newbie question: using a neighbor to manage property?

Question

Hello,

We have moved out of state and trying to sell and rent our house that we own in CT  which is paid for, its been on the market for 2 years, we had to get a new septic and have reduced the price 1/3, now we are thinking to rent it out until market is better and we can upgrade parts of the house (furnace, roof) with the rent and pay for taxes. We thought of contacting the neighbor to be our property manager, any ideas suggestion advice is greatly appreciated! Is it better to do it ourselves? What is the best way to find a good renter?

Paul Timmins · Answer

@Esra Kanisicak

Go to IREM.org search for ARM certified property managers they handle the smaller properties.

Deputize the neighbor to keep an eye on things with $50 worth of wood chips for them.

Stock up on aspirin if you do it yourself from a distance.

Good luck

Paul

Ali Boone · Answer

I would not use your neighbor. It could open up so much drama. It's like hiring your friends to work for you... while it can go well, if things don't go great, there are emotions in it and it makes it really hard to get to a place of success. I would hire a professional property management company. They know what they are doing, your neighbor probably doesn't, and they are professionals in getting tenants and managing them.

Gerald Harris · Answer

That can't be a real problem.   If the neighbor has no professional real estate experience in managing a property it can really hurt you down the line.   Contact other real estate investors in the area and ask them who they are using to manage their rental properties. You can even contact other real estate agents and brokers.   If they are all mentioning 1 or 2 managment companies then contact that management company.  You want to screen your tenants as much as possible. Make sure credit and income are on the up and up.   In the long run, this will solve half of your problems.

Raymond B. · Answer

@Craig Hansen,

I'll summon @Esra K., and hopefully she will respond to your offer.

Raymond

Craig Hansen · Answer

Esra, I am a current property owner in Willimantic.  I currently have 4 investment properties in town and have 3 others that I manage for friends (other landlords).  I may be able to help you with your situation if you are still in a rut.  Shot me a email hansen@ahcapitals.com and hopefully I can help you.

Jon Holdman · Answer

Unfortunately what it "has been worth" has little relation to what its worth now.  The factors you mention:  "very small and in a not so great neighborhood, the are still many foreclosures" really hurt the price.  Most people are going to buy yours with financing  so when you say "with financing people can get much bigger houses with a small change in monthly mortgage!" this again tells me you have the house priced too high.  If much bigger houses are only slightly more expensive ("small change in monthly mortgage")  then you've priced yours too high.

Owner financing is now a complicate are, thanks to the SAFE act.  You may have to have a mortgage broker involved.  You will have comply with your state's version of the act.  If you can make that happen, you may be able to get a somewhat higher price than if you sell normally.  But that won't fully make the headaches go away.  The fact its free and clear gives you options many sellers don't have.  But I would speak with an attorney and/or mortgage broker about what you would need to do to make this happen.

This is a bit scary:  "probably cant get worse than this:)".  The last week has emphasized to me the saying "no matter how bad things are, they can always get worse."  When you rent your house, its going to take damage.  If  you have it fixed up and ready for sale, realize some of that will get damaged and will have to be repaired if you choose to sell later.  You're going to be a far-away landlord, so the 50% rule of thumb kicks in.  That says that 50% of your gross rents go to vacancy, expenses and capital.  Insurance is higher, tenants break things, they leave, rent doesn't get paid - there are numerous headaches.  For an investor who's bought right and understands these issues, they can be dealt with.  For the "accidental landlord" who's trying to stop the bleeding, they can be a nightmare.

Esra K. · Answer

Thanks for all the advice everyone, I will look into state laws and the IREM link!

Jon, the house is very small and in a not so great neighborhood, the are still many foreclosures, and with financing people can get much bigger houses with a small change in monthly mortgage! we have reduced the price too many times and worked with 3 realtors, we do want to get rid of the property but it has been worth 3 times (150.000) what we will get currently(listed at 72.000 down from 115.000 minus septic 20.000) thats why we are hesitantly thinking of trying the renting thing for a few years, it probably cant get worse than this:) could you advise if you think we should offer owner financing to be able to sell?

Ganesh S. · Answer

Hi Esra

If the home is in affluent neighborhood that attracts good families, one option is you screen the tenant pretty well. If you are comfortable, then you split the PM management fees with the tenant themselves, so they take care of small issues like fixing a leaky faucet etc by themselves. If there are big ticket repairs they would need to get preauthorization from you and will need to submit a receipt to get reimbursed in the next rent.

This approach has reduced my tenants rent by about 125$ and saved me 125$ as well. It has worked out well for the last 3 years for me. However not sure if I was just lucky or I can continue the same approach in the coming years.

Good Luck!

Jon Holdman · Answer

If its been on the market two years its overpriced.  At the right price it will sell.

Long distance landlording is unlikely to be something you will enjoy.  Even with a PM.

Suzie B. · Answer

I would find a good property management company to find you a tenant.  You can ask the neighbor to let you know how things are going periodically.

I would be concerned about letting the neighbor handle any of the details.  If they are inexperienced, they may not get you the tenant your property deserves.