By Ken Yee, real estate investor and realtor
I have indeed done so, both with positive and negative experience. Just to be upfront, my negative experience exceeded my positive experience when it comes to renting to friends and family. So shall you rent to your friends or family? Well, there is not really a correct answer to this question. It’s a pretty subjective question. I love my friends and family, but there are a few things one should really consider before deciding if one should rent to family and friends. So, let me just discuss a little about my opinion related to this topic. The things you should ask yourself before making a decision.
The first thing to think about is “What is your objective?” Will you be his/her landlord, or are you helping them out as a friend or family? Please do not answer “Both” because that is exactly how the relationship can go south really fast. If you are relying on their rent payments to pay your mortgage, then you have no other choice but to treat this as a regular landlord-tenant situation. In this case, the most important thing to remember is to treat it like a business transaction. Remove the factor of them as you friends or family and treat them like any other rental applicants. It is not uncommon for your friends or family to expect some rent discount from you if they choose you to be their landlord. Discuss this upfront before you tell them to go through the application process. At a minimum, you run their background check, collect the security deposit and also the first month rent and sign a lease agreement with them. If they do not meet your screening requirements, reject them just like you would reject any other non-qualified applicants. Why? Well, because you are relying on THEIR rent payments to pay your mortgage and they do not meet your requirements! As a landlord, your expectations are simple. You expect rents to be paid and paid on time and you expect your tenants to take care of your property. If you are not confident in them doing any of those after the screening process, then it is better to reject their application upfront than to be sorry later. Just be honest about your situation when you need to discuss the rejection with them.
However, if your role is to help them out as a friend or family, then you need to treat them as your guest instead of tenants. Regardless of whether or not rent is discussed, you need to be really clear to yourself, and to them, that you are doing it as a personal favor. You should treat rents as a bonus and not your main reason for putting them in the room, basement or house. Maybe you are a kind hearted person and just want to help others out, or maybe you are just helping some needy friends and family transition through hard times. Whatever the reason is, you just need to be very clear that you are in it because of non-financial reasons and you may or may not be compensated for your generosity.
The second thing to think about is “Timeline”. How long will you be renting to them? Personally, I prefer to have a timeline on the things that I do rather than leaving things open ended. Be very clear. Do not get confused between milestones and timeline. For example if your friend tells you they will rent from you ‘Until they find a job’, that’s not a timeline. That’s a milestone. Milestones can be indefinite if no timeline is established. Timeline should be a measurement of days, months or years. If your objective is to help them out, your timeline will also be an indication for the limit of your help towards their situation. It is very important to be able to quantify the limit of your help as it will minimize the risk of unnecessary stress due to the potential of disconnect in expectations, and that goes both ways. Let’s face it. We all have our problems. The last thing you need is to have someone else’s problem becomes your problem and you are now fully responsible for it because they choose to leave it to you. A pretty common case of how one’s generosity is being taken advantage of. I remember a friend of mine once called me and asked if I could help lease a house to them. They were selling their house and it went under contract unexpectedly quick. I agreed to help his family out as a friend, and we both agreed on a short term lease as I understood their situation. Through experience, I had established a timeline. We both agreed on a lease term upfront that allowed me to make the necessary arrangements before their lease is up. Most importantly, it gave them a reasonable timeline to look for a house of their choice. It eliminated the surprise element between both parties as I expect them to find a house before their lease is up and they well understood that my help ends when the lease is up. In the end, this friend of mine is still a friend today and is very grateful for my help. I’m also happy to be able to help a friend in need.
Finally, think about the “Repairs”. Who will be doing the repairs? If it is a landlord-tenant situation, it is clear that landlords are responsible for repairs. But what if you are renting to a friend merely just to help them out? What if they have little kids or pets that just constantly damage things around the house? What if the ceiling fan or the HVAC stopped working while they are living in the place? Who will be responsible for all those repairs if you are not even collecting rents? Well, according to the Landlord-Tenant law of Georgia, if you are renting to someone, regardless of whether or not rent is paid, you are considered the landlord and are responsible for the repairs. Keep in mind that under normal circumstances, landlords are responsible for the wear and tear related repairs. In other words, if a tenant caused the damage, they should be the one responsible for the repairs. However, if the 15-year old HVAC system quits working (due to age), while your friends or family are living in the dwelling rent free, that would be considered a landlord repair item. Whether it is friends, family or any other tenants, the landlord will need to repair the system in order to be in compliant with the landlord-tenant law. If special arrangements were to be made between both parties, then it is important to list them all out. For example, if you will be renting the property ‘As-Is’ with reduced rents in lieu of repairs, then your tenants need to be aware of the arrangement. It is highly recommended that the arrangement, or any other special arrangements, be agreed upon in writing.
So, please make sure you are clear of the things mentioned above before deciding if you would rent to your family or friends. If you do decide to rent to them, my recommendation is to discuss the expectations upfront before they move into your place. If you find yourself having problems discussing about rules and expectations upfront (before they move in), it really means that you will also have problems doing so later, and perhaps you are not truly ready to rent to family and friends. I also strongly recommend that a lease agreement is in place between the two parties. The benefit of having a lease agreement in place is that it spells out all the expectations in details, provides a timeline for both you and your tenant, and formalized the landlord-tenant process in the event of a dispute. Even if you choose to rent to your friends and family short term, or as a personal favor, I still recommend a lease agreement be established between you and them. You can always note ‘$1.00’ as the rent amount if you do not intent to collect rents from them. Personally, if I’m in need of help and a friend offered me a house, basement or even a room for $1.00 per month, I will be forever grateful of their help, and signing a lease will not be a problem at all. It is always easier to establish rules before they move in, rather than to make the rules up after they moved in.
My name is Ken and my wife is Bee. I’m a civil engineer turned real estate investor and my wife is an IT turned Realtor. Feel free to drop us your real estate question at gat@gaiantimes.com
DISCLAIMER: This article is written based on our personal and professional opinions. We are not certified financial advisors and are not qualified to provide financial or legal advice.
