Renting your home or apartment can be a lucrative way to make extra income or cover expenses while investing in another property. Whether you’re a long-time landlord or new to the scene, finding trustworthy tenants who meet your credit requirements is key to making your rental a success.
Renting to friends or family may be a dependable way of meeting this goal if you’re confident this won’t complicate your relationship. You may have already committed to housing a loved one in advance of even buying a home. Here’s what to know before handing over a lease to your best friend, sister, cousin or anyone else in the family (or friend) tree.
What to consider when renting to friends and family
Renting to friends and family can be a positive experience — you have someone you trust renting out your space and they have somewhere to call home, but there's a lot to consider before making this arrangement.
- Remember, you’re still a landlord. Although your new tenant may be a loved one, it’s key to bring a professional tone when discussing the rental agreement. If your friend is serious about renting your property, then they should understand that signing a lease agreement and following the rules is key — this includes having them apply for renters' insurance to further protect both parties from any potential liabilities. They should expect to pay their rent on time and follow house rules, while you, the landlord, should hold yourself accountable to keep up your end of the bargain.
- Consider their habits and lifestyle. Is your friend or family member disorganized and forgetful? Reliable? In healthy financial standing? These are all things to consider as their prospective landlord. It may be awkward to inquire about their financial situation, but as a tenant, they should understand this request and understand this is necessary information to move forward with the rental agreement. If they are a clean, respectful and responsible house guest who never miss a deadline, then you shouldn’t have much to worry about with them as your tenant!
- Think about why you’re renting out your home. Understanding why you’ve chosen to be a landlord may help you determine whether you should or shouldn’t rent to friends and family. If renting is your main source of income and renting out to a friend would put your income in danger, letting them down easy may be best. If your rental income is a side hustle and you’d be helping out a friend or potential family member, then it may be worth considering. It’s always good to help someone out if you can.
The pros and cons of renting to family members and friends
There are both pros and cons to consider when renting to friends and family. The list below may help guide you toward the right decision for both you and your potential new tenant.
Pros
- Potentially helping a friend or family member in need. If they’re in a bind, looking for a place to live and you have an available property, why not help them out?
- Since you know your tenant's background, you can lower your risks by renting the space out to them, rather than someone who’s unfamiliar.
- You don’t have to advertise the space and put extra effort into finding a tenant.
Cons
- They may use your relationship as a way to take advantage of your agreement. For example, they may start looking for a discount or extension after a few months.
- If anything goes wrong, it could affect your relationship. Having to police a friend or family member could be uncomfortable for you and result in hard feelings.
- May be hard to set healthy boundaries. A relative might think that calling you at three A.M. about a leak is appropriate, whereas a stranger would — hopefully — never do such a thing.
Best practices of renting to friends and family
- Set boundaries and expectations before jumping into a deal.
- Have them sign a lease like you would with any other tenant.
- Keep the landlord-tenant relationship separate from your personal relationship.
- Treat overdue payments or breaches of contract like you would any tenant.
- Consider why they would be renting your property. Do they have another option? Is it no skin off your back?
Can it work for you?
If you set the right boundaries and know someone you can trust, renting to friends or family can be a positive experience. In addition, remaining transparent about your expectations of them as a tenant and their expectations of you as a landlord will help keep your personal and professional relationship separate.
