The vicious cycle of working with renters

Many newer agents think working rentals is a natural start in their real estate career path, but it will do their careers more harm than good. Certainly, there is nothing wrong with an agent occasionally representing renters in transactions or even making a career of it, as it is an invaluable service for the community.

But if an agent intends to build a financially successful career, working rentals in Miami in any segment other than the luxury market (i.e., the top 20 percent of rental transactions) is a fool’s errand.

The vicious cycle of rentals

New agents typically work rentals thinking that it will help them learn the inventory prior to working with buyers, but one can learn inventory going to brokers’ opens and open houses.

Many also see rentals as a way to bring in some income while they attempt to build a pipeline of sales transactions, but there is simply not enough money in rentals for that strategy to pan out. Instead, agents using that line of thought will be pulled into a vicious cycle of working the next rental to stay afloat while not spending enough time on building their sales pipeline.

How to earn 10x more with the same effort

The rental lifecycle — from lead to close — may be shorter, but the number of hours spent servicing a sale and rental customer is similar and with drastically different earnings. If an agent intends to service a rental customer properly to earn their future business and referrals, the renter requires roughly the same amount of time to assist than the buyer. But the average sale earns 10 times the commission of a rental!

Agent Activities Breakdown
Rental and purchase agent activities result in similar time spent.

Finding the next buyer or seller

A typical new or struggling agent would say that this analysis is meaningless if she does not have buyer or seller leads to work, or that she doesn’t have the experience to go out and close a buyer or seller alone. To start, here are a few ways to generate a buyer client:

1. Buy portal leads. If you have a few hundred dollars a month to spare, buy portal leads. A rule of thumb is that you will close at least one deal for every 50 portal leads you receive. For a premium ZIP code, you might pay $200/month for 12 months for approximately 50 leads. That is $2,400 per year to convert a $10,000+ commission.
2. Find a broker that offers buyer leads. If as a new agent you don’t have a proper budget to invest in marketing, join a brokerage or team that provides buyer leads.
3. Just dial. The least expensive and most fruitful way to new sale business is through your sphere of influence: friends, family, acquaintances. Call them and ask for their business and referrals. And if that is not enough, there are other people you can dial: for sale by owners, expired listings, etc.
4. Network. There are many networking opportunities to meet folks thinking about buying or selling through organizations like hobby/activity clubs, charities and the local chamber of commerce.

It would certainly be more fruitful for an agent to prospect for buyers and sellers for 15 to 20 hours and have a solid chance at closing a sale that can earn 10 times what an agent would make working a single rental.

Rentals to survive, sales to thrive

Another argument for taking rental leads is that the new agent does not have the financial wherewithal to wait six months for the first deal to materialize into a commission. In that case, it may simply make sense to find a full-time job elsewhere in the interim.

An alternative would be to start on a team as an inside sales agent (ISA) or showing assistant to start earning a small but stable income while learning the inventory and getting direct experience in sale transactions, but there should be very clear signs that there is upward mobility on the real estate team to move to a buyer agent position.

Swim with the big fish

Real estate is very much about who you know, and if you are working with renters, you will be more likely to be referred other renters. People who rent often are either transient, can’t afford to buy, or don’t believe in homeownership. One has to ask, “What kind of advocate or referral base is this renter going to be for me, as compared to someone who is buying a home?”

If an agent is intent on working rentals, then she should stick to luxury rentals. Higher budget renters are more likely to rent as a choice as opposed to ability to purchase, and they tend to have a more affluent social network that can be an excellent source of sale referrals. An agent just has to make sure he doesn’t get branded as “the rental agent” while he watches big sales get referred to another agent.

Sep Niakan is the broker/owner of HB Roswell Realty in Miami, and has been in the real estate industry since 2004 as a top producer.