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  • Way OT rental proposition

    I am considering renting my modest house out to a talented handyman whom I know and trust because the house won't sell for a good price in the current market. What I want to avoid is a situation such as the renter leaves abruptly and leaves me scrambling to sell or rent the house again to a less reliable tenant. I can't afford to have it sit empty for long at all.

    I am considering offering him a deal. If he stays in the house for at least one year then, if and when I sell the house, he gets %5 of the sell price minus the amount of rent for each month between the time he moves out and the sale date. In other words if he stays until it sells then he gets the full %5. That is what a realtor gets for basically opening the door a few times. I think that would give him incentive to give me plenty of notice before he moves and take care of the little things that give curb appeal resulting in a relatively quick and easy sell when the time comes.

    Of course I would prefer that he rents for many years, but this deal I think might put my mind at ease no matter what happens. I am putting a for sale sign out front soon but like I said I don't think I can get what I want for it right now, so I'm just kicking around this idea. Any thoughts?
    Last edited by rmcphearson; 06-15-2011, 12:59 AM.
    -Roland
    Golf Course Mechanic

    Bedminster NJ

  • #2
    Can't say much about the rental deal,but can give you one piece of advice on the sale.

    One of our customers sold his house in two weeks flat for $15k more than the market value.
    He advertised it on Craigslist up north.Lots of retired folks in states like NY,NJ,PA,MI,IL,WI&MA looking to escape high taxes,high cost of living and cold weather.
    I just need one more tool,just one!

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    • #3
      I don't think there's a line on the HUD 1 settlement sheet for "commission paid to tenant"

      You might want to check the legality of what you're considering. I'm sure if varies, but for instance, to pay a fee/commission to someone to "basically opening the door a few times" without being a licensed realtor may be questionable. Wouldn't every unemployed Joe-blow be offering his services to show houses for a piece of the action?

      Otherwise, the proposition sounds overly complicated and there's no incentive after the tenant were to leave. So say he shows up a year later asking for his cut?
      Gary


      Appearance is Everything...

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      • #4
        There is a saying in the rental business. "It's OK to be friendly with the tenants but don't become friends with them.

        I bought a lakefront house about 20 years ago with the intention of renting it out.

        Before I had it ready for the rental market I was approached by a fellow lake resident who was going through a divorce. He and I agreed that he would do remodeling in leiu of rent.

        We verbally outlined what he would remodel and how long he would stay.

        When his 3 months were over there was no remodeling done. He had been busy (read whoring around) but would get right on it. A month or two later he had the work done, although very poor quality work.

        Part of our agreement was that I would pay for materials and he would supply the labor. When he finally got done he had his hand out asking to be paid for materials. I told him that the rent that I lost in the 2 months that he was late completing the work cost me more in lost rent than the materials cost and I was not going to pay for materials. He was pissed but I know that he saw my point. He was a landlord too, and understood the concept of lost rent.

        I'm not saying it can't work for you but get everything in writing and also realize that you might have a very different relationship with this person after the business part is through.

        Good Luck,
        Brian
        OPEN EYES, OPEN EARS, OPEN MIND

        THINK HARDER

        BETTER TO HAVE TOOLS YOU DON'T NEED THAN TO NEED TOOLS YOU DON'T HAVE

        MY NAME IS BRIAN AND I AM A TOOLOHOLIC

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        • #5
          I did a similar "handshake" deal many years ago when our kids were small - and I was the handyman. My wife and I rented a house from a man who cut us a deal on rent. We paid $300 a month when the surrounding houses were going for $500-$600. In return, I rebuilt the fence, did some repair on the roof and the siding, painted all the rooms, installed ceiling fans, etc. We did this at our cost for materials, which didn't total much out-of-pocket. The only thing which went slightly awry over that time is that he promised to give me 60 days notice if it sold but we eventually had to vacate in 30. That was a minor inconvenience and we stayed there 4 years, saving about $9600 in rent. He sold the house for a good price so we both prospered. With all that said, I suspect most of these types of deals go bad because the parties involved likely have different expectations of what will be accomplished so I recommend you get clarity on that score.

