As a Landlord of a 3 unit property, should I reduce the rent of tenant no. 1 from $800 down to $400 for monthly property management services?
The amount of rent on the lease should remain at $800. Each duty should be assigned a dollar value up to a total of $400 and a performance based payment should be given to tenant no. 1 by the 20th of each month.
Here are my reasons:
1. Future Sale Benefit
In most instances, it is beneficial to receive your full rent for all 3 units therefore showing a high revenue history which supports a higher resale price, than would appear if you reduced the rent.
2. Better for Bank Financing
Banks generally accept 50% of the gross revenue when financing/refinancing so the higher the revenue in the accounting records the better.
3. Tax write-off
Property management is a tax write-off expense therefore including the amount of $400 reduces the revenue and will have no adverse effect.
4. Leverage to Ensure Tasks are Completed
To ensure that tasks are completed in a timely and correct manner, the payment can be transferred to another tenant who is willing to do the tasks because it is not tied to a specific tenant. If the rental agreement stated $400 rent based upon a verbal agreement of management duties, and those duties stopped, it would be difficult to increase the rent up to $800. The tasks can now be easily transferred to another tenant or property management company therefore avoiding a potential legal mess.
5. Division of Tasks
With each task divided and assigned a dollar amount, it is easier to separate the tasks not being completed, and pass their predefined dollar value to another party. So taking out the garbage could be $50, lawn/snow $50, handling tenant issues $100, minor repairs $100, etc.