If you have a property needing an occupant, you might get really excited when Uncle Charlie asks you about its availability while he and Aunt Jane” get back on their feet again.” I mean if you can’t trust your Uncle and Aunt, who can you trust? Or your old fraternity brother is splitting with his wife and needs “a small place to crash at night.” These all sound like great solutions for your non-revenue producing property. Before proceeding to rent to family and friends, maybe consider the following.
Imagine if Renting to Family and Friends Does Not Go as Planned
What will the holidays be like when Uncle Charlie and Aunt Jane show up owing you four months rent? Or, lets say they keep pretty current on the rent but come to Christmas with a tale of a furnace that is chewing up every last dime they have just so they can keep warm. Or Homecoming at the fraternity house and at the alumni gathering you have to come face to face with the brother you tried to help out, who ditched you, after never making a payment and trashing your home, to go live with his new trophy girlfriend? Will all of these events be ruined for you because of the fateful decision to rent to family or friends?
Sure, there are probably plenty of stories of successful rental partnerships with family or friends. These partnerships are riskier, much riskier, than you think or anticipate. For the same reasons it is not great practice to go into business with family or friends, or loan money to the same groups, you have to do it with an acceptance of the risk.
Something to Consider if You are Renting to Family and Friends
In renting a home to family or friends, a perfect way to mitigate the personal damage, and the other problems as well, is to let a property manager handle all the details. Step out of the way and let the manager send you the money. Let them argue with the friend or family over the lease, and the pet deposit. Your property manager will handle collections as they would any tenant. The manager will be the bad guy who tells your Uncle to change the furnace filters so the furnace runs efficiently. The manager does not have anything but a job to do, and they will do it much better than you ever could when your tenant is somebody you know or love.
The benefits will far outweigh the costs. It’s OK to want to help people. Just don’t let it become personal!