You've probably heard that it's a terrible idea to mix business and pleasure. If you're looking for a tenant to rent your residential property, you might be inclined to rent to family or friends. However, before you decide to rent to friends or family, think carefully about the benefits vs. the drawbacks. Whether you have a property manager or not, it's critical to understand the risks of renting to friends!
While it might be nice to rent to someone you already know, it might cause a strain on personal relationships. In this blog, our Atlanta property management company looks at the pros and cons of renting to friends and a friend of a friend.
The Advantages of Renting to Friends
As a landlord, your objective is to generate a consistent stream of rental income. Renting to friends might be an excellent plan to do so, depending on the friend! In some cases, when you enter into a contract with a friend, you can potentially depend on them to pay the rent on time, take care of your property, and follow the rules. Your friend might even be more flexible about allowing you into the home for inspections and repairs than a resident you aren't friends with.
However, not every friend or family member makes a good tenant. Talk with a property manager to consider the drawbacks of renting to friends or family before letting them sign a lease!
A Few Drawbacks to Consider
Turning a friendship into a business relationship (like the landlord-tenant relationship) can be bad for both relationships! Unfortunately, sometimes friends or family members make terrible tenants. Allowing them to move in can end up costing you (and your ROI) more than necessary in the long run if your friend takes advantage of your relationship!
While you may hope your friend is more likely to take care of your home, it can be hard to hold a friend accountable to the same rules you would for a tenant that you don't know on a personal level. Property owners must also consider what happens when a friend constantly pays rent late, disrespects the property manager you've hired, or consistently violates the terms of the lease agreement. It's difficult to discipline a friend in the same way as a random renter.
Your friends may feel slighted or disrespected. They may become frustrated that they aren't being given more latitude in terms of paying rent or receiving special treatment regarding the lease terms. There's a good chance the relationship the property owner may have spent years creating is permanently damaged before the residential lease expires.
If You Do Decide to Rent to Friends, Property Managers Have Some Advice
Even though things can go wrong, renting to friends is not always a terrible idea. On the contrary, it can be a mutually beneficial idea if done correctly. Follow these essential ground rules from an Atlanta, Ga property management company if you're going to rent to friends.
1. Follow the Same Procedures as With Any Other Tenant
Remind your friends that they must adhere to the same regulations as all other renters. They must follow the lease rules, pay their rent on time, and submit maintenance requests through the proper channels. Enforcing the rules consistently keeps the relationship professional and helps property owners avoid the perception of favoritism that can lead to lawsuits from other tenants who aren't given exceptions to the rules.
2. Make Sure They Sign the Lease Agreement
Friends and family must sign the same lease you would use for any prospective tenant. Include the same lease terms you would for any resident, like the rent amount, due date, tenant responsibilities, and your obligations as a landlord.
Communicate with your friend/tenant as you would any other renter. They need to know what is expected of them and what they can expect from you.
3. Perform the Tenant Screening
You might have known your friend since you were kids, but you probably don't know their bank account balance, how much money they make, or if they have a pile of debt.
When looking for a tenant, you ensure they can pass your tenant screening process with a background check, income verification, and credit requirements. You also talk with prior landlords and check references before allowing anyone to sign a lease and move in. A property owner should follow this same process with friends or family residents.
Don't Forget the Fair Housing Act
It can be tempting to give preferential treatment to friends or family members when renting your property. However, choosing a tenant because they are a friend over someone more qualified for your property could violate the Fair Housing Act and lead to costly lawsuits down the road.
Let a Trusted Property Manager Help Place the Right Tenants
Renting to friends or family members can be a great way to make some money on your rental property. However, property owners must know the pros and cons before allowing a cousin or buddy to move in. If you have additional questions about choosing the best tenants, Compass Property Management is here to help! Give us a call to learn more about our property management services.
Download our free Tenant Screening Checklist today for more information about choosing quality tenants!