The Tenant and On-Site Property Manager

The following article was submitted to us for publication. While I prefer to hire professional property management, it does give an alternative option:

It’s very tempting to hire a tenant to keep an eye on your property, especially if you live far away from your rental property. You want someone that you can hold accountable, who is near to the property, and who doesn’t cost much. A tenant invariably fits all three of these criteria. If you work hard to avoid the potential pitfalls of this type of relationship, there’s no reason that this shouldn’t work out for you.

Reasonable expectations of an inexperienced tenant may include shoveling/snow blowing, spreading salt or sand, raking leaves, manipulating thermostats and faucets to prevent freezing problems, mowing the lawn, sweeping or cleaning hallways or mutual areas, trash collection, trash removal, coordination with professional contractors who need access to the property, and showing units to prospective tenants.

You just need to keep those potential pitfalls in mind. First off, you have to make the terms of the relationship absolutely clear. What exactly are you asking of your tenant? How much are you knocking off of the rent in exchange? If you and your tenant fail to have a true meaning of the minds, things are not going to work out. Sad to say, your property will be what suffers in this case, to your detriment. The only way to have a true, clear understanding is to put it in writing. List all of the jobs that you expect the tenant to handle. Then, for each job, draft a set of guidelines that lay out exactly how to carry out your wishes. Remember, your tenant isn’t an expert. He may not even know how to empty a vacuum cleaner. List all of the steps of the job that you want him to do, and pretend you’re writing for a third grader. It may seem like a lot of work for you, but remember that you’re making money by writing this set of guidelines.

Next, come up with a reasonable rate of pay for the tenant. It’s probably a bad idea to pay your tenant by the hour. You have no way to verify his hours, and it may lead him to believe that he can pick and choose which duties he wants to perform. Instead, you want to estimate the number of hours the tenant will spend over the course of an entire year, and then multiply that number by a reasonable hourly rate (say, $10-12 per hour). Divide that number by 12, round up or down to the nearest $25, and that’s a good starting point for figuring out how much to pay. If the number seems a little high to you, try to think about how much it would cost to have someone off the property come and do these duties. You’ll probably conclude that you’re getting a great deal.

You can also get more information about Property Management including an extensive collection of free property management forms exclusively for our Real Estate Investor Bronze Members.

Until my next post,

James

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