How to Make Extra Money Selling Real Estate to Your Tenants

Written on January 5, 2015 by , updated on April 23, 2015

Tenant's Real Estate AgentMany landlords and property managers hold real estate licenses but few use this benefit to help their tenants become homeowners.

Often times the best of the best tenants move out to buy homes. This bitter-sweet time could be made a lot sweeter if you played a professional role in their real estate transaction.

If you’re a realtor that owns rentals, when you screen rental applicants you might consider screening them as future clients too.

Breaking Down the Idea

Take a look at the following idea breakdown table:

Be your Tenant's Real Estate Agent
What: Landlord serves as real estate agent.
Difficulty:●●○○○
Time Commitment:●○○○○
Why:Landlords can be leverage the built in relationship with their tenants to create streams of commissions on top of rents.
Increase Net Income By:Collecting sales commissions by helping (or referring) tenants that move out and buy a home.
What You Need:

  • A real estate license

  • An annual marketing strategy

  • Lease terms giving you an overwhelming advantage

The Extreme Version:Set aside your least desirable rental unit as a home buyer’s incubator.

Charge the tenant(s) below market rent and connect them with a nonprofit that helps people get pre-qualified buyer into homes, or example NeighborWorks.org. When tenant moves on to buy a home, you might get to pocket the sales commission or referral fee.

Then rinse and repeat.
Possible New Income Streams:

  • Real estate agent commissions.

  • Referral fee for connecting tenant to an agent that helps them buy a home.
Nontangible Benefits:
  • Build waiting list of clients wanting to go through your home buying boot camp.

  • Little need to remodel unit; save on costly upgrades.

Steps to Implement/Test:

  1. Be in a position to sell real estate as a side business.

  2. Modify your lease agreement so tenants can move at anytime if they utilize your service.

  3. Routinely remind tenants of your real estate acquisition services.

Examples

  1. Jonna, a landlord in Idaho, had a couple of tenants that were concerned about signing a long lease because they were thinking about buying a home in the near future.  So she structured their lease with an exit clause that allowed them to end their term without penalty as long as she served as their agent. She later expanded the contract language to allow tenants to use other agents that could better help them, and settling for a referral fee.
  2. In Louisiana, Jennifer had her landlady of five years serve as her real estate agent. Her former landlady sold her a duplex and launched Jennifer’s own landlording career. Jennifer says at first she was a little concerned about using her landlady as her agent since they already had an important professional relationship and she didn’t want that to muddy the waters. Everything worked out well. The landlady did a great job looking out for Jennifer’s interests and earned a commission once her home closed.

The Downside

  • You will have a vacancy every time your tenant-buyer purchases a home.
  • The cost to maintain a real estate license and continuing education requirements.

Cost / Projected Revenue

  • Cost to get and maintain a real estate license.
  • The cost of vacancy should be low if you proactively build a wait list and encourage word of mouth testimonials.
  • Buying agents typically get commission equal to 3% of the sales price. If you sold a $100,000 house to your tenant, you could get $3,000.
  • Real estate agents typically get 25% of the buyer agent’s commission for passing along a qualified leads that result in a purchase. For a $100,000 transaction, you could get $750.
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3 CommentsLeave a Comment

  • DeeDi

    I’m new to the landlordology site. My question: I have a 330 Sq ft studio. My property management co. Says that 2 people can live there as it has a “bedroom” . I would prefer only one adult. Do I have to rent to 2 people if they qualify?

    • Sound Tenement

      DeeDi,
      It is not uncommon to have a standard of two per bedroom even if it’s 330sq ft. I would be careful refusing to rent to someone for this reason. Two people per room is normal and adding people should be spelled out in your agreement.

  • Paige Smith

    I think it is awesome to have the rent to buy process set. When I was a little younger I would help out at habitat for humanity, and their organization helps low income families become full home owners. The idea of having an apartment complex where you can rent out month to month, but have your tenets eventually pay off the entire apartment and become an owner themselves is a win/win situation.

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