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Live, Rent or Convert
In this lesson, you will learn:
- Why you should love your tenants.
- Small investments with big returns.
- Responsibilities of a property manager.
- When and how to raise rents.
- Ways to boost rental income.
When you acquire a piece of property, you have to do something with it. You have to live in it. You have to rent it. You have to fix it up and resell it. You have to convert it.
You have to decide if the property is for you or someone else. You have to have a plan for the property. If the property is for you, no problem. If the property is for someone else, you have to decide what that tenant or buyer will want to do with it.
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Master's Tip: Once you have your own management
contacts and database established, you might consider a lucrative
part-time business managing property for other investors. Being a
property manager positions you to acquire these properties at a later date.
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Your Objectives
Let's presume that your objective is to acquire those six properties and retire as soon as you pay off the mortgages. You plan to buy your own home first, and then four income-producing properties, and finally, a second home or vacation home for yourself.
Where do you get the cash for downpayments?
You may have a high-income job and can save the downpayments.
You may be able to refinance another property you own.
You may have enough equity to qualify for an equity line of credit.
You can wheel and deal - buying and selling.
You can work with partners.
You can borrow against other assets.
You can borrow from relatives.
You can arrange a blanket mortgage that covers more than one property.
You can borrow against credit cards. (not recommended)
My Friend Jim
I was in an Army Reserve unit with a friend named Jim. By this time, I had my real estate license and was already an evangelist for real estate investing. I extolled Jim on the merits of real estate investing. Apparently, my persistence paid off.
Jim asked me what he should buy, and I told him a two-family house. He asked me how much money he'd need and I told him three thousand dollars. Jim told me that he didn't have any money saved, but that he made $300 a week as a carpet installer. I talked to a lot of people about real estate, but not a lot of people like Jim.
Ten weeks later, Jim walked into the real estate office one Saturday morning around ten o'clock, holding a paper bag containing three thousand dollars cash. He calmly asked, "Ok, where's my house?" For ten weeks, Jim had saved every cent that he earned. He parked his car and ate his mother's packed lunches. He hitchhiked, and for entertainment read books.
There was a nice two-family house on a large corner lot with a two-car garage that I had been watching. It was listed for $30,000 and a very good deal at that price. The owner was an old man who had lived in the house for many years. I brought Jim to the house. Jim struck up a conversation with the old man. The old man seemed to like Jim, and Jim listened patiently as the old man told him the history of the house. The old man had a large workshop in the basement and while I waited upstairs, Jim and the old man talked for almost an hour downstairs. I was getting antsy and wanted to get back to the office. When I went downstairs to get Jim, he was shaking hands with the old man.
I said nothing.
Jim said, "OK, I'd like to buy your house". The old man said, "Well, make me an offer of let's say, $27,000 and I'll throw in all my tools". Jim said, "OK".
Jim still lives in that house. The house was paid for years ago. His second floor apartment is worth between $1,200 and $1,500 per month. If he rented the garage, it would be worth about $300 per month. Today, the house is worth between $350,000 and $400,000. Jim is still in the carpet business.
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Love Your Tenants
Sometimes things hit you like a thunderbolt and you never think the same way again. Here is one of those defining moments for me:
Mr. Wilkerson And Me
I owned a three-family house, which Don Nardo convinced me to sell in order to buy a single-family house and a five-family house. I thought that the five-family would involve a lot of management and it did because of one tenant, Wilkerson. As soon as I met him, he started complaining about his windows leaking, his kitchen floor needing replacing, the bikes left in the hallway and how poorly the landscaping was being done. He had a list of things wrong with the building.
I went to see Don and the first thing that I told him was that I intended to get rid of Wilkerson.
This was a defining moment in my life - satori!
Don said, "Bill, are you crazy? Wilkerson has lived in that building for over forty years. He has paid for that building in full probably five times. Bill, you are borrowing a lot of money to buy this building and Wilkerson is once again going to pay the building off for you. Love him. Love your tenants. You borrow the money to buy these properties and you have these wonderful people called tenants who pay that money back for you. Love them. Is Wilkerson asking you to do any work that doesn't need to be done?" Of course, he wasn't.
You aren't going to get rich in the income property business without tenants. You need them. They are your customers. Your apartments are their homes. When you treat your tenants with respect, you will ease your management problems considerably.