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          • #6
            Declining rent

            Originally posted by rmcphearson
            I can't afford to have it sit empty for long at all.
            Not trying to be harsh, but that it a very strong indication you can't afford to be a landlord. This based on watching my uncle for my entire life. If, for example, you can't drop a new furnace, new AC, or new water heater using out of pocket checkbook funds, life as a landlord will eventually be excruciating (for both you and the renter). And if you can afford that, a couple months unrented is no big deal. In the long run, like say, my uncle's performance over my entire life, you can, on average, make a nice pile of dough. But in the short run the fluctuations in cash flow can be very tough.

            Legally, by far the cleanest way to do what you're trying to do, from what I've seen, is a written yearly lease with written monthly decreasing payments, at a lower than average rent because it needs work, and hire him (and 1099 him) as a handyman, one individually completed project at a time.

            Also you seem to be planning based on this being a short term downturn, rather than a basically permanent correction to the norm. In other words, house prices are not going back up within our lifetimes unless :

            1) A new baby boom to fill the empty houses explodes demand upward.
            2) Median incomes stop their three decade decline and begin to rise supply of money upward.
            3) Hyperinflation, but then values will not be increasing corrected for inflation anyway.
            4) Lower interest rates = higher house prices, and we're currently at multi-generational low rates (century low rates?) so that means we're currently at multi-generationally high house prices... Nowhere to go but down.
            5) free-er lending, after the sub-prime implosion that's not happening in our lifetime.

            Still have a good way further to fall, just to get back down to inflation adjusted price trends...

            Comment


            • #7
              Houses sell for what they are worth. If you want to sell it then just sell it. You might be sorry you didn't later. I know people who held out and wish they hadn't.
              "Patriotism is the last refuge of a scoundrel"

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              • #8
                Lease it. Unwritten agreements are worth the paper they are printed on.
                Free software for calculating bolt circles and similar: Click Here

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                • #9
                  I own several rental houses. You need to talk to your tax person. Be sure to talk to a tax person that knows what they are talking about. That does not include H & R Block!!! I will only let an Enrolled Agent do my taxes.

                  My tax man tells me all the time, "Learn to spend your own money don't let the IRS spend it for you!"

                  What this means is taxes are different for rental house. If you rent a house for $1000.00 per month your income for the year is $12,000.00. You will have to pay Federal and State income tax on that money unless you have $12,000.00 in business expenses this makes your yearly income = ZERO on paper.

                  On the average for me 50% of my rental income pays for, City Property Taxes, County Property Taxes, any and all other expenses.

                  If I have a rental house that makes $12,000. per year minus local taxes etc. about $6000. my yearly taxable income is $6000.

                  Things to consider. The house will need a new roof soon maybe 5 years. The central Heat and Air unit is getting old it may have to be replaces soon. Hot water heaters and most appliances are designed to self distruct about every 5 years so when will the house need a new kitchen stove, refrigerator, dish washer, garbage disposal, new driveway, new roof, etc. If you need another $1000 in tax deduction a certain year then go buy a new refrigerator or something worth $1000 and put it is storage until the house needs it so you can get a total of $12,000 in deductions every year so you NEVER have to pay taxes. It is bad to pay $10,000. for a new roof and $5000 for a new central heat and air unit the same year that puts you $3000 over for the year so "PLAN" to buy the new centeral unit or the new roof a year in advance or have it installed in December of that year the bill won't arrive until January so you can use the dedection next year.

                  You need to plan this in advance to make your year expences will always be $12,000. every year so you never have to pay any Federal or State Taxes.

                  Tax laws SUCK but there are advantages too. You can make all the improvements you could never afford and it is all FREE........until you sell the house. But the thing that reallys SUCKS is when you sell the house you have to pay 40% Federal Income tax on the increased property value. Your tax person will depreciate your house over 27 1/2 years if it is a rental for 5 years and you make a lot of improvements during that 5 years that increases the value of your house by 20% then you have to pay 40% tax on that 20% increase in the value.

                  This is why I "NEVER" do my own taxes I only Trust an Enrolled Agent to get my taxes correct.

                  I am in a situation now where I want to retire and sell all my rentals but if I sell a $100,000. house the IRS gets 40% the State gets about 10% the Real Estate agent gets 7% then add on closing costs etc, I have to pay out $60,000. and only get to keep $40,000. WOW THAT SUCKS.

