Renting to family or friends may seem like a good idea to help cut costs, but, there are mistakes property owners make which can end up costing you more or the relationship.
Mixing your business and personal life can often end badly and property investing is no different.
Renting your investment property to a family member or friend may seem like a good idea as you already know them and you may be able to avoid the cost of using a property manager. However, there are common mistakes property owners make which can end up costing you money or your relationship with that person:
Not being strict with rent
No matter what, you should be charging some rent. Even if you feel like you can afford the repayments without their rent payments, this could change down the track and may cause conflict if you decide to start charging a few months after they have already lived there.
Also, as you know the tenant, you may turn a blind eye if they are late with a payment, but this will only set you up for a disaster down the track. Your tenant may start taking advantage of the fact that you know each other, so you need to respond to late or missed rental payments straight away.
Not using a property manager
If you are renting to a family member of friend, a property manager is extremely important. They will act as an unbiased third party who can handle landlord responsibilities such as chasing rent and inspections. It will also save you from confronting any issues that may be awkward such as asking for late or missed payments.
Having a property manager will help keep the rental agreement professional and will stop any disagreements from getting out of hand.
No legal agreements
It doesn’t matter how well you know your tenant, in order to protect yourself down the track, you should have a formal tenancy agreement. This agreement will not only protect you, but it will also ensure that you are meeting your responsibilities as a landlord.
By signing this agreement at the beginning, both parties will know what they are responsible for before the tenant moves in.
No landlord insurance
Some investors make the mistake of assuming their friends and family will not damage the property as they trust them. However, accidents do happen and if you are not insured, it will be a large out of pocket expense that you may not be able to afford.
Although you are renting your property to a family member or friend, you should still treat this rental agreement as if you are dealing with a stranger.