Any suggestions on doing rehab deals with tenants?

Question

I'm in the process of closing on my first rental property. One of the rehab jobs is painting the inside; the potential tenant I have lined up has his own painting business. What are your thoughts and suggestions on using him to help with rehab and make some sort of deal?

Kris L. · Answer

@John Larson

Be careful with these arrangements.  Make sure everything is in writing, and that it is a separate deal from his rent.

Avery Rustad · Answer

Seems like a great idea. I wouldn't recommend cutting him a deal on rent, however. I would probably pay him cash for his services, because hopefully market rent will rise and you don't want to be stuck with a tenant legally paying X amount of money under market value because of a deal you made at the beginning when they painted the interior that one time. The tenant will appreciate your business and you'll appreciate his. Keep it business oriented.

Hope this helps :)

Chris B. · Answer

As stated, be very careful and keep the arrangement a separate business transaction from rent with a written agreement.  I've found transactions like this done over a handshake very frequently end up with different understandings of what the work was to deliver and what the landlord was to compensate.  Get a simple contract stating what will be painted, in exactly what color scheme with which paint and in what sheen.  Include what the compensation is and when.  Anything up front or all at the end?  Include time frames in which the work must be completed by and to what standard (Sounds like it should be a professional standard here).

Andrew S. · Answer

I'd recommend not doing business that has a conflict of interest. I don't see a major downside to using a third party painter.

John Larson · Answer

@Chris B. Love this example thank you!

Chris B. · Answer

Regarding any remodeling work in general whether it be painting, flooring, or otherwise, make sure what is installed is something you like and would pick out yourself if it were your choice alone.  Here's my examples:  I have a tenant who has rented for a few years.  The rolled vinyl flooring in the kitchen had some gouges in it from before she moved in and looked bad.  I promised her if she renewed for a year, I would replace the kitchen floor.  I considered 50+ different tiles for the floor.  I narrowed the choice to my 5 favorite.  I took samples over and discussed the options with my tenant and we decided together and we are both happy with the results.  I've had other tenants want things that would cost me money, add no rental value, and also increase maintenance costs and I politely said no because it wasn't required and not financially appropriate.

Scott Johnson · Answer

@Avery Rustad I like to stay away from having tenants doing repairs, but if you’re treating it like an external transaction, then I don’t see anything wrong with that.

Just make sure he’s as qualified as any other painter you would use to do the work. Agreed on the rent. Just pay him cash. Keep it clean.

John Larson · Answer

Correct, there are only 2 bedrooms on the main floor and those 2 "rooms" in the basement. The previous owner used 1 room as her son's room and the other to as a small gym. But I know the tenant plans on using them as bedrooms. If this is a big liability as a landlord I will work this in for the rehab. Thank so you so much for that advice. 🙏

Kris L. · Answer

@John Larson

Wait, are these “not technically rooms” the bedrooms?  I foresee a big potential liability if those rooms are being rented as a bedroom if the tenant is killed in a Fire because he couldn’t egress.  If you want to rent these basement rooms as a bedroom, check into adding an egress route.

John Larson · Answer

Thank you all this is so helpful! Very much appreciated! Sounds like I should just keep it simple business transaction. I will definitely keep it separate from the rent and a signed detailed agreement on the work too.

Since he was walked through before the rehab, he mentioned what kind of work I planned on doing and such. There are 2 rooms in the basement (technically not rooms they don't have egress windows) that the previous owner constructed. There's no flooring and he asked if I could put LVP flooring in the bedrooms. I said yes that's perfect as I already had that in mind. Has anyone came across a similar situation where the tenant suggested or asked what rehab could be done? If so, is there any strategy or negotiating that is recommend so we both feel good about this deal?

Any suggestions on doing rehab deals with tenants?

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