One of the great joys of my life is my family, and I am sure you feel the same. We are spread out around the country now, so we can't all get together as often as we would like, but whenever the whole clan does gather in one spot it seems like a festival of joy, laughter and song. It’s a treat to see Grandma sitting there quietly, taking in all the love and affection that we feel for one another.
I surprise myself a little when I say that it is generally a bad idea to rent a house to a member of the family. There are just too many horror stories of the situation going bad; I would not want to rent my property out at the risk of ruining a friendship. The best thing about the following story is that it did not happen to me, but I was there and I saw how bad things got.
Claire and Bec
Three years ago, an old client named Claire called me to help determine what her house was worth. After helping her with the usual steps, we decided that she could reasonably ask $350 per week for her house, but Claire mentioned that she was in a hurry to get the house ready because her niece Bec was in need of a place to stay. Since Bec was family, Claire was going to give her a discount at $325.
The First Inspection
Bec moved in, kept up on the rent and everything seemed to be going fine, until the time came for Claire to do her six monthly inspection. The first surprise was that Bec had someone else living with her (apparently just short term). Being a favorite niece, Claire chose not to pursue the issue.
What she could not ignore was the fact that the place was a wreck. The carpet, which had been installed just before Bec moved in, was filthy. The bathroom was just plain frightening. It was awkward and embarrassing for Claire to tell Bec to clean things up, but she did.
Soon afterward, Claire got a very awkward call from her brother, accusing her of not treating Bec like ‘family’. As soon as she could, Claire got in touch with Bec to try and patch things up, but from that point on she felt like she was walking on eggshells when she was doing her property management chores.
“She’ll Understand, She’s Family”
The family Christmas dinner that year was a decidedly chilly affair. Claire's brother could hardly talk to her. At that point, Claire decided that she may just have to replace the carpets again when Bec moves out and put it down as a lesson learned.
Another 6 months went by without much communication. Then, slowly but surely, the rent was getting short paid, sometimes even a week late. Claire hesitantly phoned Bec to ask her about it. Bec had purchased a new car and was struggling to make the payments on the car loan. She thought Claire would understand because she was family.
Long story short, after making endless payment plans the rent never caught up. After another long 6 months, Bec was a month behind in rent and kept on playing the ‘family card’. Claire ended up building up the strength to send Bec a Termination Notice for non payment of rent.
The Result - Should I rent my property to Family or Friends?
You can imagine the call she got from her brother after that! Since Bec was family, Claire did all she could to make everything as amicable as possible, but there is only so far you can go - even if it is family.
After it was all said and done, Claire was out of pocket about $5,000 which included the carpets and loss of rent. This was after she used the bond for the cleaning. Lets not forget the discounted rent Bec received as well - $25 per week.
Once Bec moved out, Claire advertised her property with us. It cost her $150 to have her property advertised on realestate.com.au. In two weeks she had new tenants who have worked out very well for her. Claire has also become a big advocate for the rule we have all heard about not mixing business with pleasure.
Managing your property is a business, after all, and as I mentioned before, family should be one of the greatest pleasures of all. I cannot say that renting to family and friends is always a bad idea, but for me the risk is just too great. I am not referring to the financial risk, either. It is almost always a better idea to put the house on the rental market and take the steps to find the best tenants you can. Click here for more information about advertising your property.