When you rent to family members, you have a unique set of circumstances. Not only do you have a solid and customer, you also have a customer that might take advantage of you. This post will help you understand the nuances of renting to family members. Whether it is moving a person back into the childhood room, or renting your investment property to them, the same criteria apply.
If you have been a landlord for any length of time at all, you have had to get tenants. The marketing, showing and initializing that must be done for a new tenant is some of the most time intensive procedures in being a landlord. That is also why as a landlord you are the most vulnerable.
If you have followed my posts, you know you need to develop a tenant screening process, ahead of time, complete with acceptance criteria for any new renter. You know you need to have a company that can run a credit check for you. You need an income verification system, either calling the tenant’s employer, or verifying pay stubs. You need a way to look up a criminal background. And you should have a way to validate past landlords.
When you are thinking about renting to family members and friends, there are two main reasons that they would want to rent to you. One is that they want to do business with you. They trust you, they have confidence in you, and they know you are honest in your business dealings. They are spending money anyway; they want to give you the business rather than someone that they do not know. The devil you know is better than the devil you do not know.
Keeping money in the family, or in a close circle, has been a practice that has been around for since time began. Businesses create subsidiary companies so that they can spend money between business entities and keep the money in house. It is a natural thing that you should want to do, rent to family members.
But, odds are, the above is not the case. Your friends or family needing a place to rent have fallen on hard times. It may even be a more distant relative, the brother-in-law going through a divorce, the nephew that is getting out of jail, the daughter that is getting evicted, and the cousin that just lost their home. Those are the typical family members that wan to rent from you, and some typical excuses.
When you have rental property, you will get these calls from family and friends. You have a place that they can be accepted at, because you will understand the situation at hand. The big-box places do not want the relative, as the relative does not meet the low-risk tenant screening criteria that the big-box place has in place. And besides that, the big-box place needs a deposit, which your relative doesn’t have either. But you are an understanding landlord, so you are the go-to person.
The first thing you need to do when renting to family or friends is say no. It is then over with. Move on. Find a new renter. But you have a vacancy, and an understanding of business, so you proceed anyway. You tell them that family is family, and business is business. This is business. Everyone knows that you will treat the person exactly like anyone else, and they expect no special treatments. You all verbally agree, and maybe even sign a lease, and shake hands. All will be well you both think; you give each other a hug, and say “Welcome Aboard!”
The family member moves in, with no deposit, and things go downhill from there. You soon start to realize, there is a reason for the person’s downhill slide and the need to live in your apartment. They have the money to spend on a new TV, but rent is a bit short this month. They have enough to buy cigarettes, and despite a no smoking policy in your units, they smoke in it anyway. And the pets that they were supposed to give away are all of a sudden moving into your place. You agreed to give them a helping hand, but said the four dogs could not move in. You are providing housing, not running a pet shelter.
So now, you have the choice. You can evict, and be the pariah at every family gathering or work event. You can let them stay, and then run the risk of defaulting on your own mortgage because of the lack of payments. You have to do something, and it is not pretty. You remind them of the “business is business” agreement, and they remember, but thought you would not kick them out in their time of need.
So you are in a pickle. You ask them to leave, and they agree, but need another month because the friends they are going to live with won’t be ready until “after the holidays”, “until school gets out”, “when the son goes off to college”, “when they move into their new place”, etc. The person is becoming a fixture, they are not leaving, you need to evict.
So, you go through the process, and spend six months in total without any revenue, due to no payments or being vacant. They are finally out, you throw away their old furniture and belongings left behind, you give away the dogs to the animal shelter, and you proceed to re-rent. Some family members understand, some think you are the rich landlord with no heart. You vow never to rent to family and friends again.
Instead, you should have followed a regular process like any other tenant. You originally said “business is business”, yet you discarded your tenant screening criteria. If any other renter had applied that was in a similar boat, you would have correctly assumed that they were high risk and passed. You would have done what it took to get a great tenant, and you would have gone on living the dream that you had, prior to the family member asking for a place to live.
Or if you would have done it right, the family member would have passed your pre-existing tenant screening qualifications. They would have had a solid credit score, and a decent income. They would have had a clean criminal background. They would have decent landlord references, and passed not only your renter checks, but most any other rental company’s qualifications, anywhere. You would have rented to them, and all would be well. You might have developed a closer relationship with a distant relative or a better friendship with an already good friend. It may have been a bit tougher to raise the rent, but it could still have been done.
Remember, always screen tenants, even for family members. If you decide to let them in regardless, at least you know the risk upfront. Getting into a risky situation, without understanding the risk up front, is never good. It’s not good for bungee jumping, it’s not good for parasailing, and it’s certainly is not good for renting.
Have you ever rented to a family member or friend? Had a child move back home that you wish you did not? Have you ever evicted a friend or family member?