Rental Property Investor · Pittsburgh, PA · Member since 2015 · 712 posts · 173 votes
So my father in law came to me and my wife asking us to manage his rental properties which are around 15 of them. He saw we were doing are rental properties and liked how we handle them. Well im second guessing it now and wondering if i wanna mix family and business together. I met with his secretary about everything and everything really is messy. But he wants to pay me first months rent putting people in his properties and 10% for managing them. So trying to set it all up to manage his places. Is there a good way to do this? Hardest part is getting everything transferred over and getting tenants in place with the way we do things. I never thought about getting into the buy and hold business to manage other people properties. He's my father in law and hard to say no but having anxiety thinking about it all. He is a huge business man in the area and honestly the 15 properties he has is literally pocket change to him. He has so many businesses and stuff. Just not sure how to structure this and handle it all or if i should do it. Please any advice would be greatly appreciated? Alot to think about for me.
@Joshua D. As others have said you have two problems to address. The first is with the state. Most states require a brokers license to manage other people’s properties. You may be able to bypass a lot of time requirements if you can show that you have met those requirements through self-management and they allow that to count in your state. You would still have to meet minimum and ongoing education requirements.
In your situation you may be able to bypass this altogether by taking some form of an equity stake in the properties and having your name added to the deeds. The other benefit to this would be inheritance. If your father were to pass, the properties would simply become yours without the mess of family, creditors, or probate court I believe.
This leads back to your second problem, family. No matter how you slice it your father would still expect a say in what occurs with his properties. Depending on how you were to structure it you may have a mess to unwind if he became unhappy with how you managed his properties. If you actually got your brokers license and it went well it could also be just the boost you need to start a property management company that you could ultimately hire in people to do the jobs you don’t want to do.
@Jeshua Patrick Who would care or even know if i had a brokers license or not? I dont want to manage properties for other people but seems insane to even have a brokers license for that or even a re license at all? Seriously make zero sense to me. How would anyone know or even if they did why would they care?
@Joshua D. remember, there is a reason many do not mix business with friends and family. If all went well no one would likely ever find out but if they didn’t and you had ignored the law completely it could go very badly for you. Not worth the risk.
@Joshua D. another thing to remember is that this is not simply a deal between you and your father-in-law. There are at least 15 tenants involved and any complaint to the state could trigger an investigation that would expose the fact that you were acting as a broker without a license.
@Jeshua Patrick call me crazy but whats the worst that could happen i would manage peoples propertys all day and never worry about it. We stand behind are's as a management company and not act as the owner. But i feel there is no money in having a re license think more so it holds you back in the re world.
I have read your posts regarding this situation, but I obviously don't know your family. It seems to me that if your father-in-law is as big of a fish as you say, then he is testing you to see if you rise to the challenge and are worthy of the empire he's built or if you cower from an unbelievable opportunity because of a perceived short-term gain of only $1200 per month.
What type of properties are these? Lower grade with more hassle/return or higher grade with less time commitment? Maybe you could negotiate the management fee for the properties that require a larger time commitment.
I think the broker question is a good one, and maybe also a way to test your mettle, as they say. If you plan on signing any leases and get sued by a tenant or need to evict one, a judge/magistrate could raise questions. Maybe family is different in their eyes, I don't know, but if you are a W2 employee or have even a small minority ownership of the properties, you should be good without a broker's license in PA.
If you really decide not to pursue this, please send me a message. I'm interested in the opportunity to do business with your father-in-law.
@Jay Weathersby Home Warranties? never heard of that before can you tell me more or how about getting it?
I use Choice Home Warranties. It usually cost $300 per year and $60 for each service call. They offered me a deal for $1000 for 3.5 years and $45 for each service call. They cover all repairs and if it can't be fixed they replace. So when my tenants call about an issue I just file a claim through their website. They will schedule the repairs and I just got to let me tenant know the date and time. You can also have the tenant pay the service fee as well. This has been a win for me. Just this year I’ve had a hot water heater replaced, new control boards in both a washer and refrigerator, and HVAC repair. All for less than $200 out of pocket. Without a warranty that would’ve cost thousands.
On the one hand there is the possibility your wife will inherit the properties some day. On the other if things go bad it could create some tension in the family.
What if you trained them on how to manage them properly instead of taking over? I understand this will be great extra income to you, but at a cost of not reaching your goals. Maybe you could spend a few hours with him on the weekend or have him shadow you for a day on day to day operations?
@Joshua D. another thing to remember is that this is not simply a deal between you and your father-in-law. There are at least 15 tenants involved and any complaint to the state could trigger an investigation that would expose the fact that you were acting as a broker without a license.
It depends on the laws of the state. In NYS, where I studied and took the licensing exam, as well as my wife, who's been a license agent for a few years, the red line is if the tenant checks are made payable to you or the property owner. If you are not licensed, the rent checks are made payable to you, and someone else is the property owner, then there is a licensing issue.
The easy way around it is for the tenants to continue make checks payable to the owner or his LLC. If it's personal checks, then have a bank account open in both names, you and the owner. Through the years, people asked about licensing requirements, including my CPA, where one client, out of state, depended on him to collect rent payments, as well as call plumbers and electricians, thus acting as a PM. I told him since the checks are not issued to him, but to the owner, he only walks the check to the bank, you don't need a brokers license for that, i.e. being a messenger, or calling a plumber for that matter. He bills the client monthly for CPA work, including handling the rental in addition, and he was wondering if he violated anything. I gave him my opinion, told him he can check it out, and others advise him the same thing, i.e. don't worry, you are not in violation.
I think it is imperative to consider the tax ramifications of such a move. I’m not an accountant, BUT... despite the taxes that would likely apply to a sale, Remember that upon death there’s a Step up in basis for cap gains and depreciation.
Not to mention the added protection of the properties being held in a irrevocable trust.
Personally I think buying the portfolio would not look as good as if younas a family planned more carefully to use the tools at your disposal. The father in law and family could fare much better by exchanging those funds into a DST rather than pay the taxes now. Check with a profesional!!
@Joshua D. what’s the worst that can happen you ask? That’s really up to your state. Based on some of the other replies there may be a decent amount of gray area to play in as long as you know what you can and can’t do.
I personally think that you should ask yourself if you would want to partner with someone who focuses more on trying to skirt the law rather than follow it. If you wouldn’t then don’t be THAT guy in the relationship with your FIL.
All of you are missing one very easy way around these rules. Let’s say FIL portfolio is worth $1mil. All @Joshua D. has to do is ‘buy' 1% of the portfolio (10k). That makes him a principal and those pesky brokerage laws no long apply. ;-) They can create their own agreement inside the LLC of who does what and what is the compensation, even exit strategy. @Joshua D. can now sign leases and not be sued as he is a principal. Checks are made to the LLC, not any single person. Solved
If the ‘box’ doesn’t fit, build a different box. ;-)
Obviously there are tax/other considerations. I’m sure someone, probably FIL, has a good cpa. If he wants to ‘adopt me’, I could probably run his portfolio from here. Providing his props aren’t C, D. F. ;-)