Editor’s note: This is the first in a two-part series.
Forget about the generational differences based upon age. The fastest-growing real estate opportunity today is making the move to working with "Gen Rent."
While much has been written about generational differences, the tremendous number of foreclosures coupled with the decline in prices has seriously undermined the dream of homeownership for countless Americans.
Even though purchasing is often cheaper than renting in many places, high unemployment rates and more stringent credit standards mean an increasing number of people are no longer able to buy a home.
In the past, approximately 66 percent of all Americans owned their own home and 33 percent rented. Since the downturn began, approximately 10 million Americans have now moved from living in a home they own to living in a rental.
This translates to 1.8 million fewer homes that are owner-occupied, approximately 463,000 fewer transactions, and a whopping $4.2 billion less in commissions.
Furthermore, the Obama administration is proposing that banks take their foreclosure properties and make them into rentals, thereby increasing the size of the rental pool even more. This translates into $6.8 billion more to be paid in rental commissions.
Savvy Realtors who are willing to expand their business to include handling rentals and perhaps even property management have a tremendous opportunity to create a new revenue stream for their businesses. The question is: How can you tap into this hot new market and turn it into a profit center for your business? Here are three key opportunities.
Opportunity No. 1: An Alternative to Foreclosure
For owners who have lost their jobs or who owe more than their property is worth, refinancing is out of the question. Many of these owners have discovered that renting out their property and moving into something cheaper can keep them afloat until their situation improves.
Because the rental market is so strong, a substantial number of owners can cover their payments and still have some cash left to cover part of their rental costs.
Opportunity No. 2: Rent Out a Room
Do you or your clients have a bedroom that could be converted into a room for rent? If so, taking on a roommate can help an owner bring in additional income without having to give up their home. This is often a win-win for the homeowner as well as the tenant.
The homeowner picks up the extra income. The tenant benefits because living in a home is generally more appealing than living in an apartment building. This is especially true for people who travel for their jobs or for students who are studying for advanced degrees. It’s also a great scenario for empty nesters who miss their kids and don’t like living alone.
Opportunity No. 3: Airbnb
Even if you don’t want a full-time tenant in your space, there are still some other alternatives for generating additional rental income. One of the hottest sites on the Web right now is Airbnb (i.e., air mattress and a breakfast). Airbnb matches people who are willing to rent a room or part of their home with those who are looking for an alternative to staying in a hotel.
Approximately 55 percent of Airbnb’s business is done internationally. Airbnb allows you to have guests on your schedule rather than having someone in your space full time.
There are some serious issues, however. A number of municipalities have decided that renting out your home on a nightly basis makes you a hotel operator. Consequently, you must conform to the laws governing hotels and charge a hotel tax.
Furthermore, your homeowners insurance may not provide adequate coverage for having paying guests in your home. Finally, a few Airbnb guests have vandalized, damaged or burglarized homes in the Airbnb system.
How can agents capitalize on these opportunities? First, if you have clients who are facing foreclosure and might benefit from some extra cash, sharing these different opportunities can be a way to help them through a tough time while generating more referral business for you.
Second, depending upon the property and the amount of the rental, you may be able to earn a commission. For example, if you have people who own second homes, taking a lease listing on those homes could provide them with additional income plus creating a commission for you.
Third, if you live in a place where there is a large influx of tourists for certain events, letting your referral database know that there could be a market for their property through a site such a Airbnb could be another way to generate much-needed cash.
If you do recommend this, however, be sure that they check with their insurance agent as well as taking all the precautionary steps to protect their property and to follow local ordinances.
If you’re interested in learning more about how to capitalize on Gen Rent, check out Part 2 on Thursday to learn about the tools you need to make renting properties a profitable part of your business.