Renting to Family and Friends: Part 1

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The reason there is so much stress placed on proper screening of tenants is that landlords simply don’t know anything about the stranger that they are considering renting to.
That’s why it makes sense to many landlords to rent to friends and family members. After all, you have a history with that person and feel like you have a pretty good idea whether or not they are a responsible person.
There are definitely some benefits to renting to friends and family, but there are some drawbacks as well.
When you are a landlord entrusting your property to someone else, you want to be able to trust them to take care of the place, pay on time and generally not be a nuisance.
Friends or family members as tenants may seem like the perfect solution. But the old adage of treating your rental business like a business still holds true, so as long as you treat your tenants as tenants, regardless of your previous relationship, you should be able to enjoy all the benefits and minimize the downside of this personal/professional relationship.

5 Pros for Renting to Family and Friends

Here are 5 reasons why it’s a good idea to rent to family or friends:

1. Personal Knowledge

You can take most of the guesswork out of learning about the applicant’s personality and habits because you’ve probably known them for several years already, if not a decade or more. You’ll be able to draw upon hundreds of interactions with this person to help you consider whether they would be a good tenant. From hygiene habits to levels of responsibility to consistency in employment, you’ll have a great idea of the person you’ll be renting to. If your friend or family member has shown decent levels of responsibility and respect so far, chances are those good habits will stay intact.

2. Background Check Perspectives

There are a lot of “professional” tenants out there who know how to get past a standard background check using borrowed social security numbers or recruit friends to answer phone calls as prior landlords or bosses to provide “accurate” information on rental history or employment. With a friend or family member, you will be up to speed on where they work and what their background is. The applicant will also be much less likely to lie to you because you’d pick up on it quickly. You may also be able to better understand some things that show up on a background check. For example, if your friend and her husband filed for bankruptcy a few years ago based on huge medical bills, but have taken care of all other expenses with no trouble, you could take that information into consideration knowing that background.

3. Helping Out

Is your tenant a cousin, niece or nephew who is heading to college in your area? Or a young couple just starting out? Or an elderly relative? Or a friend who is just wrapping up a divorce? There are plenty of friends and family members who are seeking good living accommodations and just need a break from a landlord who understands what is happening in their lives. If you are renting to a person you trust, you can create exceptions to the lease agreement that might best accommodate their unique needs. For example, if your elderly relative receives their fixed retirement money in the middle of each month rather than the first, you could change the rent due date to best match their needs.

4. Less Likely to Disappear

One of the worst things for landlords to face is a tenant that disappears into the night without paying rent and doesn’t leave much of a trail to follow when it comes to serving notices or going through the eviction process. A friend or family member will be much less likely to ditch you with no warning, and if they do, you have a built-in network of mutual friends and family members who can help you track them down. If the friend or family member values your relationship at all, or doesn’t want to look bad in front of mutual friends and family, they definitely won’t abandon you or the property like a stranger might.

5. Benefits of Friendship

Let’s face it, if you are considering renting to a friend or family member, you already have a relationship with them and you can help each other out as friends outside the landlord/tenant dynamic. Depending on how close you are (physically and emotionally) and how well you get along, you can help each other out with things you would normally call a friend to do, such as work out carpooling with kids, pet-sit for each other when one of you is out of town, or keep tabs on other tenants in a multi-unit property. If you are familiar with their skills, you could also benefit by working out a rent reduction for certain handyperson tasks because you already know they possess the talents.

Separate Business and Personal

The key to a successful landlord/tenant relationship when you rent to family or friends is to treat it like a business transaction and follow the same procedures you would with any other applicant. Make sure you have a lease agreement for them to sign and take the time to go over the rules and regulations. Discuss your expectations from them as a tenant, and go over the duties and responsibilities they will have as occupants of the property. Above all, review the rent amount and due dates and make it clear that if they miss their payments, you will proceed as you would with any other tenant.
One thing to note when dealing with a friend or family member as a tenant is to keep their information private from other friends or family members. You would never share personal information about another tenant with your family, so when you are dealing with a tenant you know intimately, use extra caution to keep the person’s sensitive information confidential and don’t discuss the details of the arrangement with others.
To preserve your relationship with your family and friends, it’s important to remind them that it will take both of you to work together to come to a mutually satisfying relationship regarding your rental property.
When you take the time up front to clarify your expectations, before there is any conflict, you pave the way for smoother interactions and can eliminate most confusion.
Renting to family and friends can be a real benefit when you’ve built the proper framework and stick to your policies and procedures.
While there are many benefits to renting your property to family or friends, things may not always work out to your favor. Blending personal relationships with business is always tricky to negotiate.
However, when it comes to your rental property and agreeing to a family member or friend as a tenant, you must set things up right if you are to enjoy success.
As a landlord, you have to take the time to establish boundaries, clarify the rules and regulations, have a proper lease agreement and follow the policies you’ve set up for yourself and your tenant, regardless of your past and current relationship. While there are many benefits to renting to friends or family, there are downsides, too.

