Renting A Fixer-upper

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Topics: Landlording

If you don't like carpentry work, and can't afford to hire someone, what do you do when you need to overhaul a house.  Here's one thing you might try:

Once upon a time I bought a real fixer-upper.  Oh the property was O.K.  – good school district, low crime neighborhood, rising incomes, lots of public facilities, near jobs and main thoroughfares, shopping and conveniences, public transportation.  But the house itself – UGH! It needed wall repairs, windows, central heat and air, landscaping and shrubbery.  A home-made garage had to be ripped out and the carport re-built.  The plumbing was all rotted out and new lines had to be run.  It was a mess.

Now we had to find a prospective tenant.  The best way to get a handyman for a tenant is to advertise for one.  My ad read:

SO YOU THINK YOU'RE HANDY?
I'll Bet you can't fix this 3/2 with “possibilities.”
Work out a year's rent!
Call Jack at 287-1075 .  .  .  if you're tough enough.

Keith showed up.  He was a specialist in restoring older houses in a part of our town that was being gentrified – you know, fixed up for the Yuppies.  He knew how to do everything.  He knew where to buy materials at low, low prices.  And he figured that a year's rent was worth the doing.  We set it all down per a contract which more or less scheduled each month's work in a natural sequence.  Call me a skeptic, but I don't believe in providing payment, even in the form of rent, in advance of work done to my satisfaction.  Here's how we worked it out:

First, Keith paid the first month's rent and deposit in full.  $725+ $725.  Each month I'd inspect the work and pay him in cash $725 which he promptly paid back to me for the next month's rent.  This way we kept on track and Keith stayed motivated to continue his progress on schedule.  At the end of the year, when he came to his last draw, he received credit for a month's rent in advance which was attributable to the first $725 he'd paid at the start.  He'd earned $87.00 in his spare time that year; and as a result he was now living in a great property that he'd helped to create.

There's another side to this story. 

In it's original condition the property wasn't rentable under any circumstances, yet we got Keith to pay $725 AS IF IT HAD BEEN ALREADY RENOVATED each month.  Then we paid this back to him for his work.  The mistake that we used to make was to REDUCE THE RENT and let the occupant fix the property up on his own.

By doing it the way we did it with Keith, we not only attracted a professional to do the work, but actually paid him with rent at the top price rather than at the bottom.  This made him feel better about his payment whereas it cost us exactly the same as if we'd charged the bottom rent and given credit for that.  Instead we got top performance.  And by putting him on a schedule pegged to this rate, we kept him busy.  There are many stories in the naked city – especially if you get landlords to start talking.

I love to hear people talk about “picking up some rentals to create some supplemental cash flow”.  There's a wide gulf separating ownership of property from management of property.  We've been discussing maintenance and tenant improvements.  We've passed over much of what it takes to (a) find the tenant whom you can motivate, (b) actually getting your motivation to work, (c) correcting attitude and financial problems, (d) working with those with genuine financial and personal problems – finding solutions without losing rental income or (e) getting rid of those with problems you can't solve.

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