As the economy worsens and homeowners who want, and need, to sell can’t, many are renting out their homes. In some cases, they are moving far away because of a new job, proximity to families, or less expensive living. Now they are stuck with a house that won’t sell and they can’t pay for. The solution? Rent it out?
Maybe. Renting it out, especially from 1,000 miles away, comes with a huge caveat: how to manage it. Sure, find someone to watch over it, collect the rent, and fix stuff. If only it were that simple. The obvious choice is hiring a property management company. I have dealt with that before, how to hire find a good, competent, conscientious company, and on our website, rentalprop.com, we have a checklist for choosing a company. So I am not going to talk about management companies here, but rather I will talk about hiring a “friend” or relative to take care of the property.
If you hire a friend, he or she won’t be a friend very long. Here’s why. He or she will stop liking you because managing real estate well is hard work. Since it is hard work, your soon-to-be ex-friend will tire of it fast. You know, the calls on Friday night before a holiday weekend, the tenants not paying the rent on time or at all, the aggravation of tenant complaints. That’s if your soon-to-be ex-friend actually is conscientious.
If your soon-to-be ex-friend is not as conscientious as you would prefer, you will stop liking him or her. ”Why didn’t you tell me the tenant moved out?” “Why didn’t you fix that leak before the water ran all over the garage floor?” “Why didn’t you make the tenant pay the rent?”
Relatives you are stuck with. But a less-than-satisfactory experience with a relative can make family holiday get-togethers strained at best.
Now there’s the legal issue. In the state where your property sits, does someone who manages property for another person have to be licensed? If so, does your friend or relative have a property management or real estate license? If not, what happens when you have to evict a non-paying or just all-around bad tenant? Imagine the courtroom with the judge sitting behind his judge bench and telling your relative or soon-to-be ex-friend, “please show me your property management license.”
“Well, your honor, I don’t have one,” comes the reply. “I was just managing it as a favor for my friend who live 1,000 miles away.”
“In that case,” replies the judge to your soon-to-be ex-friend, “I am going to fine you $1,000 for illegally managing property and let the tenant stay two months rent free because you have no right to collect rent or bring a case to this court.”
Now here’s the looming monster hiding in the back of the master-bedroom closet, the Fair Housing Act. Is your soon-to-be ex-friend familiar with the Fair Housing Act? How about your relative? Now what happens when your relative doesn’t “like the sound of that applicant” and rejects him or her outright and the applicant files a Fair Housing complaint? With a Fair Housing complaint, you are guilty until proven innocent. The Fair Housing enforcers assume that all landlords are bigots, some better at hiding it than others, and will violate the rights of tenants and prospective tenants unless all landlords are continually frightened into submission to the Fair Housing laws. Trouble is, most landlords, and especially your relative and soon-to-be ex-friend don’t have any idea of what the Fair Housing laws are, or possibly that there are any laws at all.
The fine for managing property without a license is pocket change compared to the cost of fighting a Fair Housing complaint. Figure it will bankrupt your relative or soon-to-be ex-friend just to fight it. And that’s if he or she wins. Lose and the fines can be in the hundreds of thousands of dollars, and that’s just for him or her. You are also on the hook because your relative or soon-to-be ex-friend is your agent, and you are responsible for the acts of your agent. You will lose the house, your bank account and anything else you might have left.
Sure, you can have a friend or relative manage that property 1,000 miles from your new home, but are you, to save the price of hiring a property manager, willing to risk everything you own? Think hard.