Some landlords are known to step outside the box of a standard landlord-tenant relationship, but is it a wise move? If you are a landlord, you may have considered bartering or doing business with your tenants. If you are going to go this route, what are some good points to keep in mind? Here are some common situations where questions arise and the pros and cons of doing business with a tenant.
Subleasing a unit— “Is it ok to let a tenant rent out the unit to someone else?”
AirBnb and other short term rental services have made subleasing a popular activity among renters in the hopes to bring in additional income. Renters are tempted more than ever before due to the mobile opportunities available for the workforce to sublease units. This can mean that a tenant may want to rent out a room to offset their personal rent and make some cash as well. Or, they hope to rent out the entire space during vacation or travel. Doing this type of subletting is even becoming a investment strategy in real estate. Have control of a property, without needing to buy it, and make an income off of it. Most of the time, this is a bad idea for property owners. It adds risk. What will you do if the subtenant has a maintenance situation? What if they don’t want to move out? This is a possible problem to consider, because you’ll have to be the one (as a property owner) to evict the unwanted occupant.
Property management— “Should I allow tenants to help with property management to offset costs?”
I get this question a lot when talking about multi-family apartments or single-family properties. Newer real estate investors with less overall experience want to consider letting a tenant manage a property for them. This can give the option for the tenant to get reduced rent for taking care of the building and grounds. They may have the responsibility to collect rent or handle basic tasks that have to do with a larger property you own that has multiple units. In some situations, this could really make sense. If the person knows what they are doing, has lived there for awhile, and acted in the capacity of a previous owner, it could work.
On the flip-side, it could also turn out to the worst idea ever. There are many nightmare situations that I have heard of about tenants acting as managers. It gets dangerous if you, as the landlord, expect a tenant to do everything from maintenance, to operations, and books. That person may only be good at fixing items that are broken and not really that savvy with handling the books. Currently, I’m under contract on a property where this is happening and all I have to say is that the financials are strange. The manager has too many responsibilities to take care of which has resulted in this not being handled properly. Be careful for scenarios like this.
Contractors— “Should you rent to contractors in exchange for services?”
You will have contractors working on your properties. These landscaping crews, handymen, or the like may need a place to stay, so do you rent to them, and if you decide to do that, do you offer a rent exchange for services? My perspective is that it is a good idea to have some tenants who can fix things around a place, but as far as giving them free rent? I would discourage that. Try offering credit it instead. Go ahead and check their work so that you know that they are doing a good job. You don’t need subpar work on your property going forward. Also, be careful that you don’t devalue that property. One of the most important things to keep in mind is for you to keep the lines clear when it comes to lease agreements and business relationships.
No doubt, there are positives to bartering and working with your tenants, but keep in mind, all could go bad quickly. What is really important is that every person is focusing on the area that they are really good at. If they aren’t good at something, this could cost you a lot and negatively affect the value of the property.