Landlord / Tenant Q&A: LAURENE H. YOUNG, (B) MPM, RMP, REALTOR
LAURENE H. YOUNG, (B) MPM, RMP, REALTOR
Young Hawaii Homes, Inc.
2011 President, Oahu Chapter
National Association of Residential Property Managers
Q. I have an apartment building built in the 60’s. Some of my tenants have been there a long time and I haven’t raised their rents much. They keep calling me for repairs and I am getting tired of getting so many calls for mostly minor things. My neighbor thinks I should be getting more in rent. His friend also has his tenants do all the repairs and replacements themselves and has never had a problem. Do you think that’s a good idea?
A. Nosy neighbors can be good for certain things, like reporting your tenant’s bad behavior to you or notifying you of a leak. But, they don’t always know the condition of your units and what the fair market rent is in the area. They also may not know what is legal and what is not. I think it’s a bad idea to allow your tenants to do any repairs around your unit. One big reason is for liability reasons. The other for tax reasons.
So, what could go wrong?
If a tenant hurts themselves doing the repair, you could get sued. You could ask your tenant to sign a form absolving you of any liability but, in the event of any injury, you don’t know how a judge will rule. Plus, you would probably feel horrible knowing you could have prevented the situation if you had just had a professional do the job. Tenants may put off repairing items if they are responsible for doing so and paying for it. They may not repair that dripping kitchen faucet and that could cost you money on your water bill. They may use substandard or bargain materials that will have to be replaced soon after they leave a unit. You may hate the color and pattern of the new kitchen vinyl flooring they laid. Many tenants think they can paint and have painted without the landlord’s permission, and we have seen some horrible painting jobs where the ceiling, baseboards and cabinets have drips or brush marks. Those are hard to correct. It might also be difficult when a tenant leaves to determine how much of the security deposit to return. A tenant might think the repair is perfectly fine, but you might not like that the unit doesn’t match throughout the house (different paint colors or flooring in every room, different fixtures in all the rooms, a washer and dryer that doesn’t match, etc.).
Do you really want your tenants to mess with the electrical or plumbing issues? Even if they are licensed and insured in those fields, you could face a huge liability issue. Sure, some “do-it-yourselfers” do a fine job on some of these repairs but, if they don’t really understand what they are doing, they could cause fires or leaks that can cause even more damage to your home. If you then tried to file an insurance claim, you may be denied by the insurance company because you used an unlicensed contractor.
You could ask your tenant to get your approval for any item they replace or repair but that would probably not help to alleviate your concern that they call you too much. It may even take more time to get all the specs for the things the tenant wants to do, then for you to review and get back to the tenant, then for them to make more changes, etc.
You have to declare the fair market value of any services provided by your tenant as rental income, so you might as well have a professional do the work and do it right.
If your tenant paints your house or does repairs in lieu of rent, you must first include the value of those services in your rental income and then deduct it as an expense on your tax return. You still have to pay the general excise tax on the full value of those services. And, if the tenant does work in excess of a certain dollar amount (currently $600), you have to send them a 1099. If you don’t know how to do this, you would have to pay your tax professional to do the paperwork.
Your neighbor’s friend may have gotten away with not reporting any of this for many years, but I wouldn’t recommend that you take the chance. If you get caught, you could face hefty fines and penalties. Keep your rents at fair market value (or slightly less if you have a good, long term tenant that you don’t want to lose) and have a professional take care of all the repairs.