Writing Business Plans/Question for Lee
QUESTION: My friend offered an interesting idea. He wants to be a partner with me to purchase a house or property that has 4 to 6 rooms. I am going to live in that house, I will manage that house myself and we are going to put four or five more tenants in the same house to pay rent for me and my partner. We are going to split the price of the house in half between me and the partner. For example if the house is 200K, each person will pay 100K. We will buy the furniture and do any required fixing before bringing any tenants.
My partner has his own private family house, and he has his own full time job. Since I will be living in the house that I will buy with the partner, I am confused about whether I should pay rent for the partner or live in the house rent free. I know I am responsible for my own utilities payments: Electric, water, gas, heat, internet, but how I am going to distinguish between my charges and the other tenants’ charges since there will be about 6 people living in the house.
The total rental income that we going to receive from all tenants can be divided in half between me and the partner; however, my partner wants me to pay half of the monthly rent. For example, if a regular tenant pays $1,200 each month, I will pay $600 per month for my partner.
My question is why I should pay rent if I am going to:
Pay half the price of the property, manage the property? I will be on call 24 hours; I will do showing for new tenants, will receive all furniture, listen to complaints, respond to requests, process guest check out, coordinate any required maintenance, address and resolve any unusual occurrences or requests, and maintain the cleanliness and neatness of the property.
My friend-partner wants to have a contract with the lawyer for both renting and his deal with me for owning the same property, but I feel I should get paid and live rent free. Since he will not pay me for my service, it will be fair for me not to pay any rent for him. I appreciate any feedback or suggestions you may have about this project.
ANSWER: If you cannot agree on the premise of your business should you be going into business together is the major question you should ask yourself.
Your friend is suggesting that your wages are effectively $600 a month. If you are not happy with this income then both of you look for another manager or do not go into business together.
Set up a company that runs the business of managing the house and through which all rents are paid, including a full rent for yourself. Let the company employ you as live in manager - you can get an idea of these salaries from job sites, job agencies etc.
Alternatively, pay full rent yourself and employ a manager. The other tenants need not know that you are the part owner of the property so will not bother you. Going to the manager instead. If you cannot find a manager, then a managing company is the next option.
Whichever way you go, you need to separate the costs and income of the house from your other incomes for tax purposes and this includes putting a cost on managing the property. See an accountant or the SBC if you need help.
You guys need to put this onto a business footing or your friendship will never survive except in court.
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QUESTION: Thank you for the answer and keep up the good work. I don't like rating experts because true experts are not rated with numbers.
With 30years consultancy, numerous management qualifications a Masters in marketing and studying for a business based PHD, I know I am an expert. You asked for my time free of charge and I gladly provided you with a lengthy free answer. This forum works with the questioner rating their responses. It allows others to see which expert is the best person to answer their question. If you did not wish to follow the process, you should not have taken up my time. Good luck in the future.