 20% down on a 7% interest rate, the monthly mortgage may be approximately $2,130. If the property is in good shape and the area supports a rent rate of $2,500 or higher, this could be a great deal. But if the property requires $100,000 in repairs and upgrades before it can be rented out, then this may change whether this is a good option for the buyer.

Working with a Limited Buyer Pool

One of the more difficult parts of working with rental properties is that the number of potential buyers is generally much smaller than when you are selling directly to new owner-occupants. That pool mainly includes investors and sometimes owner-occupiers looking for multi-family units—such as a duplex where they can live in one half and rent out the other half. There’s no question that focusing on rental properties can limit your variety of transactions and clients, making it a more niche market compared to the broader residential real estate market. However, there is no reason you can’t continue to work in both markets.

Looking Ahead at Repeat Business, New Revenue

While a limited buyer pool can be a negative, the positive is that investors are often repeat buyers on a much greater level than the typical owner-occupant. Successfully closing one deal may quickly become two or three deals. Additionally, agents can build long-term relationships with investors, assisting them with managing their growing portfolio. Some agents ultimately become property managers for their investors, adding another income stream. As a property manager, you may be involved in screening tenants, handling lease agreements, and serving as the tenants’ first point of contact if they have questions or concerns about the property. For your efforts, you receive a monthly fee of anywhere from 3 to 10% of the monthly rent, per property. This is in addition to the commission you earn from the sale, and the leasing fee you can collect if you also help get that property leased.

Funding with Different Financing Challenges

Another aspect to consider is how your buyer is going to purchase the income properties. Because the home is not going to be a primary residence, some of the rules around traditional financing can change. Stricter lending criteria and higher interest rates make it more challenging for buyers to secure loans. There are also some alternative ways for investors to secure financing that you may not be as familiar with. You will need to gain some insight into these alternatives, which include private money lending, hard money loans, seller financing, and so on. While seasoned investors will already have their preferred funding options ready to go, if you are working with someone who is newer at purchasing income properties, you will be able to differentiate yourself from other agents if you are able to provide guidance in this area.Selling rental properties requires a different approach compared to selling owner-occupied homes. As an agent, you must focus on financial analysis, market knowledge, tenant considerations, and investment potential. By understanding these unique aspects, you can effectively market rental properties to the right audience and navigate the complexities involved in these transactions, and create some additional revenue streams in the process.We invite you to learn more about how we can help you grow your business more effectively in 2024 and beyond. Register now for your FREE Easy Street Offers account.