With so many tenants struggling with their personal finances today, it can be a risky business to rent to family and friends. However, many landlords practice this despite the risks to their own operations. Being a landlord gives you the opportunity to offer a home to the people you care about most. The idea of living in close proximity to your friends and family might also be an attractive option. Taking this route can also result in complicated situations that may be difficult to navigate.
If you’re deciding whether to rent to family and friends, we recommend giving it plenty of thought beforehand. By examining this issue in detail below, we will assist you in making an informed decision.
Why Some Landlords Rent to Family and Friends
Some landlords simply rent to family and friends to fill vacancies. This is especially true of landlords who are just starting out in the industry. When kickstarting your business, you may prefer renting to people you’re close to. It can be tempting to rent to people you know personally, because you may assume you know their habits. Perhaps, for instance, you know your best friend doesn’t like pets and has acted responsibly in the past. You’ve been to their apartment, and they seem to keep it tidy enough. There’s no reason to doubt your friend’s ability to behave well as a tenant in this situation. In some cases, the arrangement works out perfectly fine. Some family members or friends may even want to help you run your business; this can be a major asset and a bonding experience.
Why It Isn’t Always a Great Idea
Tax Deduction Problems
When landlords rent their property out full-time at the appropriate price, the IRS views it as a business-related property. You can then deduct business expenses from your taxes, such as maintenance and repairs.
If you charge your family and friends full market price, there is no tax penalty involved. However, modifying the rent price drastically for your friend or family member can be detrimental. Your property may be deemed a “personal property” in this scenario, and you won’t be able to reap the rewards come tax season.
Some landlords think they know their friends and family members well, but it’s difficult to predict how the situation will play out. Mixing business with personal relationships can be a minefield. As time goes on, your friends and family may expect preferential treatment, discounts, or the ability to make late payments without penalties. If you fail to run a background check or check references like you normally would, you may be unpleasantly surprised by a friend’s behavior later. This can harm your business when it impacts other tenants or reduces your income.
If you rent to family and friends, you also run the risk of damaging your personal relationships. When your loved ones come to you expecting special treatment, they may get offended if they don’t receive it. It can also be challenging for a landlord to have these kinds of conversations with a loved one. What if you have to evict a friend, charge them a penalty for late rent, or handle a complaint about their behavior?
What to Do When Renting to Family and Friends
- Be vocal about the policies they need to follow. From the start, it’s important to lay out the ground rules. Don’t avoid discussing difficult topics; get them out of the way. Make sure your friend or family member understands that no matter what, they’ll be held responsible for their actions.
- Keep everything in writing. Some landlords only make verbal agreements when renting to family and friends. Don’t make this mistake! You might regret it later if things take an unexpected turn. If your friend or family member doesn’t follow through, you want to be able to refer back to written documents.
- Be professional. Always stay professional and remember your role as a landlord. Offering preferential treatment isn’t fair to other tenants, and it’s important to keep your property safe and secure. You can rent to family and friends and enjoy their company, but be professional when business transactions are involved.
Wondering if You Should Rent to Family and Friends? The Experts at All County Denver South Can Help You Decide
If you need a property management company in Denver, look no further! All County Denver South Property Management is here to help property owners have confidence in the quality of their tenants and the security of their property through knowledgeable and trustworthy property management services. From managing tenant relationships to lease enforcement, we look forward to working with you to see how your investment can be a long-term, stress-free asset. For a complimentary quote, or to learn more about renting to family and friends, call us at (720) 664-4550.