Handing Over the Keys
IN 1954, THE SPANIELS sang, "Goodnight, sweetheart, well, it’s time to go."
It may not be time for me to go, but it is time to hand over the keys to our rental properties to my wife, Alberta. Since 1983, I’ve had primary oversight over our family’s residential real estate. At age 79, I’m dogged by heart disease and cancer, and weary of scrimmaging with delinquent renters and dishonorable service people. After assisting me and grooming for the role, Alberta is ready to take the reins.
I’ve previously lamented my imminent passage from retirement’s challenging accumulation phase to the monotonous withdrawal phase. Little such remorse accompanies letting go of the head-knocking that comes with private property ownership. I’ll welcome the release from anxieties over vacant units and the dreaded black mold.
Such family transfers of responsibility can run the gamut. Maybe your spouse or partner just needs to get into the habit of scrolling down the credit card statement, ensuring the charges are legitimate. On the other hand, maybe he or she needs to get up to speed on the nooks and crannies of your complex family trust.
Passing the baton may also call up old relationship battles over who’s in control. Be aware of any festering conflicts brought to the surface by the shift in decision-making authority. Here are some changes I anticipate as Alberta takes over.
Our marriage will suffer less tension and anxiety. As Alberta became more comfortable making business decisions, she naturally expected our input to be 50-50. Taking a page from my father’s playbook, I saw it as 51-49—in my favor. Now, we agree the balance of power will be something like 25-75, with her taking the lead.
An added bonus: The investment anxiety that has stalked our relationship will be reduced. Alberta won’t be freaked out, as I’m prone to be, about an impending empty unit or a leaky roof. She’ll just calmly get together with our property manager and handle it. And I’ll need to be patient with the often-stressful re-rental process.
Oversight will be more hands-on than it has been. Years back, we secured first mortgages at nominal interest rates from motivated sellers. In a very real sense, we were “buying the mortgage” as much as the property. We prioritized keeping good tenants by raising rates judiciously and limiting maintenance expenses to what’s necessary, rather than what’s gorgeous.
Here comes a true confession that may cost me some credibility. How hands-off have I been? Well, it’s actually been more arms-length than hands-off. I’ve met monthly with the property manager to ensure all the ducks were in a row. But I’ve never personally visited most of the properties since I bought them 40 years ago. I never interviewed a single prospective renter.
We bought well and managed well, so inspections and meetings with potential tenants simply haven’t been necessary. This arrangement has allowed me to minimize my involvement in an activity I don’t enjoy, yet served as a profitable diversification from the vagaries of the stock market. Applying this model over 40 years, we profited handsomely from income and capital appreciation.
Keeping renter turnover low is essential, because the cost of alienating or losing good tenants is prohibitive. You have the cost of primping the property for the new tenant, absorbing the property manager’s commission for renting the unit, and the silent cost of lost rent for the duration of the vacancy. And despite your best efforts to screen out problem tenants, you may get a real deadbeat to replace the tried-and true renter you just drove out, perhaps with an overly large rent increase. Of course, you can raise the rent on the new fellow, but it may take several years to recoup the outlays.
Alberta and I are reasonably well-informed about the intricacies of buying and financing, but egregiously unsophisticated about property maintenance and repair. Fortunately, we hired a long-term property manager knowledgeable where we’re not, and the manager was similarly committed to rental longevity and unremitting cost control.
Alberta’s modus operandi will play out very differently. For one thing, our battled-tested property manager of 35 years retired, and Alberta will now be working with a new person whose philosophy of management may conflict with my own. He’s competent and diligent, but uses established retail vendors before considering talented and versatile handymen or retired service people. No less important, he doesn’t always get second bids on large projects. To me, this gives a blank check to service providers who are relied on exclusively and know they’ll get the job without price competition. I honestly don’t know how Alberta will navigate these waters.
The new regime will value quality over cost. Where before it was merely mowing and blowing, our rentals will now get some landscaping. The new carpet will be premium rather than a step above commercial grade. This approach will reduce our income, but should also attract higher-quality renters and enhance property value.
My wife’s supervision will be more personal. Right now, I read over the monthly report, checking in only for elaboration of a missing rent or an unexpected humongous expense. Alberta will meet one-on-one with the property manager, periodically visit the premises and perhaps interview some of the rental prospects.
My major contribution now will be in the quantitative realm, like helping to translate the expense categories on the reports into IRS-speak. I’ll also be consulted on complex projects and weigh in on sensitive questions, such as the rare eviction and liability exposure.
While ready and relieved to let go, I’m under no illusion that stepping away from the role of family real-estate guardian will be without a sense of loss. I’m wistful, but also hopeful that the new division of responsibilities will help Alberta and me to work together effectively and harmoniously.
Steve Abramowitz is a psychologist in Sacramento, California. Earlier in his career, Steve was a university professor, including serving as research director for the psychiatry department at the University of California, Davis. He also ran his own investment advisory firm. Check out Steve's earlier articles.
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