Never Rent to Family Members: Exceptions?

4 Replies

First of many posts on the Bigger Pockets Forum! And an odd one at that to kick things off. I live in Nashville but am hunting for my first cash deal in my hometown of Dayton Ohio (have a few family members already). Meanwhile, unrelated to that, my sister and her family (+ husband + child + baby) are moving back to Dayton from CO in a few weeks to camp out at our folks house there while search for a rental. While still in the early stages of my endeavor, I made the potential connection of these 2 events. Being my first deal (aiming for buy and hold with priority on cashflow), I thought it could be helpful to have a "tenant" that would provide me easier access to the home for repairs as I fine tune details of the rehab, save the trouble and $ of property management, and have another excuse to hang out with family. My sister and her husband are detail oriented, thus would also naturally point out any flaws I need to address (which I realize could backfire to be super annoying but also could be helpful). A test run so to speak.

Now that I've let the idea sink in more, and heard several times to NEVER do this, I am leaning much heavier towards not. But I am still mulling it over to make sure I wouldn't create a win/win given a few clearly defined parameters, any of which may be enough for them to decide against before I do: 

1) a commitment to NOT in any way alter what/where/how/when I buy according to them. It would be take it or leave it on a deal that fits my goals (but many of my goals happen to align with what they'd be looking for). 

2) a shorter lease with the expectation of not being re-signed. This may be the deal breaker for them as no one wants to move...yet at the same time it would bide them time to keep searching?

3) A written understanding in the lease that there may be minor issues with the home that may take time to fix. 

4) an agreement for rent to be slightly under market $ for the above troubles. I realize this would effect my cash flow goal, but think it could be worth that for just 6-12 months? 

Even as I write this my gut says it's probably a bad idea, and can already hear you all yelling at your computer screen, but curious to get the thoughts of those more experienced. To be clear this was my idea, not theirs, that I proposed to them before I really had time to think it over (lesson there), but they would easily understand if I changed my mind and aren't counting on it as I told them it likely wouldn't line up timing/goal wise anyhow. 

I look forward to much more interaction on this forum and learning from you all, while maybe helping some other rookies like myself! 

Hi @Caleb Williams , welcome to the BiggerPockets forums!

Listen to your gut.  It is formed off of your God-given insight and the great cloud of people around you (myself included) who are saying "Don't rent to family . . . it's a bad idea".  Ignore the wisdom of others at your own detriment.

It really all comes down to a point made by Daniel Khaneman in Thinking: Fast and Slow regarding two sets of norms:

  • Market Norms
  • Relational Norms

A good illustration would be this:  if you ask a neighbor to help you move a couch they'll probably help with gladness.  If you then then say thank you and hand them a crisp 1 dollar bill . . . . it's weird.

It gets weird because we just took a scenario built on Relational norms and introduced market norms, and according to market norms $1 is not valid payment for ANYTHING, and thus the tension.

It is this example x 1,000 when renting to family and even if they rent from you for a year:  you can spell stuff out as well as you want, but at the end of the day it's your sister (or mom, dad, grandma, etc) . . . are you really going to be that jerk who makes your sis pay full price/raise the rent/make them do what a tenant should do?  It may happen, but it introduce a dynamic into your relationship that I wouldn't wish on you.

But perhaps a bigger lesson is at play here:  Our human tendency to both blindly follow the masses in some things and then try to refute and work around collective wisdom is interesting . . . 


TLDR:  Don't lease to family

Never do business with friends or relatives. The business will fail and you'll lose the relationship.

That's not always true, but it's true for most people in most situations. You should accept that and move on.

Yes, you could tell them it's a business and to not call you on your cell phone at 10pm to tell you the rent will be two days late because their new baby is teething and they haven't found a job and how was your fishing trip and by the way the toilet isn't flushing and the neighbors are letting their leaves blow into our yard. 

The fact is, you will have a hard time separating business from personal and it is more likely to hurt the relationship than it is to help you succeed. Use your resources to help them find a rental, but I recommend you don't put them in your rental.

NO.

Skip your legal pad list of possible pros and cons and what happens at the summer picnic because they think you're blowing off cleaning the gutters because you're related.  

NO.