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I have a nice tenant renting my house who has offered to paint the outside of the house for me to reduce the rent. It sounds like a good idea in principle, but since I'm so far away, I can't really keep an eye on the progress of his work. Also, I worry about confusing the relationship between us both. Do any of you have suggestions,comments or experiences in this ?
Before you even consider this, make sure the tenant knows how to paint a house. Everyone thinks they can do these things, but there is a lot more to it than most people realize.
After that, if you want to let him do it, treat it very formally. Let him submit a proposal specifying exactly what he will do (including surface prep) and what he will charge. Then agree to the job and have him do it. Pay part up front for materials, and the balance upon completion.
Don't deduct from the rent. He pays you full rent and you pay him for work performed. Keep it separate, keep it clean. The reason you want to keep things separate is because they ARE separate; the rent he owes is completely separate from any money you might owe him for any work he might do.
I have seen it happen many times. They wind up in court and the landlord says "Tenant owes me this money in back rent...". Tenant responds; "I do not. I did this work and as a result not only is the rent paid but the landlord owes ME this much..."
The court can't tell. When they encounter something like this, they'll set it for a trial. And there is no guarantee at all how it will come out. So, just don't do that. If you NEVER allow a tenant to deduct from the rent but instead treat him as an independent contractor with the appropriate paper trail, then everything is clean. He owes the rent or he doesn't. You owe him for work performed or you don't. The two things don't get mixed together.
This also keeps your recordkeeping clean; on the income side you show his rent coming in and, presuming you are using software that supports it, you can see his money flow all the way to the bank. On the expense side, you show the invoice(s) and the payments made, along with the check numbers for checks you have issued to him. Makes it a lot better at tax time, and especially if you get audited.
About the Author: Jim Locker is a technical guy who has done a lot of real estate investing and landlording. The experiences he writes about and advice he gives are either first hand, or in answer to specific questions posed by others. He is commonly known as jiml8 around the internet.
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