What should i do with my good tenant??

Question

I purchased my first rental property in mid-February. Manufactured home on 3 acres. Hours after closing I signed my tenant. Worked out perfectly and my tenant has been awesome. For example tenant has painted the interior top to bottom, repaired flooring, cleaned carpets, cleared brush, and even installed toilets that I bought. On top of that he has paid rent on time every month during this Covid-19 period. Tenant has increased the value of my property while treating it like his own.

Tenant is renting for $800/month do to the fact that he is doing so much work around the property. Property should easily rent for around $1100-$1200/month after all the work that has been done. Tenant has a 6 month lease with option for month-to-month after lease is up. He has already expressed the fact that he wants to stay after the 6 months.

Question is...What should I do at the end of the 6 month lease? I am helping him out with the cheap rent and he is helping me out with all the work that has been done. Do I just tell him "thanks for all the work you did, now rent is $1200/month"? Do i keep rent at $800? Or do I just move on and find another tenant?

I have learned that in the future I will take the time to do necessary repairs before signing a tenant.

Nathan Gesner · Answer

Figure out the value of the work completed and pay him accordingly. He's essentially been paid $300 a month for six months, a total of $1,800 in savings.

What's the value of the work done? How much would it cost you to hire a handyman to do the same? Is the quality of work and materials the same as if you had hired someone?

Let's say it would cost you $2,000 to paint the place. Your tenant offers to do it but he's not a professional so you shouldn't pay him professional wages. So you tell him you will buy the materials and pay him $600 for the labor. He does the work, it looks good, you pay him $600 and you both benefit. If he did a poor job or fails to complete it, you don't pay him a dime and continue collecting the rent.

My tips:

1. Keep rent separate from work compensation. Two separate agreements. Mixing them only confuses the issue and puts you in a bad spot if the tenant does a poor job, fails to complete the job, or tries changing the agreement later on. If you pay them up front with a rent decrease, you will be stuck going after them to collect and you'll still have the cost of fixing/finishing the job which means you've essentially paid for it twice.

2. Get it in writing. Never let a tenant do work without a written agreement. What materials will they use? Who pays for materials? How will the tenant be compensated? What happens with the improvement when the tenant leaves?

3. Always have a specific end date. If you leave it open-ended, you are likely to see the job never completed.

4. Always have an inspection clause that states the job must meet your approval before payment. If they don't paint all the way to the ceiling, get paint all over the baseboard, or use unapproved materials, they will be charged for fixing the mistake.

Document before/after with pictures to cover your backside.

If the work involves any risk, I hire professionals that are licensed and insured. I only allow tenants to do minor work like painting, and even that is very limited.

Account Closed · Answer

Wow.  Golden tenant.  I think you should hire him.  I like the suggestion to sit down with him and ask him what he thinks is fair.  Tell him you couldn't be happier with the work he's done, and he's definitely kept up his end of the bargain and then some.  Of course, the idea was that you'd be able to get a higher rent after the place was fixed up, and he knew that.  You'd like to keep him as a tenant, so what does he think is fair?

By the way, are you going to buy another place?  Maybe he'd be willing to move into that one and fix it up for the same deal.

I agree with Nathan G that normally it doesn't work out when you give a tenant a break in exchange for work, but you got the golden tenant.  I think one way or another you should figure out how to keep him as a tenant, if possible, or as a handyman.

He sounds like he'd be a perfect on-site manager for a mobile home park or apartment building or camp site, etc.  I'm telling you, tenants like him or even handymen like him are rare.  Congrats on finding him.

Bill Goodland · Answer

@James Main explain the situation to him and ask him. Say this is an investment, I want to compensate you for the work you did, but this place is now worth 1100-1200 a month and you’re currently paying $800. What do you think is fair? You might be surprised with the response you would get. I would probably flat out compensate him for the work. Write a new lease where he gets one month free for the work he already did, and then bring him up to market. Probably cheaper than keeping his rent low long term

Isaac S. · Answer

listen to @Nathan G.

do the math!

Then continue as you had originally intended, to do the honorable thing and give him the rent discount based on the value of the work....your real win and profit is the zero vacancy while that work happened, that could have been an extra month or two of rent sacrificed before putting it on the market.

FYI, you got realllllyyyyyy lucky! The odds are never in your favor that a tenant will do good work, do it right, do it fast and do it on a reasonable budget and not have an attitude that they should be on the title.

From the work described...my guestimate would be six to ten more months at discounted rent amount, and then bump it up halfway to market for him and if he doesn't want the deal, you get full market when he moves out....

Jonathan R McLaughlin · Answer

@Jim K. tiger farm?

Jonathan R McLaughlin · Answer

Its not clear to me what the arrangement was: 1) you gave cheap rent in return for work, and he is living up to his obligations. In that scenario, sure you raise it, though thats a big chunk that would essentially force him out. Or 2) you gave him that rent because its a wreck and then he really improved it to your benefit. If so...cmon man....guy does all that in 6 months and you want to boost by 300-400 because now it looks nice? Ouch. Thats bad faith.

Which is it?

My mind is set to year long leases, so I'd probably renew at the same rate for the next 6 months (especially if its #2), thank him for the good work and say that while there WILL be an increase next year you realize he is a great tenant. This statement costs you nothing, its true and gives you lots of flexibility. If things are similar next year, do a study on market and get the rent there and you can still price slightly on the low side of market so if he can afford it its a good deal for him.

Or if its # 1 hell, buy another one and do the same deal again :)

Joe M. · Answer

Yeah I mean...unless there was talk about you raising rent before he started all the work...c'mon man.

Lock him in a for another 6 months or a year as a thank you, but if you really need to raise rents in 25 to 50 every year after that.  It shouldnt be a thank you...it should be his compensation.  Keep that guy as long as you can

James Main · Answer

When I purchased the property it was a mess. Previous owner only occupied the property once a week so he could be closer to the airport when he flew out for work. Borderline hoarders home.

I had every intention of holding the property off market until I got all repairs done. It was part of the agreement with my tenant that he comes in as-is. He would clean and do some minor repairs in exchange for the discounted rent. He has run all plans for repair by me before starting, and all repairs have been quality checked with approval.

@Nathan G. thank you. I had not really thought about it like that. The amount that I would have spent on contractors would have defiantly surpassed the $1800 mark.

I had no intention of doing this guy dirty and upping the rent by $300/month. I couldn't have asked to a better tenant for my first rental experience. Just looking to hear from people with far more experience then me on what they would do.

I really appreciate all the info.

Todd Powell · Answer

@James Main IF your property needed that work and it has increased your value, I would keep the tenant at the $800. You do not just make money via cash flow, but also RE appreciation. I wished I had a handy tenant like yours. I would send them to other properties and work out a further deal ! Its a win-win and you don’t have to pay cash or taxes on the work.

Jim K. · Answer

@James Main

I'm almost afraid to ask. What's he doing on the rest of the three acres?

What should i do with my good tenant??

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