                  The plan now is to deed the properties over to my Son pay him 10% to collect rent and an hourly wage to do maintenance. He has a part time job, I get the left over rent money each month, and I get to go camping full time. When I die my Son owns it all.

                  My tax person keeps everything on his computer I can call him and ask questions like this. Should I have the driveway repaired this year or next year for $4000 he puts the number into his computer and tells me something like, you are going to need another $4800 in deductions for the next 1/2 of this year. So that tells me a $4000 repair plus another $800 expense is fine.

                  If your going to rent your house to someone you need to know in advance what that will do to your yearly income taxes and what will that do to the sale of your house 5 years from now. If the house has a load that is a business expence too. If you want money in your pocket then you do not want to have $12,000. every year in expenses pay the Federal income tax on the $6000 the IRS gets $2000 and you get to keep $4000.
                  Last edited by gary350; 06-15-2011, 06:18 PM.

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                  • #10
                    Rent it to him by the month and pay him an agreed price for any repairs he makes to your satisfaction.

                    Just in case you don't know, people are not trustworthy and best friends and relatives are the worst. Oh, and don't even rent to anyone that says, Praise the Lord, every forth or fifth sentence.
                    It's only ink and paper

                    Comment


                    • #11
                      Originally posted by Carld
                      Rent it to him by the month and pay him an agreed price for any repairs he makes to your satisfaction.

                      Just in case you don't know, people are not trustworthy and best friends and relatives are the worst. Oh, and don't even rent to anyone that says, Praise the Lord, every forth or fifth sentence.
                      YES that is right.

                      The type of people that rent are the type of people you never want in your house.

                      Never do business with friends or relatives.

                      I NEVER do things by the law. Professional renters will pay the first months rent and the deposit then it is hard to get any more money from them. My rental contract says all the appliances are loaned not part of the rental agreement if they do not pay I take all their appliances, next I have all the utilities turned off. NO one every stays more than 3 days with no utilities. They leave on their own. It saves me the trouble of taking them to court while they get several months free rent while the legal process moves slow as a snale.

                      Comment


                      • #12
                        McPhearson you have gotten some pretty good advice here. I been land loarding for about 25 years now. The most important thing you must learn is to get everything in writing and BOTH of you must stick to the contract. This is a business, so treat it a such. If he doesn't do what he is supposed to do when the contract says it is to be done, start eviction proceedings. Tenants will always try to take advantage of you and the more you give in, the more they will try next time. The tenant is never your friend or relative, they are YOUR contractor. Once you get a tenant trained that they must follow the rules, you will be surprised what a pleasant business it can be.

                        Good luck

                        Randy
                        Do yourself a favor and see if your TV carrier has America One News Network (AONN). 208 on Uverse. It is good old fashion news, unlike the networks, with no hype, bias or other BS.

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                        • #13
                          Thanks all for the advise. I'm still thinking about it.

                          Roland
                          -Roland
                          Golf Course Mechanic

                          Bedminster NJ

                          Comment


                          • #14
                            As a upstanding renter, I take offense at what you guys say.

                            Sometimes the landlords are much worse, Like my previous landlord who kicked me out after 20 years of rent paid ontime, in full, so he could have a house to give to his crackhead son after his divorce so he'd have a better chance at getting the kids.

                            How do I know he was a crackhead? Well, aside from looking like one, when he came to view the house, He brought his crack dealer. No joke! Dad knew the guy from friends.

                            Oh well, F him and the horse he rode in on. House was falling apart, rotten roof, mold in the roof, rats in the attic, stairs not to code (8" rise 6" run, super dangerious and narrow stairs, nearly killed myself on them a few times)

                            House nearly burnt down 3 times due to electrical faults. Only once properly fixed and that was only because it was the meter box that CAUGHT FIRE and nearly burned the house down. Another time it was an outlet box with nothing pluged in.

                            Last time they repaired the roof on thier dime was 3 years after google maps imaged the huge tarp on the roof. And the repair was so lame, I recall one guy puting 15 nails into a single board.. because it kept poping up it was so rotten nails just went right through.

