Making your tenant PM a bad idea?

16 Replies

Hi,

I need to move out of state due to my job.I got two options sell my multifamily or manage from remotely with the help of a Property Manager. Rather than hiring a PM would it be a good idea to make one of my trust worthy tenants PM?

Thanks

No way. Property management is not something you can just do without experience, and it gives that person way too much power. He can get you in way more trouble than the small amount you might save initially.

Hire an experienced, professional PM or sell the place. If you want to pay him to cut the grass or things along those lines, that's a bit more reasonable.

From what I can read here, you've missed the most important option- hire an excellent property manager and let them do their job. If you are planning on "managing remotely with the help of a property manager," then you will never be satisfied. Find a partner that you trust and walk away. 

Having your tenant be their own PM will never work, don't even consider that please!

What percentage of their goals can you align with yours?

Doubt enough!

They will always be looking to screw you for their benefit.

You might want to read our series about “How to Screen a PMC Better than a Tenant”, and pursue hiring one.

https://www.biggerpockets.com/member-blogs/3094/91877-how-to-screen-a-pmc-better-than-a-tenant-part-1-services-and-processes

Originally posted by @Bjorn Ahlblad :

Absolutely agree with @Taylor L. Would you ask the tenant to give you a root canal too? 

Cute but not really funny or true.  PM on a small scale is utterly uncomplicated.  Honest, responsible, dependable and good judgement are the traits I would look for.  You find that person and teaching the trade is the easy part. If you have good processes in place - tenant selection, maintenance / repair, rent collection, etc. and need PM support, I would grow it from the ground up vs a professional PM all day long.  

 

A professional PM would charge approximately 10% of the rent income. If you had a fourplex and each unit rented for $1,000, that's only $400 a month to hire a professional. How much are you going to pay your tenant? 

Will your tenant be current on Landlord-Tenant law? Fair Housing? Is their finger on the pulse of the market to ensure you are getting top dollar? Do they know how to document before/after occupancy to protect you from security deposit claims? When you have a turnover, do they have relationships with contractors to ensure the job is done quickly, correctly, and for a fair price? How will they market the home to the widest audience? Are they capable of reviewing a contract with renters? What's their experience with handling late rent, unauthorized pets, or even evictions?

You get what you pay for. You could find a renter that can keep things going, but they will only succeed if luck is on your side. When the going gets tough, they won't have the education or experience to protect you.

@Peter Morgan

I have a care taker that lives in my 12 unit. I live 2 hours away, so it is nice to have eyes on the property at all times. He’s caught water leaks before they did any damage, which probably wouldn’t have happened with an off site property manager. He also sniffs out the drugs and drug dealers.

Im still active in managing it, so he certainly doesn’t have full reign over the property.

2 hours away isn’t a bad drive for me, plus my parents live right down the road from the apartment, so we take weekend trips up there to be with my parents and work on the apartment.

If I were in your shoes and moving somewhere very far away, I wouldn’t leave the property with a care taker. It only works for me because I’m physically at the property about once a month.

Say it ain't so...don't do it.  You're running a business.  You hire professionals - one who know more than you in a specific area or don't hire anyone at all.  The risk is high to wing it. The cost of a Fair Housing Complaint alone could sink your ship.  

Run your business as a business.

Originally posted by @Terrell Garren :
Originally posted by @Bjorn Ahlblad:

Absolutely agree with @Taylor L.Would you ask the tenant to give you a root canal too? 

Cute but not really funny or true.  PM on a small scale is utterly uncomplicated.  Honest, responsible, dependable and good judgement are the traits I would look for.  You find that person and teaching the trade is the easy part. If you have good processes in place - tenant selection, maintenance / repair, rent collection, etc. and need PM support, I would grow it from the ground up vs a professional PM all day long.  

 

 Nathan's post hits exactly what I was referencing. Most real estate investors do not understand their local landlord tenant and fair housing laws, let alone non real estate investors/non property managers. Hiring someone inexperienced to represent you is almost guaranteed to get you in trouble on one or both of those.

Originally posted by @Taylor L. :
Originally posted by @Terrell Garren:
Originally posted by @Bjorn Ahlblad:

Absolutely agree with @Taylor L.Would you ask the tenant to give you a root canal too? 

Honest, responsible, dependable and good judgement are the traits I would look for.  You find that person and teaching the trade is the easy part. If you have good processes in place - tenant selection, maintenance / repair, rent collection, etc. and need PM support, I would grow it from the ground up vs a professional PM all day long.  

 

 Nathan's post hits exactly what I was referencing. Most real estate investors do not understand their local landlord tenant and fair housing laws, let alone non real estate investors/non property managers. Hiring someone inexperienced to represent you is almost guaranteed to get you in trouble on one or both of those.

Yes, let's definitely not hire an honest, responsible, dependable person with good judgement and teach them a skill.  Let's pay a professional PM to put a tenant in your house that changes their Harley oil in the living room. 

 

I have to disagree with others. This can definitely work and it is not uncommon in apartment complex to have a resident manager. They get free or reduced rent in exchange for managing. They don't usually approve applications or handle anything financial. They just show properties, let maintenance people in, do inspections, etc. They are just local feet on the ground. If you have a trusted tenant, there is nothing wrong with this. Just make sure you are handling all tenant screening, lease and financial matters remotely. Of course this will require training the tenant, just like you would train anyone working for you. 

@Peter Morgan , I have not been in this situation but wanted to offer this. You should review the transition for the tenant from a tenant to PM. When you list roles and responsibilities for that person you will be better prepared to address your question. I have my SFs through PM and if I were in your shoes I would use a PM. Good luck.

Originally posted by @Peter Morgan :


What if the tenant is a good property manager and/or realtor by profession.Is it still a bad idea to make them PM?

That's obviously a different story.

I still wouldn't do it because there's a conflict of interest. If you have a problem with him as a PM, you fire him and then you're still stuck with him as a bitter tenant. Or he sucks as a Tenant so you want to kick him out, but then you don't want to lose him as a PM. See the problem?