Becoming a property manager for someone else’s property?

12 Replies

Hello all! My wife and I own a SFR that we manage ourselves, and have for the better part of 3 years. That makes me know just enough to be dangerous :) So now my parents want to buy a rental property and they want us to manage it for them, and I’m not sure where to start digging into what we need to do to make that legal and legit. First, we are in Colorado Second I know it needs to be done under someone with a brokers license, and my wife works for a friend of ours who is a real estate agent and is willing to put the property management under his license. Third.....that’s all I have so far. Any suggestions on how to move forward? Thank you!

Why do you need a broker's license to make repairs and collect rent for your mother's property? 

@Bryan Cork I don't see a problem in doing this for a family member. Unless you see a risk that your folks might turn you in :)

I may (or may not have) done this for a friend that moved out of the area. Lets say I did for arguments sake. The rent would have gone directly to the friends account and never my own.  Lets say you get audited one day and you were putting all the rent into your account before sending to your parents it would look like unreported income of yours.

Hey Bryan!

Sounds like you're off to a good start. @Ray Harrell , a broker's license is required for legal property management as it's considered a real estate transaction, you're taking strangers through someone else's homes and signing leases on their behalf.

Bryan, do you have your real estate license yourself? You'll want to get that first, and then hang it with the brokerage that agreed to let you use their name. In MI you need your real estate license to conduct showings, so this is an important step for any property manager. You'll also want to start collecting/finding the documents you'll need to manage a home for your parents, including a management contract spelling out your services and fee structures. Once the contract is signed, register the property with the city under your management, collect a copy of the keys and get the current tenant information and any marketing information the current owners have on file for the home. 

The biggest issues that can happen when managing for family can be avoided when you set up a proper structure that everyone agrees to in the beginning. In your management contract, address management fee, renewal fee, placement fee, maintenance costs, minimum account balances required, payment methods, etc...

Good luck!

I don't think my previous property manager had a broker's license, and the person managing it now definitely doesn't have a license. He is a "guy I know". Does it make a difference if it's someone you know? Maybe I'm out of compliance!

I should have mentioned that the reason to make it “legit” is to make the money they pay us to manage it a legitimate business expense. If it were just a favor situation I wouldn’t want to make it complicated at all. Thanks!

You should definitely keep it legit. I understand all the above responses telling you to just do it without, but your parents won't be the only ones in the transaction. If tenants ever sue you, its not just about not having a RE license, it will be for practicing law without a license, because creating/implementing contracts for other people is the practice of law. 

But, back to what you actually asked, once you're properly licensed, you'll probably have access to a state-approved set of forms. I'd get the ones related to leasing and start comparing them to the leases you already use and make sure they meet the standards set for RE brokerage contracts. 

You'll want one of those contracts to be a legit management agreement between you and your parents before the first showing is done. You need them to grant you the authority to show, lease, and manage it. 

You'll also need to make sure your trust accounting procedures are up to snuff, because if an unhappy tenant takes you to small claims, you'll need to show the judge you're following the laws for your state. 

Most of this you've probably already done for your own properties, so the management agreement is really the biggest step to take.

Hope that helps!

Originally posted by @Ray Harrell :

I don't think my previous property manager had a broker's license, and the person managing it now definitely doesn't have a license. He is a "guy I know". Does it make a difference if it's someone you know? Maybe I'm out of compliance!

 I don't think you are non-compliant but I think your PM probably is.

See a lot of shady posts on this thread of people not taking the proper steps to do things the right way to protect their investment. Educate yourself on what it will take you to get your license to manage properties legally. Having the ability to manage properties for family members is part of why I started my own property management company. Last thing you want to do is put your family in a bad situation. Protect yourself and help protect their investment. You can have the best of intentions, but it only takes one little mishap to blow up out of proportion and next thing you know you are done.

@Ryan McKelvey thank you for your advice. I just noticed this is the second time I've mentioned you in is as many posts! Do you have some specific steps i should take to make this arrangement legal? And when you say "license", do you mean becoming a licensed real estate agent?

Bryan,
Every state is different. I can not vouch for other states, but I think it was mentioned in a previous post on this thread here that you would need to be a licensed real estate agent to legally manage property for another. Please notice that nowhere in the title “Real Estate Agent” does it say sales. You are acting on behalf of another in a real estate transaction. There are many other instances besides just selling residential real estate where a license is required.

I just hate to see a family relationship go sour. When my Dad decided to get into purchasing rental properties in my market, I told him I would have to treat him like every other client. He pays the exact same fees everyone else does, and doesn’t get a break just because he is family. I believe this helps keep the personal emotions out of the business transaction with family members. Some people refuse to do business with family all together, but many people especially in real estate and here on BP got their jump start doing deals with family members. So there are pros and cons to both sides.

The only other option that I could see you could look into is ask your relatives for part ownership on the title of the property. If you legally own part of the property you can legally manage the property yourself.