                            Likey gonna cost over $50,000 just to get the place up to livable condition again. We allready put in a few grand redoing the bathroom, kitchen and hall way about 15 years back, but they where well worn by now (As the bathroom and hall way ROTTED OUT, and we knew the landlord was never gonna pay ****. Kitchen.. well. Wifes. Nuff said. I never saw anything wrong with it..)

                            Bet the place has been turned into a meth lab, and/or bulldozed, Considering the only comment the son had was 'Lots of space!'.. when it was a TINY 3 bedroom house that looked like ****.

                            Currently pay (the same amount of) rent to some nice old ladys.. who are also rather slow at repairing things.. like the roof leaking into the basement via the chimdy.. for the past 8 months (Since I got here really).. said it would be fixed ohh, 7 months ago. Still not nearly as bad as the old landlords

                            Every time they call for an inspection, I point out another 4 things that legaly they have to fix. Finaly they got the message and stoped inspections every month. Still havent fixed my security light that blinks on/off all night long, wasting power and being totaly pointless (And disturbing my sleep, so have to turn it off. Wonderful security!), Or the roof. FINALY did the gutters, being there was things growing in them (that takes about 3 years judging from my old houses gutters). Only had to ask em 4 times to do the gutters. Now if they would only prune the trees that overhang the roof and let RACOONS onto the roof, making a racket first thing in the morning (Seems to have lessoned since they no longer have full gutters to fease in)

                            As for renters being scum due to not being able to afford a house? F you.
                            Costs $500,000 for a basic house with any kinda yard big enough to spit in.
                            Costs $950/month rent for the same house. Thats 43 YEARS worth of rent. And thats without intrest. Assuming I could pay it off in 10 years, thats more like 60~80 years worth of rent. If it was 20 year mortgage, it would be about 100 years rent! I don't plan to live that long.

                            Btw: fixed rate mortgage ONLY. because just 20 years ago, the prime rate was 20% in just a few years. How can you expect to keep your house if the intrest rate is 20%? Even if you only had a few years left, you could'nt even keep up with the intrest at 20%.

                            Hope the bottom of the housing market collapses (again) and takes all you homeowners with it. $100,000 is much more realistic, yet still insane for some old house on less then 1/2 acre of property IN THE MIDDLE OF NOWHERE!

                            Yep thats right, here in BC, even if your an hours drive from the nearest corner store, its still $500,000 for a basic rotten house on a tiny chunk of land. $250,000 is the absolute LOWEST you'll find *anything*, and by anything I mean a 'house' in a 20 house complex, with no yard, and an hours drive from any work. And I blame you, the homeowners, for actualy paying that much, Hence why the prices are so high. And the house flippers for making the prices so damn high. And everyone whose bought and sold there way to a decent house. Theres nothing left affordable for any of your kids! Sure as hell hope you don't have more then 1 kid or they are gonna fight to the death over who gets the damn house when you die, Cause they sure as hell will never be able to afford one.

                            Oh, And I checked those online mortage calculators. id need to make about 4x what I do now just to pay off the mortage on a half decent house like the one I live in now, Not counting any expenses like repairs, food, gas, insurance, taxes, etc.
                            When I entered my income, they said "Congradulations, you qualify for a mortgage under $50,000, Unfortualy as we don't offer mortgages under $50,000, you can kindly go #@$% yourself"

                            My brother with a house (mortgaged) and two kids. Works about 10 hours a day at a well paying job, 6 days a week. Never see him anymore. Days off? He spends all day working twice as hard to catch up with yard work. Hes a litteral slave, Except I think slaves got more time off, did'nt have to work as hard, and where not expected to do yard work if they got a day off.

                            Guy has a wonderful huge 40x30 shop he somehow managed to build. Huge I beam crane.. lots of welders, All kinds of tools. Last I heard its been over a year since hes had time to step foot in it. Truely a slave to his house.

                            Ya. Long rant. Kinda off topic. Im done now. Try not to take it personally, Just really wanted to get that off my chest. Don't be a slumlord or expect to only get slumrenters!
                            Last edited by Black_Moons; 06-20-2011, 10:52 PM.
                            Play Brutal Nature, Black Moons free to play highly realistic voxel sandbox game.

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                            • #15
                              BM,

                              Based on this post, I can now understand your foul disposition these last few months.

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