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How To Manage Your Investment Properties
Treat your tenants and your properties as you would treat your family and your home and your management headaches will be minimal. Have a list of contractors and back-ups ready to handle emergencies and routine maintenance. You have a problem. If you have the skills and the time, you handle the problem or you pick up the phone. There is little difference between managing your own home and managing investment real estate. If something needs to be fixed, either you fix it or you call someone who can.
You can probably find a capable and responsible handyman in your community willing to be on call and work for a fair hourly wage. Many off duty firefighters provide these types of services. Go to your Mastermind Alliance for suggestions. Certainly ask other investors in your area who they use for contracting and handyman services.
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Master's Tip: If you have well-maintained properties, a small multi-tenanted building will take thirty minutes or less per week to manage.
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Maximizing Your Investment Time
Can you accurately answer the following questions for each of your properties? If you can, the chances are good that you will be an effective investment time manager.
What is the market value of this property?
Does this property carry the best available financing?
Is income maximized?
Are expenses minimized?
Can cost-effective improvements be made?
Can the property be expanded or converted?
Can the property be rezoned to permit a higher use?
Is the property fairly assessed for tax purposes?
Is insurance coverage adequate to cover repairs or replacements?
Does ownership of this property best complement your general investment objectives?
Thirty Investment Questions To Consider
- Are my rents competitive?
- Does area demand support raising my rents?
- Are my units maintained/improved to area standards?
- Can improvements be made to increase income?
- Can amenities be added to increase income?
- Could income be raised by catering to a specific type of tenant, i.e., elderly, singles, couples with children, renters with pets, etc.?
- Could income be increased by offering special tenant/user services, i.e. coin-op washer/dryer, storage bins, workshop area, conference/party/function room, extra parking spaces, garages, etc.?
- Is the property properly leveraged, given my investment goals and objectives?
- Are presently available financing terms, rates, and options superior to my current debt service on this building?
- Should/must any major components be upgraded or replaced in the next twelve months, i.e., plumbing, wiring, roof, etc.?
- Can any of my ownership expenses be reduced?
- Can any utility payments be cost-effectively transferred to tenants?
- Can units be added to the building internally through utilization of unused space, i.e. attic/basement?
- Can units be added to the building internally through redefinition of existing floor plan, i.e. making two studio apartments from a four-room apartment?
- Do the land area, zoning laws, and/or mood of the town Planning Board support the building of additional units, garages, or other buildings on the property site?
- Is the building suited to cost-effective condominium conversion?
- Is market demand supportive of condominiums at the present time?
- Are local government regulations and attitudes supportive of condominium conversion?
- Is the private residential use of this property the highest and best use?
- Could the property be converted to some or all retail/commercial usages?
- Could the property be converted in whole or part to office space?
- Could the property be converted in whole or part for light manufacturing usages?
- Could the property be leased in whole or part to a government agency under a fixed-rate, management-free, double- or triple-net agreement?
- Is this property suitable for syndication?
- Could this property support professional management, thus alleviating my management time and responsibilities?
- Would this property qualify for property tax abatement?
- Are there potential local, state, or federal loan and/or housing support programs that I should be aware of?
- Are there local absentee partners who would be interested in buying an interest in my property?
- Could my equity position in this property be used or exchanged for investment in a larger project?
- Could this property be sold for more than I feel it is worth?
How You Can Turn $50 Into Big Dollars!
In real estate investing, small efforts often yield big rewards. Almost as fast as the wave of a magician's wand, for instance, you, as an investor, may see $50 in rental income turn into $4,200 of equity! How do you do this trick?
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Master's Tip: As you evaluate various
opportunities, you will become familiar with the Gross Multiplier for
your area. The Gross Multiplier is a quick tool but a substitute for a
full evaluation, including a highest and best use assessment. In
general, the average property should sell for between 6 and 8 times
income. So, if you hear about a property selling for 5 times income, you
run to see it and if you hear that another is listed for ten times income, you'll walk.
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Be mindful that the income on the listing sheet is the present owner's income and may vary significantly from the income you'll receive. You'll have to estimate what the rental income will be under your ownership, and then apply the Gross Multiplier.
Let's say you own a building in an area where the Gross Multiplier Rule of Thumb is "seven times gross". This means that properties sell for seven times the annual rent. You raise one rent by $50 per month, which translates to $600 per year. Using the Gross Multiplier, you can estimate a $4,200 increase in the value of the building. ($50 x 12 months = $600 per year x 7 = $4,200). When an active real estate investor raises a rent by $50, he or she doesn't see $50 a month. He or she sees a $4,200 increase in personal net worth. A small effort yielding a big reward.
