Richard Vierra RMP
Past President, Oahu Chapter National Association of Residential Property Managers Director of Property Management Hawaii Reserves, Inc.
Q. Five years ago I pulled cash out of a refi and invested in a small multi-unit building in a nice Honolulu neighborhood. The tenants are a mix of young people saving up to buy a home and older retired people who for one reason or another have never purchased. I keep the building in good repair and have had virtually no turnover. Up to now, I’ve been able to manage the building myself but no longer have the time due to other business commitments. One of the tenants, a military retiree, seems to have lots of free time and is very reliable and handy. He keeps me apprised of things that might need attention and cleans up around the grounds just as a favor. I am thinking about asking him to become the resident manager. There are certain types of repairs he could actually do himself, such as leaky faucets or toilets, minor carpentry, etc. I would be willing to forgive as much as half of his rent. Is there any specific documentation I would need? Am I creating a liability situation? Does your organization have any kind of literature that might be helpful? Don’t you conduct an annual property management seminar?
A. This question relates to a scenario that has become more common in Hawaii over the last few decades with single family home or apartment lots being redeveloped into multi-family structures. In part due to the rising cost of land, many individuals who have inherited their property from family members have opted to rebuild rather than sell and purchase. In this case, we have an individual who acquired a property and up to this point was able to maintain it by himself. Typically, over time, the responsibilities and commitment to maintenance, care, administration, and other unforeseen duties make it difficult for the owner to continue. Enter the opportunity for a retired resident to step in.
Using a current tenant as manager and then reducing his rent in exchange for services, while not unusual, can create a variety of problems. For instance if the owner reduces the rent by 50 percent, the amount could be offset by services one month, but the next month there could be a tremendous number of repairs to be done requiring a time commitment far in excess of the value of the rent discount. Additionally, if the tenant/manager is hurt doing the work for the landlord, who will be responsible for the welfare of the tenant/manager? And if the tenant/manager damages the personal property of another tenant while performing work, who will be responsible? Also the level of quality and workmanship required on a commercial building may be higher than what the tenant/manager is capable of. Certain types of repairs, especially electrical, should never be attempted by anyone but a licensed contractor.
In the end, this type of trade-off could create a greater liability than it’s worth. An alternative may be that the owner advises each tenant about the need to contact him with concerns about the property or the need for repairs. The follow-up step for the owner would be to have a list of licensed technicians on hand to contact for repairs, such as a plumber, electrician, carpenter, and cleaning service…especially those that can respond quickly and specialize in small jobs. Another idea is to contract a home inspection service to get a clear starting point as to the repairs that may be needed to bring the property up to code and/or a habitable condition.
Because the owner is a single owner of one multiple unit property, he does not need to use a licensed real estate agent to manage it. However, it would be a good idea to consult with a licensed agent/property manager to discuss options and ideas. Many property managers have a wealth of experience in just about every situation imaginable and can provide an opinion based on their knowledge.
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