Will be managing a triplex... Thoughts? Tips? Help?

Question

I just bought a triplex which I will be owner occupying. I am helping a friend of mine purchase the one next door for an investment. He lives out of state and wants me to manage his property.

I want to be completely fair, but with market. This all being said, I have no idea how to structure this...

Fee: 10% of rents collected (market)
Release: 1/3 of 1 month's rent (market seems to be 1/2, I live next-door not really a hassle)

I am going to be taking care of his yard, but it's super small and connected to mine so I will maybe charge him $10-20 a month to offset my supplies/gasoline. How does the rest of this typically work? When a tenant leaves and a unit turns, I will clean the unit, but is that part of my 10% and/or my 1/3 of 1 month's rent or is that something property managers usually charge additionally? Is there anything else I am not thinking of? If I clean his roof or something like that is it just fair to charge an hourly rate of something like $15 or should that be coming out of the 10% rents collected?

It seems several property mangers have utility bills in their names and just take money from rental income. Also would it make sense for us to set up a bank account and just have my name on it?

Any insight into this and whatever I may be forgetting would be of great appreciation!

Thank You!

Zach Schwarzmiller · Answer

Tom, I am not managing their property to make money. Yes, I want to be compensated fairly, but my goal is not to start managing properties at all. The buyer is a friend of mine who is young and successful, which is beneficial in two ways. 1. I want to represent them as buyer/seller on future acquisitions and 2. I want to invest with them as equity partners in the future. They are successful in other endeavors, not real estate so I wanted to help them through this first purchase and I do not know any small management companies who would care about this as much as I will. The management arm of my company only manages 30+ units, so that is out of the question. If there were a way to structure management deals to not be paid but become equity partner in the building that would be even better, I've personally not seen it but I am sure it happens. I just purchase my triplex on 5/31 so I was not able to be partners in this one with them as I don't have the cash for it at the moment. This was just a good investment opportunity to lock in a low rate for 30 years on a 'good deal'. Future deals I will look for 5+ so we can get commercial loans and the underwriting won't be as much of a pain in the ass then I can discuss partnering with them in deals. I love the DRZ400S. I've actually debated selling to buy one of those. I find myself riding express lanes down interstate 5 to take advantage of carpool which is NOT why I bought my bike.

Tom Goans · Answer

Zach, if your primary business is commercial real estate, consider this. What is your time worth? The time it takes to manage the residential rentals is time away from making money in your primary business. All for 10 percent of the gross rent.

Tom Goans · Answer

The bike in the photo is a Yamaha 250. The following year, I traded up to a Susuki DRZ400S.

Zach Schwarzmiller · Answer

Tom - I can't tell what type of bike that is from photo but I <3 my DR650

Zach Schwarzmiller · Answer

Tom, Lisa & Karen: Great point I should have made earlier. I own the triplex next-door and will be managing it as well. That is why I am also managing his. I am very familiar with all local/state/federal laws in regards to landlord tenant rights, RCW 59.18. I am also a licensed commercial real estate broker. I should have been more specific. I am not worried about any of the legalities of this, simply items I may be overlooking on such a small management deal. Thank You!

Tom Goans · Answer

Karen has brought up another critical consideration. In Colorado, if you negotiate any of the terms of the lease, you must be a licensed real estate agent. 10 percent of gross lease payment may not come close to covering your responsibilities. If you don't thik as Lisa stated they will come a knocking at 3 in the morning after partying all night long, you will soon be telling such stories on this blog. Tenants, even the great ones that pass all the pre-leasing requirements like a West Point graduate, can turn out to be nightmares that movies could be made of. Can you evict a family with children during December for non-payment of rent? If you cannot, do not consider managing this property.

Karen Rittenhouse · Answer

Zach: Are you a licensed real estate agent? The real estate commission is very powerful and, in most states, to manage any property that you do not own you MUST have a real estate broker license. Both federal and state laws govern anyone managing any properties they do not own. You must check with a local real estate attorney, real estate commission, and join your local landlords association to get the facts in your area. Let us know what you find out!

LISA YOURKO · Answer

I agree with Tom. There are many laws regarding tenant rights, timelines, and such that have to be adhered to when managing property. Make sure you have a contract with your friend so everything is clear. Lastly, if you live there you might just have a property management company take care of it. That is unless you want knocks on your door in the wee hours of the morning about clogged toilets, leaks, or if they can pay their rent late. Best to be just another joe mowing the yard for extra cash. Let the ego (I own this place) fall away and sleep soundly. Congratulations on the property by the way. Best of luck to you no matter what you decide.

Tom Goans · Answer

Education, education, education. There are many, many legal issues you MUST learn as a property manager. Make a mistake, the state can impose big fines. The tenant can not only sue you for damages, some damages include tripple damages. Advertise incorrectly and the Federal government may come a calling. Mishandle tenant information, another issue. Discriminate, a big problem. At the very least, join every property management association in your area. Plus, search the Internet for information. Education is a must.

Zach Schwarzmiller · Answer

Awesome. Thank You, Andy!