Caveats To Consider Before Renting To Someone You Know
Renting to someone you know may seem advantageous over renting to strangers. Why go through the stress of tenant screening for your property if a friend or family member is available to fill it? Yet the same advantages of renting to a co-worker, family member or friend can create problems when it comes to enforcing rules of conduct and collecting rent. For this reason, most experienced landlords don't recommend it. If you decide to go that route, however, remember you are running a business. Below are a few caveats to keep in mind when renting to people you know:
Do The Paperwork and Check References
Newbie landlords who rent to friends and family often make the mistake of not having them fill out the paperwork. Why would I do an application when I know where they work and have a personal history with them? You still need their personal information to perform due diligence. Even if it seems awkward, require an application be filled out. Go over the lease point by point and have them initial each section and sign it. Do a credit check. You may think you know how your friend or brother manages money - that is until they move in your property and are three weeks late with the rent. Call references. Your friend may neglect to tell you he likes to blast his stereo at 2 in the morning, but his former landlord may not.
Charge Market Rent
Always charge market rent for your property. Charging your tenants a reduced rent or having them skip paying the security deposit just because you have a familiar relationship with them is unsound business practice. You have expenses to pay and are not running a charity. Further, the security deposit protects your financial interest; it ensures you are able to recover costs of material damages caused by your tenant and it also serves to reimburse you for unpaid rent. Keep good records. Take care to provide rent receipts and keep track of your friend or family member's payment history as you would with any other tenant.
Keep Things Professional
When lease disputes arise and tempers flare, it may be tempting to shirk the rules and disregard the rights of your tenant - even if your friend is being a brat. However, disconnecting the water line or shutting off the power because he hasn't paid the rent in two months will get you fined or even thrown in jail in most pro-tenant states. Complete mandated inspections and don't put off doing necessary repairs because you think your friend will understand. Moreover, resist taking liberties dropping by whenever you wish or, worse, snooping through your friend's things while he's at work. Failing to issue a 24 hour notice before entering the property is a serious violation of a tenant's right to quiet enjoyment and privacy. Know the tenant-landlord laws in your state. If you don't, your friend will learn them and use it against you in legal disputes.
Renting to family and friends is tricky business and should only be done if you treat them as you would any other tenant. However, for most landlords, blood and money just don't mix.
Have you ever rented your property to people you know? How has it worked out for you?