Delegating Repairs

[NickC 0]

Hello everyone. A question came to mind:

 

When dealing with repairs & maintenance on sandwhich deals, some gurus recommend to offer to the seller/lessor to cover all repairs/maint. under $200/month (for ex.) and for the seller/lessor to cover anything above $200/mth themselves. Then, when placing in a t/b, inform the t/b they are responsible for anything under $200, and anything over that amount is to be my responsibility. Therefore anything under $200, t/b takes care of. Anything over $200, seller/lessor takes care of.

 

I've also noticed that most guru's offer to take care of "all" repairs/maint. to the property. Then pass this on to the t/b, informing them of their responsibilities to repairs/maint.

 

What are the pro's./cons to each way of approaching this, in regards to the seller/lessor/; investor; and t/b.

 

Seems the first idea is win/win, but the seller is still responsible for any major future repairs. While second idea, all "headaches" are removed from the seller, but will the t/b be willing to do ALL r/m, considering they WERE properly "screened", and ARE motivated to buy?

 

Thank-you

Nick

[Guest Guest_JerseyJeff]

Nick,

 

I have also read other "gurus" stating similar advice. To make the T/B responsible for everything under $100, and we (passed onto the seller) will be responsible for anything over $100.

 

I would assume this way is preferable versus making the T/B responsible for everything for a few reasons:

 

1) If I were a potential T/B, knowing I might have to replace the roof next month would make me much more hesitant to accept a deal.

 

2) Say the T/B does accept this, and 6 months down the road they do have to replace the roof, chances are, even if they wanted to pay for the roof, they might not have the $1,000's to do so. Now what? Do you evict good tenants (assuming they made all payments on time) because they don't have $1,000's packed away?

 

If you do evict them, and you have set up a sandwich lease, YOU are now responsible for the new roof because you made a deal with the homeowner stating this.

 

I feel we should be lessening our involvement/responsibilities in the deal, and my examples show how an "all maintenance" contract could have very negative affects on us, the investor.

 

This is just the opinion of a newbie, so proceed accordingly.

 

JerseyJeff

[-Tony- 0]

JerseyJeff,

 

very well put...never thought of it that way just thought the new t/b wouldn't go for it...

 

Tony

[MichaelC 160]

I always have the tenant/buyer responsible for all repairs and maintenance. This approach is an effective selling point to have the homeowner go for the deal. Many homeowners are frightened by the prospect of tenants and toilets. Reassuring them that they will not be receiving phone calls on a weekly basis to repair appliances and fix leaks can be very reassuring.

Now, this doesn't mean your tenant/buyer is going to be making structural repairs such as a new roof. Keep in mind that they are still only tenants until and if they exercise their option to purchase.

As such, your locale will have specific laws delegating responsibility as to what is expected of a homeowner/landlord and any tenant. This usually means that major structural repairs such as roofs, foundation work, etc, will be the responsibility of the homeowner regardless of what you might write into your contract.

However, the day to day headaches will fall to the tenants. Appliance repairs, plumbing repairs, ripped screens and broken windows, etc.

[JerseyJeff 0]

I agree with MichaelC that having the T/b assume all maintenance is a great selling point to the homeowner. However, the comment "your locale will have specific laws delegating responsibility as to what is expected of a homeowner/landlord and any tenant. This usually means that major structural repairs such as roofs, foundation work, etc. will be the responsibility of the homeowner regardless of what you might write into your contract," gives me an uneasy feeling inside. This is somewhat of a grey area, and grey areas are what lawyers make a living on.

 

If the contract with the homeowner states we, passed onto the T/B, will be responsible for all maintenance and the roof does need replacing, we now have to go to the homeowner and contradict our own contracts. Also, where do you draw the line? As I stated before, it is now a grey area. It would seem more straightforward to put a dollar amount that if exceeded, is now the responsibility of the homeower to fix. But then, say the front sidewalk has a bump that tree roots have pushed up and needs replacing, but it falls under the threshhold established for what the homeowner is responsible for. Does the tenant have the right to do such "structural" work (as MichaelC states), or does the homeowner need to do this type of work.

 

This is confusing...

 

I need to think about this one some more.

 

JerseyJeff

[MichaelC 160]

Good point, Jeff, and not an unimportant matter. Let me clarify further.

In a sandwich lease, you already are aware that we have two distinct agreements working. One between us and the homeowner, and another between us and the tenant/buyer.

My agreement with the homeowner stipulates a specific dollar amount that I am responsible for. It's a negotiable amount which I am quite flexible for. I may try for, say, $200 to start. Depending upon the homeowner's reaction I may need to raise that to $300, or $400, or whatever it takes to make the homeowner happy. On occasion, the homeowner may remind me that I initially promised I would accept responsibility for all maintenance and repairs. I politely reply that the $200, (or $300, or $400, etc), will cover 98% of all the day to day issues that may typically arise. I further remind them that with a typical lease and tenants the homeowner is responsible for everything. This usually satisifies them and the deal proceeds without further ado.

Now, my agreement with the tenant/buyer states that the t/b is responsible for all maintenance and repairs, and further states that they have inspected the property and accept it in "as is" condition.

So, going into these type deals, I know the limits of my liabilities and I'm comfortable with it. The burden will be on the tenant/buyer because of the agreement they have accepted and signed.

