If you own your home, you’ve probably thought about renting out a spare bedroom to increase your monthly income and pay down your mortgage. And renting to friends or relatives is better than finding a “random” roommate through word-of-mouth or Craigslist, right?
At least, that’s what I thought. I purchased my first home in July 2013, and my younger brother moved in shortly after. He cuts the grass, cooks dinner and pays rent. I also rent the third bedroom to a childhood friend, and as such, pay virtually none of my $850 a month mortgage, although I do cover all of the utilities on my own.
While renting to friends and family you “know” may seem like a good idea, it can actually be more difficult than you realize — and if you’re not careful, can do lasting damage to your relationships. Here’s what I learned while serving as a landlord to my friends and family.
Be Direct in Your Communication
Communicating with friends and family is definitely more difficult than with communicating with someone you don’t have a personal relationship with. I know this seems counterintuitive, but even the best personal relationships may feel strained when mixed with money and living situations.
For starters, if there’s tension, you not only have to worry about clearing the air, but making sure you say what needs to be said in an appropriate way and at just the right time. While you may feel comfortable telling a random roommate “I need the check by the 5th of the month,” you may not be so forward if your roommate is your baby sister or best friend. I have an especially hard time with this as I hate nagging and feeling like I’m “demanding” money from people.
Here’s how I got over this hurdle: I’ve found it’s best to set aside time to talk specifically about the issues, rather than just adding them onto the end of an otherwise friendly conversation. If you really don’t want to talk face-to-face, an email can often get the point across in a pleasant, non-confrontational way. Consider what strategy your loved one will best respond to; some people may view an email as a “cop out,” while others may prefer to react on their own time.
If you’re still struggling to address issues directly, repeat to yourself, “It’s just business, it’s just business.” Sure, it can be tough to have direct conversations with close relatives and friends, but you have to look out for your finances as well.
Know Your Rights — and Your Tenant’s
Did you know that your tenants have different rights depending whether they’re friends or blood relatives (parents, grandparents and siblings)? In most states, even paying rent each month does not give blood relations “tenant rights” in a family home — the line between “landlord” and “family who helps out around the house” is blurry. (Click to tweet this idea.)
For example, if you’re related to your tenant and want to kick them out, you’re often legally allowed to simply throw their belongings out on the lawn. If you wanted to do the same to a friend, you’d need to initiate eviction proceedings because they have basic “tenant rights.” This can be advantageous if you rent to a family member, then things get ugly and you want to kick them out of the house without the hassle of eviction proceedings — especially if they leave without notice or damage the house. You can’t sue them, but you don’t owe them anything either.
Establish Rules and Get Everything in Writing
Paying rent and being a friend of family member doesn’t mean your tenant gets to do whatever they want. Rules differ when renting a separate home versus renting out a room in your own living space, but consider what’s non-negotiable for you and communicate these rules before anyone moves in.
For example, I have a general rule about not having friends over after 10 p.m. on weeknights, and I also have a rule about parking in the driveway. If I rented out a separate single-family home, I wouldn’t need those rules, because they wouldn’t directly affect my comfort.
Both you and your tenant should sign a written rental agreement. Having a written contract, even an informal one, is a great way to shore things up between the two of you and make sure you’re on the same page regarding rent payment, shared responsibilities, move-out dates and house rules.
Lay Down the Law
Once you’ve signed a rental agreement, stick to it, even when it gets tough. You’ve communicated directly, researched your rights as a landlord, and agreed on house rules. Your home is your asset and you have the right to feel comfortable with what goes on there.
These tips aren’t meant to scare you. Living with close friends and family can be wonderful, since you know them well. You don’t have any hidden crazy neuroses to worry about, and they can provide a wonderful support system you wouldn’t otherwise have access to. When my ex and I split up, my brother was right there for me, helping me through the worst of the breakup. Renting to loved ones can also make a house feel more like a home, and be a great way to keep up with one another. Just make sure you know about the challenges before diving into an arrangement like this.
Your Turn: Have you rented to (or from) a family member or friend?
Lauren Bowling is the blogger behind popular personal finance site, L Bee and the Money Tree, a diary of her financial triumphs and mishaps. As a writer, Lauren’s work has been featured on The Huffington Post, Yahoo! Finance, and Credit.com. She lives in Atlanta with her dog, Murray, and spends her free time renovating her first home and eating frozen yogurt.