To follow this logic further, what if the building were a six-family house and each rent was raised by $50? The increase per month would be $300 (6 x $50). The increase per year would be $3,600. And, the increase in value to the building would be $25,200! With one building and with one $50 rent increase to each tenant in that building, the investor has made more money on paper than most people make working at a job full-time for an entire year. This is one of the exciting potentials of real estate investing.
Here are some ideas to set you thinking:
Idea #1 - Present rents are under market
You are renting a four-room apartment for $675 and the market price for this unit is $725. There's $50 to be made simply by checking the current value of your rentals against the market.
Additional opportunity. While you check your own rent levels, check the rent levels on income properties being offered for sale. You might find substantial profits by buying a low-level rent building and adjusting the rents to market value.
Idea #2 - Standard yearly increase
If you own luxury or top-of-the-line units, a $50 per month increase may be a standard annual adjustment. For units renting for over $800 per month, a $50 increase would be a single digit percentage adjustment.
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Master's Tip: It is better to raise rents
incrementally each year a small amount than to wait several years and
ask for a substantial increase. Most tenants will tolerate and absorb a
5% yearly increase without much complaint. However, even if rents
haven't been raised for several years, many tenants will balk at
increases of 15% or 20% and often demand improvements as compensation.
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Additional opportunity. For units renting in the $500 - $600 per month range, a $50 increase is substantial. However, in the higher price ranges, such an increase may be expected and accepted. Check for properties listed for sale in the luxury category or with upper-end potential.
Idea #3 - Add interior unit dazzle
A little something extra may raise your unit from one category to another and warrant a $50 per month increase. In doing your continuing research, you can explore ways to make your units stand above the competition.
Perhaps, you add a microwave oven for $300, a disposal for $150, a dishwasher for $500, a bathroom heat lamp for $75, mirrored walls for $400, a Jacuzzi-type tub fixture for $600 or a kitchen greenhouse window for $350. Even if you made all of these dazzling additions, your expenses could be under $2,000, and your return could be a $50 per month increase. Perhaps, the increase could be considerably more than $50 per month. If the Gross Multiplier for your area was 6, then your $2,000 investment resulting in a $50 per month rent increase would yield a $3,600 increase in building value ($50 X 12 X 6 = $3,600.)
Additional opportunity. Discuss with Nardo current rehab opportunities offered by properties presently listed for sale. You may find opportunities to turn average apartments into dazzlers, but also remember that any type of upgrading can yield similar rewards.
Idea #4 - Add common area dazzle
A few relatively inexpensive improvements to the interior common areas of the building can go a long way in giving tenants a feeling of pride in residence and pave the way for a rent increase.
Repainting or repapering of the hallways and adding a carpet runner to the stairs are quick makeover ideas. For a modest cost, you can replace mailboxes, unit doorknobs and unit numbering. Perhaps elegant doorknockers can be included for a few dollars. Using slate tiles in the main entry area will add a distinctive look while serving a practical purpose.
Corporate art displayed in office buildings is a hot design trend. You can add the same luxury touch to your apartment hallways. The sofa-sized "nothing over $30" paintings offered by traveling wholesalers may not be your idea of fine art; but, for the same money, you can purchase and hang attractively framed graphics by leading artists. If you have several buildings, you can rotate the art every few months. Suddenly, your ordinary building may be transformed from the "eight-family house" on Main Street to "The Gallery Apartments" on Main Street!
Idea #5 - Add exterior dazzle to your building
Seasonal flowers, even if you buy them at the supermarket, can make your building stand apart. Any well-conceived landscaping will have a 100% or better payback. Diligence paid to lawn care and shrubs and flower beds is a hallmark of effective management, and many tenants will pay extra for the privilege of living in a building that "looks good". A canvas or plastic awning over the entry door can also turn an average building into a tenant-pleaser. Additional exterior lighting is cost effective, serving dual purposes, aesthetics and security.
Idea #6 - Add dazzling amenities
Your building may have a backyard, which is just a backyard, but it can be made into much more with plantings. You could also add permanent seating. Wooden park benches can be found for under $200, and poured cement benches are available for under $350. A picnic table may cost less than $100.
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Master's Tip: A contractor will charge you just
as much to work in a poor area as in a rich area. A new bathroom in a
poor area might cost $4,000 and in a rich area $4,000. However, because
of the improvement, you might be able to raise the rent $50 per month in
the poor area and $100 per month in the rich area. The improvement cost
is the same, but the yield is doubled in the rich area.
