Improvements tenant in place

13 Replies

I’m planning on buying a house (under contract now) doing the major repairs and renting it out to a coworker who will be accepting the house in livable condition but who wants to paint interior (which it needs desperately) and paint cabinets From the 80’s (I’m planning on them replacing in the near future anyway) and is willing to allow me do some upgrades like redoing bathrooms and relocating the washer and dryer hookups while she lives there one project at a time. She is interested in doing a live in flip but is only one year from separating from the military so she isn't ready to take a whole project on herself. For this inconvenience I am going to give her below market rent 1100/month vs 1200/month and allow pets. Has anyone done this before? How would you structure the lease?

@John Powell

See if you would agree with this suggestion.

Keep the lease @ $1200/month, then pay $100 back every month for the service.

The numbers are the same, but the benefit of doing this is that it is much easier to explain if you have to revert it back to $1200 (e.g. if there is no work done)

Sounds like trouble, I would stay away from this type of deal. Fix it up yourself and rent it to someone other than a friend, family or co worker.

Why? What do you see going wrong? 

@Che Chiu Wong

That sounds like a plan I was thinking of giving a rent credit after each room completed and I have inspected which would be more quantifiable.  

@John Powell

PLEASE

Don't rent to friends, family, co-workers.

That is the best way to alienate family, lose friends, and cause problems at work.

Originally posted by @John Powell :

I’m planning on buying a house (under contract now) doing the major repairs and renting it out to a coworker who will be accepting the house in livable condition but who wants to paint interior (which it needs desperately) and paint cabinets From the 80’s (I’m planning on them replacing in the near future anyway) and is willing to allow me do some upgrades like redoing bathrooms and relocating the washer and dryer hookups while she lives there one project at a time. She is interested in doing a live in flip but is only one year from separating from the military so she isn't ready to take a whole project on herself. For this inconvenience I am going to give her below market rent 1100/month vs 1200/month and allow pets. Has anyone done this before? How would you structure the lease?

I would keep the rent at 1200 and use my standard contract. I would treat her the same as any of my other tenants. I've at times rented to family and friends. It works if your communications are clear and there is no favoritism.

I would want to see the painting done well and unless I knew she had the interest, skill and time to do it right, I would have it done by a pro. At the very least I would choose the quality of paint and sheen. I would offer a color pallet for the tenant to choose from. Colors that are light to medium tone and more neutral will be better for future rentability. Painting ceilings is harder than painting walls. Cabinet painting and painting trim can be trickier than painting walls or ceilings. Be sure to take precautions not to get paint on hardware and fixtures.

Is she a responsible pet owner? What kind of pets are you thinking about allowing? Type, breed, size and age matter. If you don't have a good pet agreement addendum, find one. Accepting pets is a wild card, as the wrong kind of pet can cause a lot of damage. Most landlords who allow pets charge additional monthly pet rent and/or a pet fee at move-in and/or additional security deposit to cover the extra risk and associated costs.

When redoing the bathrooms, relocating the W/D hookups, and any other major work, give her back a rent credit for every day she is significantly inconvenienced. We do this whenever we are doing a significant improvement/repair while a unit is tenanted. Some of our tenants have been with us for over 20 years, so if we waited to do improvements until a vacancy, it wouldn't get done in a timely manner. Moving in a person early can work, but communication and expectations must be clear from the get go. Also, all life and safety systems must be functioning. If the unit becomes inhabitable at any point, put her up in a hotel until it is habitable again.

I would also keep the rent at $1,200. Have a pet agreement and if you believe she is a responsible pet owner then you could waive those fees. MY times a "helpful" tenant does not do quality work and could cost more by having to do the job over or fix errors. I do upgrades with tenants in place and unless they are significantly burdened or lose occupancy or use of an important part of the unit they don't have a discount or rent credit. Repairs need to be done but improvements are obviously optional, most folks don't have a problem with a slight inconvenience to have their home upgraded, especially without an additional cost at the time.

I will be charging a deposit and pet deposit does anyone have a good pet clause my other rental is no pets but has A class finishes. This one has B- finishes and will be renovated to A finished when she leaves she is basically going to season the house so I can refi after I hit the two year mark as a land lord.

I agree you should not do this.  I've never, in my long life heard of a tenant deal regarding them doing work on a place in exchange for rent - going well.  

And as far as renting to a co-worker, friend, family member - the problem is that they will expect special treatment.  It's human nature.  And when (not if) there is a problem, and you have to actually act like their landlord, it won't be pretty.  Then the relationship is soured.

You may be thinking that your situation is different, but that's what everyone thought before it went bad.

If you do insist on doing this, the way to structure the lease, as mentioned above, is to charge her full rent in the lease.  Then, each month, you give her a "rent abatement" for what you agree is fair for her being inconvenienced by work being done.  Because if she ever ends up suing you, this is what she'll sue you for (as far as having to live in a construction zone, etc.).  And that's what the court would award her.  So, you need to start with a regular rental rate, and give a discount from there.

No tenant will ever do the quality of painting or work that you would want done.  Or, such a tenant would be extremely extremely rare.  And you'll have to go inspect their work and argue with them about it.  Do you really want to do this with a tenant?  With a co-worker?  Sue them over the quality of the work they did?  Sue them for the cost of re-doing what they did wrong?

It's just best to do this kind of work yourself, or hire someone you can hold accountable.

But, really, just don't do this.  There's a one in a million chance it will go well, and you'll still be comfortable at the water cooler with this person in 6 months.

I would be very careful about this. What if she doesn't do the work? I honestly have been burned every time I have allowed this (although not in as "large" of a manner you are describing.

Get it in a rentable condition.  When the lease is up for renewal offer the tenant a choice of upgrades or improvements for a new lease if they are good tenants.  It's a win win for everyone. 

Thank you all for the advice I have decided to get it fully ready then rent it it will have some rooms that still have the wood paneling which will get replaced at the next turnover. But letting her do work does seem like a potential disaster now that you all have pointed it out.  

Some great advice here.  Even if the tenant is not a friend/coworker, etc you are giving them permission to alter a property without knowing what their skills are.  Also, once you allow them to make modifications, you may get into a situation where they give themselves permission to push those boundaries with paint colors, items rehabbed, etc and then you are dealing with more issues.

Sounds cold, but don't do favors for people with properties you own.  You are the one that has more to lose.

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