New landlord by inheritance, lost and frustrated
August 13, 2013 8:28 PM   Subscribe

How shall I decide what to do with an inherited property I have neither inclination nor time to administer myself, but don't need to sell and recognize it could be good if it stayed good to maintain it as a rental?

I inherited a nice condo in Phoenix, free and clear, that has increased in value by 15% since it came into my hands earlier this year. It came with a short-term renter whom I'm inclined to allow to stay as she wishes, since she seems to be a neat-freak and takes care of things. The property has traditionally been rented to medical people who are at the nearby hospital for stints ranging from a few months to a year but she has been there for eighteen months. The place is well and completely furnished and goes for 15% above the long-term rental market because of the flexible rental terms and the nice furnishings. Renters show up with a suitcase and can get right to stocking the fridge, having TV, internet service or stereo, and going to sleep without having to unpack, kind of like a hotel except the tenant keeps it for a lot longer.

The work involved in administering a property remotely (from SF Bay area) seems too daunting to even consider. A close family member who knows how to do this stuff is doing it but it's a nit for him. He has a team doing stuff like screening tenants on an on-demand basis, going in and fixing things, like that. He wants to get out of that but is very kindly helping me while I vacillate about what to do.

If I sold the property I would have money I don't need and would allow to languish in the bank or something equally silly. If I keep it I will have a return of 9% of the property's value per year, but would have to have a soup-to-nuts person who could do the screening, accounting, arranging for prompt repairs and other things I can't imagine. Even I can tell that keeping the place is good when it's good, but stuff like this goes bad and there are all kinds of horror stories.

I read the five relevant AskMeFis that turn up with the search "inherited rental" and they have too much conflicting advice to help. It's not like an old house or a weekend get-away, it's a place for people who want to be comfortable but are too busy to get it that way themselves.

Please explain like I'm five: how do I figure this out?
posted by jet_silver to Work & Money (13 answers total) 1 user marked this as a favorite
There are real estate management companies who would take care of this for you (for a price).
posted by brownrd at 8:41 PM on August 13, 2013 [2 favorites]

Best answer: You need a property manager. Some real estate companies have property management units, and then there are independents. You have to do the usual due diligence to make sure you find reliable people. We have a rental house several states away, and our property manager handles everything... listing the property, screening potential renters (we had the final say), dealing with repairs (repairs under a certain amount don't need our authorization, any others she gives us the estimate first. We pay the repairmen directly).

We pay a flat 10% of rent for the service. The tenant pays the management company, and then they send us a check minus their cut.
posted by kimdog at 8:49 PM on August 13, 2013 [6 favorites]

Talk to a real estate management firm! It sounds like a great investment. A real estate management firm would handle tenant screening, repairs, etc. They do take a percentage, but it's generally pretty reasonable for the work that they do.

I would recommend setting up a separate LLC for the rental eventually. A real estate attorney could handle this for you. This is something that you can do down the road.

There's also a podcast called The Real Estate Guys. It's the best podcast I've found for real estate investing.

Don't be discouraged by the horror stories -- having a property management company in place will generally ensure that your tenants are well-screened.
posted by Ostara at 8:51 PM on August 13, 2013 [1 favorite]

Best answer: Yes, pay the repairmen directly. Get video of all repairs prior to authorization.

That said, I would sell and reinvest the money. I've been in real estate. I think there are too many ways for you to get taken advantage of as a newbie and this is not worth it for 9% per year. I mean, management will cost you, so the 9% evaporates fast if you can't manage the place yourself. And you can't manage it yourself, so that's that.

You'll be better off selling unless you are simply burning for a new hobby.
posted by jbenben at 9:06 PM on August 13, 2013 [2 favorites]

I'm with jbenben ... from experience as a landlord ... it's a good time to get out of the rental property business. Get out now, sell and reinvest.
posted by anadem at 9:11 PM on August 13, 2013 [1 favorite]

> If I sold the property I would have money I don't need and would allow to languish in the bank or something equally silly

Unless you're really stinking rich, you could come up with a use for it such as saving for retirement. If you are really stinking rich, donate the money to Doctors Without Borders or some such. Anyway, it sounds like it's stressful and not your thing -- I advocate for selling it. It's a job, and not one you want. Even with a property manager it'll still be a thing you have to think about.
posted by The corpse in the library at 9:29 PM on August 13, 2013 [2 favorites]

Best answer: please update as to why a property management company would not be an option, if it is, because it's the obvious solution.

i can't predict the future, but i'd say this is probably a good time to hold a property like that, rather than sell. i feel like there's little chance that something like that would lose value, and if the economy recovers in the next few years it could increase in value.
posted by cupcake1337 at 9:36 PM on August 13, 2013

Response by poster: cupcake1337, that might be OK, but do they aggregate all these tasks? I have to understand from some neutral source the risks. It is not a problem for me to do some research about this and my BIL may know where to find it.
posted by jet_silver at 4:43 AM on August 14, 2013

A good property management company is the one-stop-shop for managing your property. You turn it over to them to administer and they take care of it. They have tradesmen to do repairs, they screen applicants, they advertise for new applicants.

I will advise you to sell the property though, and here's why.

Phoenix was hit hard by the property bubble, and although it's back on the way up, it's still a bubble.

During the foreclosures, and such, condos couldn't do a lot of the building repairs and maintenance because either the owners were broke and wouldn't/couldn't pay, or the units were vacant and an assessment would have imposed hardship on the remaining owners.

Now that the units are selling again, condo boards are triaging the stuff they put on the back burner during the dark times.

Condo assessments aren't funny. Especially if they need to reinforce all the balconies, paint the interior common areas or put a new roof on the joint. If you knew you'd have to shell out $4,000 this year, would you want to keep the damn thing? Of course not!

Just sell the place. Unless you plan to move to Phoenix and live in it sometime in the next 12 months, get while the getting is good!
posted by Ruthless Bunny at 6:43 AM on August 14, 2013 [5 favorites]

I know a lot of amateur landlords (people in the military will often buy a house at a duty station they plan to return to, then rent it out via property management companies while they're stationed somewhere else). Counting repairs, management fees and empty months, not a single one of them has ever made any money renting the properties -- at best, they break even and keep the property from deteriorating while they're gone.

If you have a good tenant, let her stay as long as she wants, and then sell it the instant she moves out. Put the money in a nice, safe, long-term investment portfolio that you can just let sit there for forty years, then buy a house with it when you retire.
posted by Etrigan at 7:23 AM on August 14, 2013 [1 favorite]

Best answer: Condo assessments aren't funny... If you knew you'd have to shell out $4,000 this year...

No kidding. I've been casually looking to buy a place. We saw a building that had multiple units available, dirt cheap. Why? Last year's special assessment was $9k, and this year's was $32k.

Condos can be scary.
posted by hwyengr at 8:39 AM on August 14, 2013 [2 favorites]

On second thought.. if you do not need the money, why not check with a non-profit and donate it? Not sure what faith tradition you come from (if any) but churches are always looking for pastor/missionary housing. Shelters for women are always looking for temporary housing. That would make for one HELL of a tax deduction. Just sayin'.
posted by brownrd at 3:50 PM on August 14, 2013 [1 favorite]

Response by poster: There are a lot of ramifications; thank you, folks, for making some of them explicit. I didn't know most of this stuff. The solution still isn't plain to me but I have some more things to add to the list now.
posted by jet_silver at 9:49 PM on August 14, 2013

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