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A portion of the backyard can also be allocated for gardening, with each tenant given a proportional growing area, at little or no cost to you. It is an amenity many tenants would find enjoyable and worth your "built-into-the-rent" charge.
How many more ideas can you think of? As we've seen, in real estate, a small idea turned into a small rent increase can have a positive effect on your bottom line and a dramatic effect on your building's value.
Let Tenants Help You Manage
Many experienced property owners and managers have found that relations with their tenants improve when they encourage tenants to participate in the management process. Rather than waiting for problems to stimulate landlord/tenant dialogue, these managers and owners take the initiative. They give tenants the opportunity to express their concerns, comments, ideas, and suggestions about the property. This makes tenants feel a part of the management process and yields rewards to all concerned.
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Master's Tip: If you aren't comfortable saying
"NO" to prospective rental applicants, then you should hire a rental
agency to act as an intermediary in renting your units. Let them say,
"NO". Paying a rental fee to attract a good tenant will always be a
better investment than having to remove a problem tenant.
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Benefits of tenant participation
Does an office manager-tenant have an idea for a more efficient rent collection system? Can a carpenter-tenant suggest ways to tighten up the building to prevent heat loss? What about space utilization? Does an architect-tenant have any ideas for improvement?
The majority of residential tenants are working people. They have specialized skills, which they bring with them to their homes, your income units. Given the opportunity, many tenants will happily offer constructive suggestions for property improvements. After all, who knows a building better than the people living in it? Even unresponsive tenants and tenants whose comments are negative can be constructive in alerting you to potential personnel and maintenance problems.
The participation process
You can develop a tenant participation system. The range of possible formats varies from a postcard checklist (with simple satisfactory or needs improvement columns and a few blank lines for comments) to multi-page questionnaires that require a written response for each topic. The topics addressed may be general or specific. Most managers and owners include a postage-paid reply envelope to encourage responses. A follow-up letter summarizing survey results is also a good idea. It reinforces the tenants' sense of participation and thus encourages future suggestions. Of course, if you know that all or most of your tenants have email, their opinions can be collected this way.
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Master's Tip: Again, keep your rents at market
level. You don't win friends by charging cheap rent. You do build
resentment by making excuses rather than repairs and improvements.
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Ed Koch, Former Mayor of New York City, owed a great deal of his popularity to his How'm I doing? Campaign. Many successful property managers and owners can trace their popularity with tenants to a similar strategy.
Property Managers' Responsibilities
Real estate investors come in two versions - those who are hands on managers - maintain, manage, and market their own properties down to the last detail. They answer tenant complaints, deal with late payers, fix and clean up, supervise plumbers, electricians, and painters one-to-one.
Version two is the investor who hires a property
manager or management firm to do all of that work - preferring to spend
time looking for new properties - or just "retiring" from those
responsibilities.
Checklist of Property Management Responsibilities
| ___ | Determine the market conditions |
| ___ | Establish and implement appropriate marketing strategies |
| ___ | Create a management plan that incorporates owner's objectives |
| ___ | Shop the competition by visiting comparable properties |
| ___ | Prepare the operating budget |
| ___ | Review all income and expense items for accuracy and completeness |
| ___ | Coordinate the client's monthly financial reports |
| ___ | Prepare work requests for empty apartment units not ready for market and coordinate work for on-site personnel [labor and materials] |
| ___ | Obtain and recommend insurance coverage for the property |
| ___ | Review and approve all purchase orders and invoices; get approval from the building owner for any expenditures exceeding the budget or terms of the contract |
| ___ | Check applications, leases, and lease renewals for accuracy and thoroughness |
| ___ | Determine collection policies for rent delinquent tenants |
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| Property Maintenance Responsibilities |
| ___ | Maintain continual surveillance of on-site operation |
| ___ | Prepare maintenance programs |
| ___ | Inspect the property's interior and exterior on a regular basis |
| ___ | Implement inventory control system |
| ___ | Implement controls, policies, and procedures to conserve utility use |
| ___ | Monitor internal operations - service requests and work orders |
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| Employee-Related Responsibilities |
| ___ | Hire all employees needed for the property and evaluate all current workers |
| ___ | Review all contractors who service the property |
| ___ | Comply with all employee-related federal, state, and local laws |
| ___ | Prepare weekly written performance evaluations of on-site personnel |
| ___ | Prepare all annual employee evaluations |
| ___ | Establish or review all internal operations, policies, and procedures |
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Master's Tip: By using a DBA (Doing Business
As) business identity, tenants are paying their rents to a company
rather than to you personally. From your perspective, it makes raising
and collecting rents a little easier.
