Rent to property manager?

Question

Hi all,

Would you rent a unit in your building to properly manager  . How would you structure lease so it won't negatively effect value of building. Can I list the higher rent but then agree to a monthly credit for her managing the property or is it easier to have her manage building for free in exchange for rent?

I'm refinancing in the next 12 months and want to show the most income. Will also want to consider putting clauses in place to cover if I sell the building or we end our owner/manager relationship, the lease could come to a end.

Thank you

Ray Harrell · Answer

It depends on how much rent the unit is worth. Is she managing maintenance as well or does she have to find someone to do that? To keep it honest, you would show the rent as income and then the management fee as an expense equal to the rent. You don't want to miss out on that deduction, unless you really want to pay taxes to show more income.

You should have a lease, and a separate management agreement in case she decides she doesn't want to manage any more she is still bound to the terms of the lease.

Ray Harrell · Answer

@Greg W. you HAVE to show the income, but you don't necessarily have to record the expense on your tax forms. Only if you want to take the deduction, and in your case it sounds like you don't so you can show maximum income. The bigger issue is what your contract says about not being able to find financing in time because of credit, appraisal, property condition, etc. Don't always believe the hype of buying property with OPM!! NOTHING is free!

The roof replacement, if done in the previous or same year as your refinance, will count as a one-time exception to the lender and won't count against your income. Management fees, however, will count.

Abraham Anderson · Answer

I know a guy who's property manager rents one of his homes. She always pays late and never charges herself a late fee, also hasn't raised her own rent in the 5+ years she's been there, ha ha.

Aaron K. · Answer

@Ray Harrell is right have the management be income for her and an expense for you and make her pay rent like anyone else, that way nobody upsets the IRS

Rent to property manager?

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