The question may inevitably arise at a family dinner or over coffee with your closest friend. They’ve noticed that your rental property has been vacant for a little while, and their lease is almost up. Your property is in the perfect spot, has the gleaming granite countertops they’ve been wanting, and it falls perfectly into their budget. Won’t you consider allowing them to sign a lease instead of some unknown tenant?
At first glance, it seems like a reasonable request. You certainly do know your friend or family member better than someone you find through third-party advertising or a rental property management company. Entering into a lease with someone you hardly know can fill landlords with trepidation and rightfully so. Horror stories abound of tenants who destroy homes, never pay rent on time, and end up creating a huge headache for property owners.
Would renting to family and friends offer you more security in the long run?
It’s tempting to simply give in to the wheedling request of your friends who want to rent your property, even if they’re willing to pay the full market value. However, experience tends to point to the fact that not all friends and family members make the best tenants. Before you dive into a contract that could cost you a precious relationship, consider how well you truly know and trust this person.
Are your friends or relatives trustworthy?
Ask yourself a few questions to determine whether or not they are truly trustworthy to live at your property. Here are a few examples to get you thinking about your relationship with them and their personal history:
- Do they keep up with their current home or apartment in terms of maintenance and cleanliness?
- Have they ever complained about their current landlord refusing to repair very minor issues or damages that they personally caused?
- Is there a time in the recent past where they were late paying rent on a regular basis?
- Have they ever been evicted from a property?
- Do they go through frequent periods of unemployment?
- Do you know what their income is and whether or not it is reliable on a monthly basis?
At the end of the day, you need to treat your friend or relative the same as you would any other prospective tenant. Do you feel like they would be a responsible person to trust with such a valuable investment?
In most cases, a property management company will handle a screening process to judge applicants on how creditworthy and trustworthy they appear to be on paper. Companies will often conduct a credit check, call references, and perform a background check at a bare minimum. Other suggestions and criteria are also considered, including their employment and their income level each month. All of these key items have a serious effect on whether or not they will be reliable and responsible tenants.
Since you already know this person quite well, consider your answers to the above questions. You should be able to answer all of them and then some before you make a decision to rent to family members or friends.
Are they looking for a favor?
There’s a small chance that your friend or relative really just wants to do you a favor by leasing your property. They know you’re desperate for the house to generate some income instead of sitting vacant. They happen to be between leases at the moment, and it seems like perfect timing. If this is the case for your situation, then leasing to your friend may not be such a bad idea.
On the other hand, it’s also fairly likely that your friend or relative is looking for you to give them an extra favor. Maybe they’re hoping that you’ll discount the rent, waive your typical security deposit, or allow them to bring along their dog even though you hate pets. Take extreme caution if you can tell that the conversation is quickly heading in the direction of favors.
Making one minor concession to your standard lease agreement and terms can open the door to bigger requests in months to come. Particularly if you’re quick to agree, you set the precedent that they can alter rules based on their previous relationship with you.
This begins the descent into murky waters when it comes to bigger issues like property maintenance and collecting rent.
Suppose that you were willing to waive the typical security deposit because you believed your cousin was a responsible tenant who would care for the home as if it was his own. Three months into your agreement, he’s suddenly short on money this month and can’t make the full rent amount. Would you be willing to accept anything short of the agreed upon price?
Because you already demonstrated that you’re willing to make changes based on your friendship, you oftentimes set the stage for failure moving forward. Renting to a friend or family member who is solely looking for convenient favors means that you may be asked to compromise in far too many scenarios. You won’t want to allow them to take advantage of you, but you also don’t want to make family holidays awkward or ruin friendships.
Do they know how much you make on your rental properties?
Perhaps you’ve had a detailed conversation with your friend in the past about how much income your property generates on a monthly basis. If this is the case, then they already know just how much you’re paying for the property and how much wiggle room there is in the rent. Even if it doesn’t start out as your friend looking for a favor, they know deep down that you’re making money off of their monthly expenses.
The more money you make on the rent, the more likely it is that it can lead to lasting resentment as the agreement carries on.
Money isn’t something that is frequently discussed in polite conversation, so this topic may be the silent elephant in the room. They know you’re making a decent source of passive income from their expenses, so why wouldn’t you be able to afford to replace things that they want upgraded?
You make so much extra money each month from the property. Couldn’t you afford to cut them a little slack on the rent each month?
The most common problem for landlords who rent to friends or family members is the resentment that sometimes follows. Tenants feel bitter because you’re making money off of them, while you feel resentful because they aren’t caring for your property.
What does it really boil down to?
In general, it isn’t a great practice to rent your property to a friend or a family member. There’s a lot of risk involved in the process with little payoff or potential reward. Some individuals may find success with this method of occupying their rental homes, but others regret losing close relationships over something as minute as a rental agreement.
If you do choose to rent to a tenant you know, be sure that you handle the lease as a strictly professional relationship. You should have a lease agreement in writing, outlining their responsibilities, your responsibilities, and the terms associated with the property. Collect rent on time each and every month without exception. You may need to come to terms with the fact that you must be willing to evict them if it comes down to it.
An alternative to renting your property to friends or family members on your own would be to facilitate the agreement through a management company. A property manager can go through the motions of securing rent each month, conducting the home inspections, and coordinating repair work. While it may not be enough to salvage the relationship, it does allow you to be one step removed from the heat of major conflicts that can arise.
Take the time to really reflect on how valuable this relationship is to you. If it’s a friendship you simply can’t live without, it probably isn’t worth the risk of renting to this person. Explain that you value your relationship with them too much to put both of you in that situation. Make it a firm policy so that it doesn’t come across as favoritism by renting to a different friend in the coming weeks.
In the end, you need to do what it is best for your long-term investment and for your friendships. Making a wise decision today can make both of you happier in the months and years ahead.