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Service: A Not So Secret Key To Success
In a cool market, it can mean occupancies rather than vacancies. In a hot market, it can mean waiting lists and an opportunity to receive premium level rental income. What is it? Service. A commitment to service enhances all types of properties, all types of leasing situations, in all market conditions.
So what's new? Providing good service and receiving a good return is fundamental to all business dealings, and everybody knows it. However, knowing and doing are different. Obviously, not all businesses are equally committed to excellence. Some businesses shine at providing service, while others seem content to go through the motions. Yet, because of different gradations in providing service, the opportunity always exists to improve service and hopefully improve profits.
Real estate investors are in the business of providing space and services to tenants. The services you provide fall into three distinct categories: mandated, negotiated and optioned.
Mandated Services
Some of the services you provide may be required by statute. For instance, you may own an apartment building covered by building or health codes which require you to provide heat, hot water, smoke alarms, fire exits, emergency lighting, security, or pest control. You and every other owner of similar properties in the same jurisdiction have to provide these basics. It's the law, and few exceptions are allowed or even considered.
Negotiated Services
Next, as a building owner, you will often be required to negotiate with your tenants for certain services. When you sign leases or tenant-at-will agreements with your tenants, you will in most cases be obligating yourself to provide some additional services. For instance, if you own an office building, you may agree to assume responsibility for landscaping, snow removal, common area and/or office cleaning, or maintenance of mechanical equipment.
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Master's Tip: Most tenants will sign one-year
leases. Be sure that your leases are renewed at the most advantageous
time of the year to re-let the unit.
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Through negotiation, you and each tenant reach an understanding as to what specific services and what level of service will be provided. The services you agree to provide to your tenants can be very limited, as in a triple net lease or, at the other extreme, almost limitless as to the direct services you will provide. Also, what services you can negotiate can vary from one of your properties to another. And, negotiated services can even vary among different tenants in the same building (a risky decision). You do what you agree to do.
The catch in providing negotiated services to a tenant is that while you may feel that you are doing an excellent job of providing services, the tenant may feel as if nothing special is being done, since he's really only getting what he expects and what he believes he is already paying for.
Optioned Services
True opportunities for exceptional service are found in the optioned category. First, you do what is mandated. Then, you do what is negotiated. And finally, you are free to exercise the option of providing service above and beyond the law and the contract. Here is where your reputation can be made and enhanced. Here is where tenants will rent in your building because they see your obvious commitment to their well-being. The result: tenants will renew leases, remain and pay premium rents.
In making an above and beyond commitment to optioned services, several factors are important. Foremost is working with your investment agent who knows your competition - whether it's competing apartment buildings, strip centers, motels, office buildings or warehouses.
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Master's Tip: Collect rents on the first of the
month and insist that rents be received on or before that date.
Establish a firm rent collection policy. If rent is not received, send a
letter on the fifth and make a call on the tenth. Write a demand letter
on the fifteenth, and hire a lawyer on the twentieth. Most people pay
their rent first.
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You want to be able to sit down with your investment agent and assess and compare your buildings, your services and your rents against the norm. You want your investment agent to be able to tell you what services different types of tenants request. You want to know what other owners are doing and how you can do better. Your investment agent can put you in this knowledgeable position to make the right cost-effective optioned decisions.
Low Cost Amenities
Many professional property managers have shown that the most effective optioned services frequently can be provided with minimal expense. Your start may be a fresh approach to tenant satisfaction. We want you to be happy. If you aren't happy, we want to know about it and we will endeavor to correct the situation if it is reasonably possible to do so.
Fast response to maintenance requests should top your list, for instance. Then, you can begin to work with your investment agent to discuss other cost effective service options, which will have an immediate goodwill return. For example, you might send holiday greeting cards to your apartment tenants and small floral arrangements to your office tenants. You can provide postage paid rent mailers for your apartment tenants. You can arrange for local shops, clubs and restaurants to offer discounts to your office tenants. You can acknowledge births, weddings, graduations, funerals or any significant days for any of your tenants. You can give apartment residents small private garden plots or basement workshop/storage space.
Welcoming Pets Could Be An Income Booster
You're an apartment investor in an oversupplied market and you have vacant apartments. Or, you're an apartment investor in a tight market and looking for an effective way to raise rents without making a large capital commitment to new amenities.
