There’s an old adage that has been passed on from generation to generation for hundreds of years: never do business with friends. Stories of life-long friendships ending in financial ruin over deals gone wrong are whispered from father to attentive son, with many of these listeners taking the advice to heart and avoiding business dealings with friends like the plague.
This advice is generally good; after all, why risk your relationships when you could just do business with strangers? However, there are situations where doing business with a friend is simply necessary. One of the most common of these situations regards the issue of housing. Your friend or family member is in need of a place to stay, and you have an empty apartment that you can afford to rent out at cost. Why not rent it out?
Regardless of the adage, renting to a friend or family member who is in need is actually not a bad idea; in fact, it can actually improve your relationship if you do it right, as long as you answer all of the common questions. There are plenty of pitfalls awaiting those who rush in without adequate thought, and these are far easier to fall victim to than one might think. Fortunately, if you have found yourself in this situation, we’ve put together this list of quick tips for renting to a close friend or relative. Let’s get into it!
Vet the Tenant
Before you even consider renting to someone, it’s important to make sure that they’re someone you would actually want to rent to. It’s easy to wave off this step; you’ve been friends for years, or in the case of a family member, your whole life! But be warned: some people are entirely different in their business dealings than they are in their personal lives.
That’s why you should always do a thorough background check before offering your apartment to a friend or family member, taking into account everything from financial history to character traits. After all, it will be much easier for both of you to find these things out before you offer them the property rather than after. Knowing you have a good tenant in your place is a huge relief.
Be Honest with Your Tenant
The most important thing to remember if you decide to rent your property out to a friend or family member is honesty. If the property has obvious or hidden flaws, disclose it upfront. Decide on a fixed rent price, and don’t increase it without discussing your decision at length with your tenant, sharing your reasons and asking for their input.
Seriously, we can’t stress enough the importance of transparency. Even the smallest omission of important details can spell doom for your business venture, and more importantly, your relationship. Without trust, you’re treading dangerous ground on the road to conflict.
Be Fair with Your Tenant
Yeah yeah, we know, this one is another no-brainer. At least one would think so; however, there are plenty of people who didn’t seem to get the memo on this one. If you’re going to rent to someone you have a close relationship with, it has to be for the right reasons and it has to be fair, so your tenant is happy.
If you are trying to turn a sizable profit, consider renting to someone you don’t have a relationship with. Not to say that your arrangement can’t be mutually beneficial; just make sure that you’re giving them a fair deal as well making a bit of money as well.
Have a Clearly Defined Legal Agreement
On a more practical note, it’s important that you and your tenant have a clear and well thought out rental agreement before you move forward with your arrangement. You might think this precaution is superfluous; after all, you’re both friends, why bother with all the legal stuff? Get that out of your head: it is absolutely imperative that you have a clearly defined renters agreement to protect both of you in the event of a falling out.
Even if you never have a falling out, a renters agreement is still a good idea. A renter’s agreement outlines the specifics of your arrangement and gives all concerned parties a means of determining whether one of the other parties is being unfair, or if it’s simply time to move on to the next thing. With a solid renters agreement, you can avoid unpleasant and possibly ruining disagreements and conflicts over what exactly your arrangement entails.
Get Renters Insurance
Another practical, tenant basic you should consider is the question of renters insurance. Getting renters insurance can protect you from a lot of potential hassles with everything from damaged property to unexpected incidents such as a flood or house fire. In most cases, getting renters insurance is an easy decision, due to its low/risk-reward ratio. When a break-in, hurricane or negligent damage to the property occurs, you’ll both be glad you had it!
However, the biggest possible objection your friend or family member-turned tenant may have is the additional cost. To allay these objections, you can legally require the tenant to cover the cost of renters insurance by making it a mandatory part of the renter’s agreement, or you can simply pay for it yourself. Both of these are less than ideal, as the first can lead to uncomfortable tension between you and your tenant, and the second can take a serious chunk out of the sum you take home at the end of the month.
So you’ve finally made the decision to rent your apartment to your friend or family member. You’ve drawn up the renters agreement and made the preliminary arrangements to have your soon-to be tenant move in. Before you get to that however, you should do a preliminary inspection of the apartment a week or two before your new tenant is slated to move in.
Change burned-out light bulbs, make sure there are fresh batteries in the smoke detectors, and check for any repairs that need to be made. This is just a precautionary measure to make sure that everything is in order before your new tenant moves in, to avoid any unnecessary tension between you and them.
Renting to a close friend or family member is often portrayed as a mine-littered wasteland of relationship ending pitfalls that can never end well, but the fact is that, with some careful planning, that just isn’t true at all. If you take the time to do it properly, it can actually bring you closer.