As you grow your real estate portfolio, you may want to consider the idea of a “resident manager” to help look after your properties. This is most commonly found in apartment complexes, but it doesn’t have to be. In fact, in some areas like California or New York, a resident manager is required for buildings with a certain number of units (16 in California, 9 in New York).
A resident manager is someone who lives at your property and has certain duties to carry out in exchange for either a salary or reduced/free rent. We’ve used a resident manager several times at our apartment complex, with mixed results.
Resident managers can definitely lighten your load and help you become a more “stress-free” landlord. They can be assigned numerous tasks, such as lawn care, small maintenance, signing leases, sweeping parking lots, serving legal notices, answering phones, or whatever else you decide. Obviously, this can help you spend more time working ON your business, rather than IN your business. They can handle the direct tenant contact, while you work on acquiring more properties or relaxing on a beach — whatever floats your boat. Resident managers are typically less expensive than hiring a professional property management company and allow you to maintain more direct control over your investment property.
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Avoiding Bad Resident Manager Situations
Resident managers have the capability to reduce your workload and stress, but the most important thing we’ve noticed is that resident managers, if not managed carefully, can actually increase your workload and stress level. You see, when you hire a resident manager, you shift roles. You are likely no longer dealing directly with your tenants, but instead you are now a boss with a sort-of employee. We’ve had to cut ties with a couple resident managers who were not doing their jobs correctly, but we place most of the blame on ourselves for not taking the time to correctly train and manage them. As any business owner knows, if you don’t train your employees — and monitor and offer feedback on their actions — an employee will likely cause more damage than good. is is the danger with resident managers. Therefore, if you plan to use a resident manager, look at your own management skills and ask yourself, “Will I be a good boss?” If so, proceed. If not, either avoid bringing on a resident manager or improve your management skills.
We once hired a resident manager who seemed fantastic at the start. He was good at maintenance, ambitious, and friendly. We gave him a detailed manual on how things should be done, briefly trained him, and then let him at it. He took the reigns with joy, freeing us up from phone calls, lease signings, and maintenance. It was a huge stress relief. However, soon things turned south. He began acting as the “king of the complex” and was rude to tenants (and sometimes us!). Soon, he started breaking many of the apartment rules (like piling junk on his deck, parking an RV in the lot, and getting a dog), and after several talks with him, we had to let him go.
A Terrible Resident Manager Could Cost You Big
But it was after he left that we saw the true damage of this situation. He approved tenants who didn’t meet our minimum screening standards (including renting a unit out to a couple who made just $600 per month — and the rent was $525!) and allowed tenants to get away with things we never would. Tenants began coming out of the woodwork complaining about his rudeness, fits of rage, and repeated calls for maintenance fixes that were never done, leading to further damage. The work that was done was shoddy (at best) and sometimes downright wrong!
To this day, we’re still dealing with the results of his actions and still finding things that need to be re-repaired because that resident manager had too much power and not enough accountability. Don’t make our mistake. Train, manage, and control your resident manager. For the best book ever written on dealing with a resident manager, be sure to read John T. Reed’s book How to Manage Residential Property for Maximum Cash Flow and Resale Value. Reed goes into great detail on the process of finding, screening, and managing these employees.
The Tax Consequences
Also, make sure you understand the tax ramifications of hiring a resident manager. A resident manager IS an employee of your company, and as such, the same laws that govern other businesses govern your relationship with your resident manager, especially the taxes and paperwork. This means when the manager is hired, the owner must file form W-4 (Employee With- holding Allowance Certificate) with the IRS, and a form W-2 must be given to the resident manager at tax time. Luckily, the IRS has ruled that the payroll taxes (the 15.3 percent tax comprised of Social Security and Medicare taxes that are split between employers and employees in the U.S.) are not required for the price of the reduced (or free) rent but IS required for any salary paid to the manager. In addition, you may need to purchase “worker’s compensation insurance” for your resident manager. Check with your state’s requirements for hiring employees and follow those rules carefully.
If you plan to hire a resident manager, make sure you continually brush up on your management skills and don’t give away too much power without some heavy accountability. Read books on management and hiring the best employees. Continually check in on them and make training a regular thing. Make sure they are someone you feel comfortable being a “boss” to — in other words, not your grandma. And finally, make sure you sign a contract with the resident manager that outlines the duties and responsibilities of that manager, as well as the compensation being given and the consequences should they fail to perform.
[This article is an excerpt from Brandon Turner’s The Book on Managing Rental Properties. For the full read, click here.]
Do you use a resident manager to help out with your properties?
Let me know your experiences with a comment!