Easy answer: rent to tenants with pets. In many parts of the country, regardless of how good the prospective tenant may be, if he or she has a pet, the answer is, "No". Certainly, if a "No Pets" policy is the norm in your investment area, being a contrarian owner who advertises "Pets Welcome", will often have you swamped with applicants, even in an oversupplied market. On the other hand, if you are investing in a tight apartment market, "Pets Welcome" will allow you to command a premium rent. People love their pets.
Will a "Pets Welcome" policy require more management and maintenance attention? Possibly. But, if you establish written rules for pet conduct that are clearly defined and understood by your pet-owning tenants, and the rules are signed by the tenant as part of his/her lease or tenant-at-will agreement, then the potential for misunderstanding can be minimized. In any case, you may require a substantial "Pet Security Deposit" to reduce your liability against property damage by the pet.
Who knows, with more apartments rented or with higher rents than the competition, dogs may just become your best friends.
How To Find The Best Tenants
Most experienced property managers will readily agree that the overwhelming majority of tenants can be classified as the best. Of all tenants, 80 percent will treat your rental unit with the same care as if it were their own home. Add to this 80 percent another 10 percent or better who will surprise you by actually making their own improvements to their units. This 90 percent or more of renters respect your property while sending you checks each month to cover your expense responsibilities, while you enjoy the many benefits of real estate investing. But what about the few who may not be ideal tenants? As a property owner working with a professional investment agent skilled in real estate management, you will find that common sense prevails.
If your units are kept at a reasonable maintenance level, are fairly priced for the space and amenities offered, and are well managed, they will be attractive to a wide number of tenants. With units and management of this type, you retain the option of tenant selection. Your units will be filled 100 percent with the 90 percent of the tenant pool, the best.
On the other side, owners of below-grade, over-priced or inattentively managed properties are lucky to find any takers. Consequently, these owners forfeit the option of tenant selection. Their units may be filled 100 percent with the 10 percent of the less-than-ideal.
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Master's Tip: In business, you ask your best
employees to help you find other employees. In real estate management,
you ask your best tenants to help you find other tenants. In both cases,
if warranted, you can offer cash incentives.
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For an objective viewpoint on how attractive your units are, and would be, to the 90 percent, the best tenants, your investment agent is your best resource. Your real estate agent can also discuss with you the merits of advertising for, interviewing, and negotiating with prospective tenants yourself or hiring an agency for this important work. In addition, your real estate agent can advise you regarding the checking of references and the selection and use of approved rental forms.
Should You Hire Your Tenants?
You buy a new building and there are some repairs that need attention and a few improvements you'd like to make. This must be your lucky day, because while introducing yourself to your tenants, you find a resident who claims to be a jack-of-all-trades and is ready, willing and able to be at your service. He lives in the building. He has free time. He can do everything from fixing the roof to cleaning the basement. And, the best part...you don't even have to pay him. He'll just figure up his hours and deduct it from the rent. No problem.
No problem - except that modern professional management practices dictate that you should not accept services in lieu of rent. Bartering is fine in some businesses, but it may not work as well with investment real estate. Consider for a moment. Will the bank allow you to barter away your monthly mortgage payment? No, you'll still have to make that payment - even if you have bartered away your right to collect a full month's rent from your tenant.
What happens too often in a landlord/tenant bartering situation is that a few hours of free labor one month tends to grow successively larger with each passing month. After all, the tenant/repairman lives at the building and you don't. All of a sudden, the tenant/repairman gives himself a quick promotion to building manager. He tells the other tenants to see him if they have any problems, need any repair work done, or would like any improvements made. The tenant/repairman gains control that should be the owner's, then good-bye rent.
How would a professional handle it?
How would an experienced property manager handle this situation? The experienced manager would thank the tenant for the offer, but explain that it is strict company policy that services not be exchanged for rent. Rent is rent. If necessary, it can be explained further that adjusting rents in this manner wreaks havoc with any accounting system. All repairs and improvements, when made, are handled only on a fee-per-service basis. If the tenant wishes to submit a bid on a specific job, the manager will accept that bid and will make a decision based upon experience and liability as well as price.
A tenant may, in fact, have a valuable cost-effective talent or skill to offer, but all compensatory arrangements should be handled on an employer/employee basis rather than on a landlord/tenant basis.
Continuing Education: Homes.com offers an extensive array of information, tools and services to help with home buying, selling, renting, and ownership needs.
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