5 Cons of Renting to Family and Friends

Here are 5 cons that you should consider that may happen when you rent to family or friends:

1. Expect Special Treatment

One of the most common scenarios when renting to family and friends is the expectation that because you have a stronger bond than most landlords and tenants, you should provide special treatment. This could mean that your tenant expects a discount on rent or thinks it is no big deal to send the rent check a few days late.
Other examples include bending the rules you’ve set up because they feel like you won’t take the next step in enforcing them because of your friendship. Whenever tenants feel like they can take advantage of a situation, it’s not a good ending for you as a landlord.
By keeping the rules and regulations and enforcing policies across the board, you stay in control of your business and your friend or relative knows that you mean business.

2. Relaxed Environment

Because your tenant is someone you know, you may be unwittingly creating a relaxed environment that will come back to haunt you in the future. Many landlords don’t even run a background check on friends or family members, and sometimes there are things in their friend or family members’ past that would send up a red flag that they didn’t know about. You may also be tempted to relax your own qualification criteria “just this once” because of the relationship.
For example, your friend says she was evicted a few years ago but her side of the story sounds like it was a roommate’s fault. You may relax your rule on never renting to someone who has been evicted in this case—something you would never otherwise do.
It’s risky because you really only know one side without making a landlord reference call. Other relaxed rules might include allowing for a pet or not collecting as large of a security deposit. While it is within your rights to make all the exceptions you want, make sure you are still clear on boundaries and expectations and put it all in the lease agreement.

3. Unwillingness to Report

On the flip side, your close relationship may prevent your tenant from providing you with appropriate feedback on how you are doing as a landlord and what your property may need. For example, if there is a repair or maintenance issue that needs done, your tenant may feel like they can’t comfortably point out problems with the rental without making you feel bad. Another example might be that they hesitate to offer constructive critiquing that another tenant with no personal relationship would have no problem offering. Tenants who are relatives may also hesitate to report lease violations on others in a multi-unit property because they don’t want to be seen as the tattletale relative of the landlord.

4. Strained Current Relationships

When you are put in a position where you must enforce something in the lease agreement with a tenant who is a friend or relative, it can put a strain on your relationship. Even in the closest of friendships or the tightest of family bonds, whenever one person is elevated into a more powerful position (like a landlord over a tenant), it can create that strain.
You might find it difficult to send out warning notices or to start the eviction process because you don’t want to harm the existing relationship you have with the person. A friendship may cool because your friend/tenant resents you not fixing something as fast as they would like. Even if nothing happens, your tenant may feel differently toward you based on your normal actions as their landlord, and vice versa.

5. Strained Future Relationships

If you have to go through the worst case scenario and evict someone that you are related to or that you have a close friendship with, it could affect your relationship with them in the future or with other mutual friends or relatives. For example, if you had to evict your cousin, your Aunt Sally may never forgive you. She may even get mad at your own mother for your actions. While there are all kinds of friend and family dynamics at play when you mix business with personal relationships, the landlord/tenant structure can have long-term impacts on you.

Keep a Clear Perspective

Above all, when dealing with a friend or family member as a tenant, you cannot give the impression that the lease agreement is casual, flexible or optional. As long as you have a solid lease agreement that you review carefully with your tenant, you have set the standard for what you will and will not allow. Even though you have faith that the friend or family member you are renting to would not take advantage of you, it’s all too easy to develop that false sense of security and then get burned in the end.
Don’t let the fact that your tenant is a friend or relative cloud your good business sense when it comes to your rental property. With the right structure and consistent enforcement of the rules and regulations you’ve set up, you really can enjoy all the benefits while enduring the minimal amount of downsides that renting to family or friends can bring.