First Multifamily Investment - 9 Unit

[Account Closed]

Hello,

I am currently under contract on a 9 unit apartment building in Green Lake, WI that includes a single family home that is a rental in addition to an 8 unit apartment complex.

The tenant in the single family home currently does snow removal and lawn care, but from speaking with the seller and doing market research, the rent is currently under market for the house relative to comparable properties. I'm trying to decide if I should keep the current arrangement in place with the snow removal and landscaping and have the tenant pay below market rent or if I should have these services taken care of by a professional company and bring rent up to market.

I'm curious if other investors have come across this situation before and how you made a decision on the best way to proceed. Thanks for any inputs and comments.

Thanks,

Matthias 

[Nathan Gesner]

Using a tenant to maintain landscaping and handle snow removal seems like a no-brainer, but it actually has some serious problems.

1. Who's liable if your tenant throws out their back? What if your tenant does a poor job of snow removal and another tenant slips and falls? If you hire a professional with insurance, you reduce your risk.

2. What's the cost of reduced rent vs. cost of hiring someone? If rent is $200 below market and hiring a professional is $200, it would be wiser to charge the tenant market rate and hire a professional. It reduces your risk of liability and it prevents any relational problems with the tenant.

What I commonly see is Landlords keep the rent too low as compensation. They reduce the rent $300 but snow removal would only cost $200 with a professional. 

Crunch the numbers for both scenarios. Consider the liability vs. benefits.