Consumers, real estate pros tap shift to rentals

Flickr image courtesy of stevendamron.

SAN FRANCISCO -- In a sluggish economy, diversification into renting can provide new income streams for both consumers and real estate professionals, according to two speakers at Real Estate Connect Thursday.

In August 2008, shortly before the financial crisis hit, Joe Gebbia, Brian Chesky and Nathan Blecharczyk founded Airbnb.com, a site that allows consumers to rent out their extra space on a per night basis. The timing was auspicious for a site devoted to generating income from underutilized housing space.

"Even during a down economy we were thriving," Gebbia said.

For some Airbnb users, the service has provided them with a livelihood. Gebbia shared some user stories:

• A woman who saved her home by renting out a room that covered her mortgage payments.
• A couple who were about to lose their apartment rented it out through Airbnb and not only earned enough to pay for the apartment, but bought another one next door that they also rented out.
• A former fix-and-flip builder who was putting the finishing touches on a home when the housing market turned -- turning the place into an Airbnb rental was so successful that he changed his business model and now buys properties to hold and rent out.

Rentals can also represent a new way to make money for real estate professionals. By 2015, the nation's home ownership is projected to drop from about 66 percent today, to 64 percent -- the same rate it was in 1968, said David Vivero, CEO of RentJuice, which provides online rental relationship management software to real estate professionals.

While that drop may seem small, it represents more than 10 million people who will go from homeownership to "rentership" in the next five years, Vivero said.

And significant for real estate professionals, that means by 2015 there will be 4.3 million more rental units and 1.8 million fewer owned homes; 463,000 homes sales will be lost, worth $2.4 billion in commissions; and 150 million leases will be signed, worth $6.8 billion in commissions.

"If you offer only sales, (a total of) $11 billion in commissions (will be) out of your reach," Vivero told conference attendees.

Real estate agents and brokers that consider sales as part of their professional identity should remember that renting is often a stepping stone to homeownership, he said. For agents, a rental practice can provide exposure to renters, and to landlords who may decide to buy more properties in the future.

"Renters may turn into homeowners; prove yourself early," Vivero said. "No one's born 35. Between 22 and 35, they're renting."

Commissions from leasing rental properties are smaller than those from sold homes, but provide "a steady income stream" that "help keep frustrated agents afloat," Vivero said.

For industry professionals interested in diversifying into rentals, the first step is to "simply just put content out there and hang a shingle as a rental service," he said.

To get listings, he suggested searching Craigslist for those who are "renting by owner," and connecting with development companies. Especially in major metropolitan areas, developers will often convert condominiums into apartments when they can't sell them.

In terms of marketing, the multiple listing service cannot be a real estate professional's only strategy when marketing to "Generation Rent," Vivero said. RentJuice, for example, gets only 15 percent of its rental listings from MLSs.

And the marketing is different. Given demographics that skew toward younger singles, school statistics and mortgage calculators are likely to be less effective than a focus on lifestyle factors such as commute times and nearby amenities, Vivero said.

Contact Andrea V. Brambila:
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