If you were to hit the streets of New York City and interview renters, I bet you more than half would have used a property broker. Don’t believe me? Just look at the statistics. There are well over 27,000 brokers in a city where average rental vacancies are incredibly low. In 2014, NYC’s six boroughs had an average rental vacancy of just 2.4%. It’s a jungle out there, one group has emerged as a crucial resource for many: brokers. With expert knowledge and a selection of properties that aren’t available anywhere else, brokers have become the go-to source for would-be renters. Love them or hate them, brokers have become a core component of New York’s property market. That means if you want to successfully rent your investment in NYC, you’re going to have to seriously consider whether or not to work with a broker.
Get it Rented Faster With a Broker
You don’t have to use a broker to rent your property. But it’s an important consideration—and not just because so many renters use them to find their next property. It’s also because brokers can save you time and money. By working with a broker, you are also outsourcing the task of finding and dealing with tenants. As anyone who has ever rented a property will testify, it can be a long, difficult, and boring task. It’s even more tedious if your real passion is finding and renovating properties. But a broker takes care of all of this on your behalf with the added bonus of getting you a better rental income. Brokers earn money by charging a commission on the rental amount. It’s in the broker’s interests, therefore, to get tenants to pay the highest monthly rental possible.
Of course, you can list the property by yourself. Indeed, there are plenty of investor landlords who do. Some choose to put up a listing on Craigslist, while others will use more targeted sites. Plenty of landlords choose this route. In fact, there are over 11,000 no-fee apartments currently listed on StreetEasy. You will still receive plenty of applications by taking a DIY approach, as quite a few renters try to circumvent brokers and their fees. But you have to ask yourself if you are willing to do the legwork yourself, or if it might be in your budget to have someone do it for you.
Get the Tenant to Pay the Fees
Brokers make money by charging a commission fee to the tenant, the landlord, or both parties. This fee is usually one month’s rent or 15% of the annual rent. In virtually every other property market in the U.S., the landlord will pay for the broker or real estate agent to find tenants. But, luckily for you, that’s not the case in New York. Here, the tenants pay the fee in the majority of cases. If both parties hired different brokers, then there’s still only one fee and one party paying it, but it gets split between both brokers. Some landlords, in a bid to attract more tenants, will pay the broker fee themselves and raise the monthly rent to make up for it. But because tenants now expect to pay a fee to a broker, there really isn’t much value in this strategy anymore.
Decide How Many Brokers to Work With
If you choose to work with a broker, you are under no obligation to work with a single agent. There are three different contracts or ‘deals’ that landlords can make with brokers. These are:
- An exclusivity deal, where a landlord commits to only working with a single broker
- A limited listing, in which a landlord selects a handful of brokers to work with
- An open listing, in which any broker or agency can act on the listing.
If a broker has the exclusive rights to your apartment, they will be far more motivated to find tenants. That’s because they know a commission fee is guaranteed, so long as the apartment is filled. However, you limit the number of tenants who see the house. This may result in less monthly income for you than if several agents had the rights. Of course, the more agents you let act on the property, the more agents you have to deal with. The decision in this case will ultimately come down to preference based on your time and circumstances.
Don’t Accept the First Offer
As I’ve already said, it’s in the broker’s interest for you to get as much rent as possible. The higher the rent, the more commission they get. But it’s not always in your best interests to accept the first offer that meets your price—or an offer that exceeds it. Why? Because they might be a bad tenant. And a bad tenant has the potential to waste your time and your money. There are several kinds of tenants that you’ll want to avoid:
- Overcontacters. This type of tenant will call you with every little issue. You have better things to do than to have to make a trip out to the property just to change a lightbulb!
- Neglectful Tenants. Some tenants believe that because they are renting they can take little to no care of your property. When they leave, you have to replace the carpet or the furniture or who knows what else. I once knew a landlord whose nightmare tenants even stole the cabinet hardware upon leaving!
- The short-term tenant. It costs time and money to find someone to live in your property. It’s much easier to have one long-term tenant than several short-term ones.
A broker doesn’t care what the tenant is like once they’ve moved in, however. As far as they are concerned, the tenants are your problem. With this in mind, it’s important to take your time when choosing a tenant and not let a broker pressure you into accepting the first offer.
Get Advice From an Expert
Dealing with brokers is just one facet of the NYC property market that investors have to handle. The most successful investors are the ones that have the knowledge and experience to get the most out of every transaction. But even they had to start somewhere. At HomeVestors®, we provide every franchisee with a mentor who is an expert in their city or state. When you become a HomeVestors® franchisee, you also complete a rigorous training course. This is designed to give you everything you need to succeed in the market from your first property. Get in touch today for more information on how becoming a HomeVestors franchisee can help you succeed in NYC property jungle.
Each franchise office is independently owned and operated.
Image Source | Flickr user Sam Valadi
Prior to joining HomeVestors, I spent 20+ years as a senior corporate executive. The money was good but I just no longer enjoyed what I was doing. I had been looking at HomeVestors for a couple of years but they were not offering franchises in N.J at that time. I had zero experience in real estate investing and was impressed with the training and support HomeVestors offered. HomeVestors opened up the NJ market in February 2007 and I started in July. Best decision I ever made. We got off to a fast start and have purchased a couple hundred properties since. We could not have done this without the training, systems, marketing and support HomeVestors provides. We haven’t looked back since. We became Development Agents in 2010 and really enjoy working with new franchisees when they come on-board and helping them build a successful business.