Buying commercial property for landlords
Question 1
I’m considering buying a commercial property. How can I look at the commercial info in the resource center along with my residential I have now?
Answer 1
The Mini Training Guides and eCourses linked from your member homepage include information related to both residential and commercial properties.
Many commercial investing and management issues are identical or somewhat similar to residential and you may learn new things of interest to you regarding both types of properties in all of the above resources. However, I’d suggest that you start with Lesson 6 of the “Buying & Selling Income Properties” eCourse because it contains information about the differences between residential and commercial properties and about the different types of commercial properties.
The Training Guides that might be most of most benefit for you would include “9 Fundamentals of Real Property Valuation,” “9 Issues When Writing a Purchase Offer,” and “9 Important Lease Agreement Issues.”
The eCourses that might be of most value other than the eCourse recommended in the second paragraph above will be “Valuing Income Properties” and “Managing Income Properties.”
You will find some information in one resource is similar to information in others, but some resources provide more discussion on a given issue than others.
* * * * * *
Question 2
My tenants moved out in December and I had to make repairs over and above wear and tear, and also repairs that are stipulated to be the tenants’ responsibility. I charged them a rate of $50/hour for my time actually performing the work on each task, since I do not typically hire contractors. Yesterday I received a letter from a lawyer they hired stating “there is no provision in the lease for reimbursement of your time at $50 an hour”. Does this need to be established in the rental agreement? I have searched but cannot find any answers. From the amounts demanded back by the tenants, it appears they are demanding back all the money for my time. Do I have any options?
Answer 2
I am unable to devote the time that would be required to research the statutes and court decisions of a particular state and possibly local ordinances. However, I will discuss a number of the issues related to your question that apply to most states.
As is often the case, the issues related to your question usually only matter if someone takes the matter to court. In court one cannot be certain of winning even when they feel certain that all the evidence is in their favor.
Regarding “repairs that are stipulated to be the tenant’s responsibility,” some states do not allow tenants to be held responsible for repairs and maintenance of certain items when the rental is part of a multi-family property (i.e., not a single-family home).
One of the benefits of utilizing outside vendors for repair and cleaning of vacant units is that it provides a more believable witness to the condition of a vacated unit and the work that was required to make it ready for the next tenant. There are a number of potential problems related to landlords charging tenants for their time when working on their own properties in addition to disagreements regarding before and after conditions of the unit. Most problems (besides the above mentioned veracity issue) related to a landlord or his relatives billing for the work can be avoided by (1) adequate disclosure in the lease agreement, (2) adequate record keeping, and (3) “fair” labor charges.
While likely not required by law in any state, the benefit of including the labor charges information within the lease document itself is quite obvious – the tenant cannot deny knowing what to expect. It is my long held firm belief that a long
lease agreement with non-ambiguous detailed clauses related to everything imaginable that might be an issue for the particularly type of property is far better than trying to keep it short so that it fits on one, two or three pages.
Tenants should be required to initial each page of the lease agreement at signing.
Although some landlords may worry that a prospective tenant will not want to read such a long document and might even refuse to sign the lease at the last moment, I never once had a tenant even mention this issue and if a tenant signs the lease, he is presumed to have read it and will almost certainly never be able to convince a judge that he has the defense of not knowing what the document said.
A landlord who plans to charge the tenant for labor – whether charging by the hour or by the task – should maintain detailed time logs for each category of labor. It is probably even beneficial to provide copies of the logs along with the required accounting for portions of the deposit not being returned.
By “fair” labor charges, I mean that the hourly rate or fixed task charge should be “reasonable” and comparable to amounts charged by outside vendors for the type of work being performed in the same market area. If a landlord ends up in court he may be able to justify charging $50/hour for serious plumbing work, at least if he can convince the judge that he has the expertise and experience to accomplish that work in comparable time as would the average outside vendor. I think most tenants would consider $50/hour totally unreasonable for general cleaning work, particularly if they only earn $15-20/hour before tax deductions, and I think most judges would also. It is likely that every judge would consider it unreasonable if the tenant or tenant’s attorney raised the issue. The landlord should be prepared to answer questions regarding competence to efficiently perform tasks and the fairness of charges when deducting from a deposit and, if defending the charges in court, provide the court with evidence related to both issues.
Finally, all potential problems become bigger problems when the landlord fails to provide an accounting of deductions from the security deposit and return of any remaining portion of the deposit within the period required by state law.