Did you know that 93% of homeowners are happy with their current housing situation?
Even if you’re part of that 7%, there are plenty of ways to change things. For example, if your current property isn’t what you want it to be, you always have the option of owning rental property.
Of course, deciding to own rental property isn’t always as simple as it seems. For example, if you’re already a homeowner, it makes sense to start by renting out your current home.
But what about other situations? For example, do you have a family member that you’d like to help out by making them a tenant? Should you rent to a family member?
Today, we will look at some of the advantages and disadvantages of owning rental property. By the time we’re done, you’ll have a much better understanding of whether or not you should rent to friends and family.
Pros and Cons of Renting to Someone You Know
Whether you’re renting to family or friends, you’ll want to dive into the pros and cons before agreeing to it. After all, this can be a good idea in some cases but a wrong move in others.
The Pros of Renting to People You Know
The most obvious benefit of renting to someone you know is that you know them. As a result, they can’t give you fake information. For example, they can’t lie about their job, as you’ll know if they have one.
They also can’t hide from you. If you know the person well and they vacate the unit without telling you, you’ll know how to find them.
You might have mutual acquaintances if they’re your friend. Additionally, you’ll eventually meet up at a family get-together if they’re family members.
The Cons of Renting to People You Know
There are several downsides to renting to people you know. First, you might skip the screening process if it’s someone you know well. As a result, you might rent your property to someone that doesn’t meet your standards.
Secondly, it’s harder to enforce a lease with someone you know. You can end up with a damaged relationship if you try. Therefore, you should proceed with caution if renting to someone you know.
The Risks of Renting to a Friend or Family Member
As you can see, there are pros and cons to renting to friends and family members, but what risks does this pose?
The first risk is a ruined relationship. You may have heard the saying “never mix business with pleasure.” This saying is true with many things, including renting to family members.
Another risk is extra costs. If your friend or relative destroys the unit, you might feel bad asking them to pay for the repairs. As a result, you’ll pay them out of your pocket, costing you more money.
Finally, what happens if they don’t pay their rent? Would you be willing to evict them, knowing that this will strain the relationship?
If you’re considering renting to family members or friends, you should consider these risks.
How to Screen Tenants That You Know
When choosing a tenant for your rental property, one excellent thing you can do is to screen every tenant, including those that you know. You can even explain to your family or friends that you perform tenant screenings.
If they pass the screening, you can agree to rent to them. However, if they don’t, you might find a tenant that does. When you set standards in place like this, it might be easier to choose a different tenant for your property.
If you can choose a different tenant, you might avoid the risks and issues of renting to a family member.
Performing tenant screenings is one of the best things you can do to protect your investment. In fact, skipping these screenings is one of the costliest mistakes that landlords make.
When screening people, you can look into their criminal records and credit scores. These are the two best tools that landlords use for tenant screenings.
Know the Fair Housing Laws Before Renting to Someone You Know
Additionally, it might be helpful to look into fair housing laws under the Fair Housing Act.
This act prevents landlords from discriminating against applicants for rental properties by the person’s color, race, gender, and religion. While you might not worry about breaking these laws with family, you must use caution.
Landlords who violate these laws might end up in lawsuits. Therefore, you should familiarize yourself with these laws before becoming a landlord.
Steps to Take if You Decide to Rent to Someone You Know
After learning these things, you might still decide to rent your property to someone you know. If you do this, you might want to follow a few vital tips:
Perform a Screening
First, you should let your family member know that you will perform a tenant screening on them before agreeing to rent to them. By telling them this, they’ll understand that you’re treating them the same as other applicants.
Require a Lease
Secondly, you should still require a lease. You may even want to explain that you will require this and enforce it.
Hire a Property Manager
Finally, it might be helpful to look for a company that offers property management Memphis services. If you let a property manager run the rental property, you won’t have to deal with any of the issues.
Owning Rental Property Is Easier When You Hire a Property Manager
Owning rental property provides long-term revenue but requires a lot of work. Additionally, it leaves you in a precarious position when friends and relatives want to rent your units.
The good news is there’s an easier way to manage rental properties. You can hire a property management firm to do the work for you.
Would you like more information about property management services? If so, contact us at Reedy & Company. We operate in the Memphis area and can answer you questions and provide a quote for services.