It’s important to ensure your investment property remains a profitable asset and provides you with a steady flow of rental income. Whether that means renting to your friends and family or someone else, is a tricky situation.
Royden, a property manager in Brisbane who has over 15 years’ experience in the real estate industry, agrees renting out to friends and family can be a tricky situation to be in.
Top 5 mistakes when renting to friends and family
- Not having a property manager. Property Manager’s have the responsibility to chase things like late rent payments, which can make It awkward when you know the tenant well. A property manager can handle everything professionally and therefore can ensure your personal relationship isn’t tarnished in the process.
- Being lenient when your tenant falls behind in their rent. This one is pretty plain and simple, do not ‘let it slide’ when your friend or family member does not pay the rent on time. Be firm with the tenant and remind them that this property is your source of livelihood. If they continually do not pay rent on time, certain notices must be issued within specific time frames, including a termination notice should the situation arise.
- Skimping on property inspections. You may feel it’s not necessary to conduct regular property inspections when you know the person you are renting to. Property inspections are essential before the tenant moves in and every three to four months while the tenant is in the property to ensure it is being kept in good condition, and so that they can alert the landlord of any maintenance issues. If you don’t do property inspections you are setting yourself up for legal liabilities if something happens to the tenant that could have been prevented.
- Not having landlord insurance. Landlord insurance is in place to help protect investors from the costs and risks of owning a rental property. Items that are covered with landlord insurance are, malicious damage by tenants, accidental damage, loss of renal income if a tenant departs suddenly or legal liability.
- Not having a formal tenancy agreement. Not having one of these is bound to cause problems further down the track. No matter how much or how well you know your tenants, the terms set out in a tenant agreement can help solve problems and disputes should they arise.
Five things you SHOULD do if renting to friends or family
- Complete a tenancy agreement
- Determine the bill situation- What will you pay for, and what will the tenant pay for?
- Do a thorough property inspection and take them through it with you- DO NOT skip this step just because you are friends with them.
- Discuss maintenance in detail- What are your responsibilities and what are theirs, to ensure no one has the wrong ideas.
- Set boundaries with phone calls- Can they call you whenever they like? Can you drop in whenever you like? Or will you make it a traditional landlord-tenant relationship?