[JerseyJeff 0]

OK...That is reasonable...I knew there were two contracts involved, but I didn't realize that the one with the homeowner would have a stated dollar amount threshhold. I got it now.

 

One question though (I aint got it). Say you agree with the homeowner for a repair threshhold of $200, meaning if any repair goes over, he is responsible. Why would you turn around and tell the T/b that they are responsible for ALL repairs? Wouldn't it be a better selling point to the T/b if you tell them the truth that anything over $200 is our responsibility, not theirs? I mean, the homeowner has already agreed to this, so why not use it as a positive for the T/b?

 

Responses appreciated.

 

JerseyJeff

[MichaelC 160]

There are a number of reasons why the sandwich is set up this way, Jeff.

First, doing so puts us in the position of being neither responsible nor liable for repairs and maintenance. One of our big objectives is to put the property on "auto pilot" and move on to the next one. This set up goes a long way toward that aim.

Second, do a deal or two and you will find that you generally won't need any additional selling points where the tenant/buyer is concerned. Giving them terms such as low down, no qualifying, rent credits, etc is all they need to hear. You will find you have many more tenant/buyers than you do properties to fill their need. I explain to them that since they are going to be homeowners in the near future, along with that is the responsiblity of home maintenance and repairs on occasion.

This approach has always served me well. I'm a big believer in the theory that if it ain't broke, don't fix it .

[JerseyJeff 0]

MichaelC, I agree with your ideas on a Sandwich lease.

 

My only questions is, if your contract with the homeowner states he is responsible for everything over $200, and your contract with the T/b states he is responsible for everything, what do you do when the water heater breaks, and will require $400 to be fixed/replaced?

 

Is it the T/b or homeowner who is responsible?

 

JerseyJeff

[MichaelC 160]

JJ, if the water heater breaks while the tenant/buyer is in the midst of the lease purchase agreement, without question, they are the responsible party for the full amount necessary to make that repair/replacement. The homeowner is very happy to have a new water heater, and you don't even need to know about it.

[NickC 0]

Interesting replies.

 

Michael, you say that you would tell the homeowner that you will cover anything below $200 (for ex.), to cover 98% of daily maintenance on property, and also tell t/b that they are reponsible for ALL maintenance/repairs on property. Sounds like a backup plan of some sort.

 

For instance, if something needed replacing over the $200 amount, you would proceed to inform the t/b that the repair is their responsibility. Now, what happens if the t/b refuses/complains about paying for the repairs? Would you proceed to the seller, and try to get them to repair the problem (considering it's over the stated $200)? Or would you agree to split the cost with the t/b, and then go to seller, and get them to cover the other half?

 

Just curious.

Thanks.

Nick

[MichaelC 160]

Nick, it is a backup plan of sorts. Doing it this way offers you an additional layer of protection against repair and maintenance responsibilities.

If something needs repairing or replacing, whether it is more than $200 or not, it is the responsibility of the tenant/buyer, not mine. If I receive a phone call from a tenant/buyer that the water is cold because the water heater is taking a dirt nap, I politely remind them it is their responsibility.

The tenant/buyer may complain and may refuse to make the required repair. But, from a legal standpoint, I am not concerned. I know what the agreement they signed says, and I know what their responsibilities are.

Having said that, there are times when discretion is the smart move. Is it worth the aggravation and hassles of an angry tenant/buyer? Or, is it wiser to involve all parties and try and resolve this to keep everyone happy? It's a judgement call on your part, Nick. In the past I have contacted the homeowner in just this situation to resolve the dilemma. I might pay the first $200, and the homeowner and the tenant/buyer split the balance, for example.

I believe if you work together, all issues can be resolved quickly and without the need for attorneys and judges. At least, this has been my experience.

[NickC 0]

Very wise Michael!

 

I don't know why I haven't thought of that idea in the first place! The "back-up plan" I mean. I'm supprised most guru's out there never mention an idea like that.

 

The thing that did confuse me a little, was when you stated that most local lease laws state that "structural" repairs are the responsibility of the homeowner. Considering your contract with the t/b states they are responsible for ALL repairs/maintenance, how is this handled? Would you still let the t/b know it is their responsiblity; or go to seller; or try to work out deal between the two?

 

I understand for any non structural repairs, you would confirm to the t/b it is their responsibilty. What about "stuctural" repairs? Roof, foundation, walls, etc...

 

I apologize if this has been answered already, I guess I am still unclear of this situation.

 

Much appreciated!

Nick

[MichaelC 160]

What I was trying to say is that it is possible in some locations that there may be a law on the books that states a homeowner must bear the responsibility to repair, say, a leaking roof. If the agreement between you and the homeowner states otherwise, you may be in violation of local ordinance. If so, not a big deal, but local law always prevails over anything that may be written in a contract. Thus, the tenant/buyer could make an issue out of this.

This is a very unlikely scenario, by the way, and probably one I should not have brought up to confuse this whole issue.

[NickC 0]

Talk about fast responses!

 

I think I understand now (I hope anyways). Putting the local laws aside, you would inform the t/b that all repairs are their responsibility then. If they refuse when a major repair comes up, then use your own judgement in dealing with the homeowner and/or t/b to help cover repairs (back-up plan).

 

I think I got it now.

 

Thanks for the clarification!

Nick