Renting to my contractor?

15 Replies

Hello BP! Josh here, a buy/hold investor from Atlanta.

I have a young contractor who works with me on my properties' repairs and updates. He is reliable and does good work. I have just acquired a single-family home, and I had him tour the house with me to provide a quote on the deferred maintenance and repairs.

The next day (yesterday), he reached out to me to inquire about the rent. When I asked why, he said he was interested in living in the house.

We would not be bartering services. I would pay him market rates for his work (on this property and elsewhere), and he would pay market rent for the property.

Aside from thorough screening (a la the BP Ultimate Guide to Tenant Screening), are there other considerations I need to be aware of?

Thanks for helping me sort this through!

I personally wouldn't do it. Not to say it's a bad thing or a bad idea but I personally don't want any other relationship with any of my renters that's outside of landlord/tenant. My resaoning is that if something goes wrong in either of those relationships (landlord/tenant or landlord/contractor) you need to be able to cut it off as simple as possible. If you're having to evict him for not paying rent then you're probably not going to want him working in any of your properties either or vice versa. Again, just my thoughts.

ever hear the one about ******** where you eat? same idea here. bad idea. avoid.

I'm with the others, keep your tenants separate from all other relationships!

One relationship at a time.

I made that mistake he moved in with his girlfriend they broke up he split,ended up with her and her deadbeat son 

I've done this before.  Don't rent to contractors.  Don't rent to family.  Don't rent to friends.  When they ask, I tell them that I like you too much to evict you so no.

Another vote for don't do it. If you ever need to fire him as a handyman they you will have a non-paying tenant shortly as you just ended his income stream. You are then doubly in the hole. Also they will know a lot about you, and if they twist off, they have lots of information and power to make your life miserable.

Before you know it he will be asking for reductions in the rent to do maintenance tasks around the house he is renting from you.  I am with the others, this has to much of a risk of going sideways.

Michael Noto, Real Estate Agent in CT (#RES.0799665)
860-384-7570

Well, BP has spoken, and this new investor is listening! Thank you for your insight.

Two follow-up questions:

1) Could I get into legal trouble if I am unwilling to accept an application from this fellow (or from anyone in general)? I don't think he would cause any grief over this, but I am asking for the sake of my education?

2) I have heard a few interviewees on the BP podcast talking about hiring someone in their apartments to become their manager. I know this is a different situation, but there are a lot of similarities. Again, for the sake of learning, can you help me understand the differences between these two situations?

Thanks again!

@Joshua Feit I don't recommend that practice (hiring manager that lives in units) either. I can see lots of down sides. I know it's done but again I think best practices is to not mix the two (rent and work).

I would rent to him , but month to month just in case  . First you know where some of his income comes from.  If he passes all the tenant criteria I would go for it .  You say he is reliable , thats a good quality for a tenant . If he breaks something he will fix it . If something goes wrong , you probably wont get a call , it will be taken care of . When you need work done ,you know where to find him . He is not family , a close friend , a coworker . 

 On my first rentai , I had no clue , I had a young woman and her boyfriend want to rent my house , he just went bankrupt , had the IRS on him . I didnt know a thing about qualifying someone .  That was 17 years ago . They are STILL in the house today , never missed a payment . 

@Joshua Feit ,

I'm going to go the opposite direction of every person on this forum and say:

CONSIDER IT, depending on the circumstances. Some relationships are much bigger and more important than a couple months' rent.

Take all the points above into account. I'm the same way with family and friends and the vast majority of contractors I might work with. BUT, I do have a super reliable handyman who I have a good relationship with, trust, and he is a key part of my operations. He had a less stable living environment before we developed our relationship.

He now lives in a unit in the first property I bought. This has drastically increased his "dedication" to my projects, and I'm always first on the list if anything needs to get done. I make it a point to help him out and provide value to him when I can. His brother passed away the other day, and I wired $4k to El Salvador for the burial, and he'll work it off. I'm happy to let him borrow money when he needs. And likewise, he'll do some projects and wait for payment if I'm shifting funds around.

If I have problems in 1 of my 15 managed units because my handyman fell on hard times, I probably have a lot bigger problems than one tenant to evict..

So from someone who is currently do it, consider how important that might be to you and them before taking that leap..

Happy investing! :)

Updated almost 3 years ago

PS. For this relationship, a few months' rent would be a cheap price to lose to know he is not reliable. The relationship is way more important than that.

If you just flip this particular house, then you won't have to explain why you're not renting to him, other than saying you decided to sell rather than hold this time. Of course, he might say the same thing for the next house you buy ...

Or depending on how much he is worth to you, sell the house to him at cost or a small profit. Maybe you could arrange for *SWIY to finance it for him.

*Someone Who Isn't You :)

No.

If he doesn't do good contracting work and you decide not to pay him, he could turn around and use that for mental justification for not paying you rent. 

Don't do it.