As a landlord, you may one day be faced with a tempting prospect. A family member or friend needs a rental, and you have a vacancy. As one can imagine there may be cases where this arrangement works out well or cases where it can become a complete disaster. Below are some Pros and Cons of renting to friends or family.
It's Easy: If your rental is open and you let a friend or family member rent from you, you don’t have to advertise for the property, get a broker involved and there will likely be little negotiation over rent. Also, since you know the renters you're probably unlikely to need to get a reference or do a tenant screen which saves you time and money
Knowledge: As a family or friend you likely already know a lot about the person you’re thinking about renting to including their job, family situation and more. You may have more knowledge about their previous rental history than what you would get if you were screening someone. In addition, you may have an idea of the life plans such as is this long-term short term.
Relationship issues: There is likely no such thing as a perfect tenant or a perfect landlord. There may always be at least a small hiccup which can turn into a big problem because of the dual relationship between tenant and family member. In addition, bigger issues like not paying rent on time or damaging the property puts landlords in a tough place because they are forced between acting as they would normally and risking the relationship or losing money and feeling like they are being taken advantage of.
IRS Issues: If you give family or friends a big discount below fair market prize it can be a problem when tax season comes along because it can impact deductions.
There is an old saying in business that you should never hire someone you can't fire which can be applied to tenants. You Should never have a tenant you cannot evict and if your not willing to treat a family or friend like you would any other tenant than you could be risking your livelihood and your relationship with them. If you still want to rent to them, you need to be very upfront with them in that you are treating them like any tenant including by screening them, making them pay a security deposit and making them sign a lease.
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Disclaimer: The information provided in this post in not intended to be construed as legal advice, nor should it be considered a substitute for obtaining individual legal counsel or consulting your local, state, federal or provincial tenancy laws