Family and friends – you can love and admire them, BUT should they become your tenants?

This is a form of nepotism – the practice of showing preference to family and/or friends in economic or employment situations. It has both pros and cons and it is an area where a very prominent “proceed with caution” sign should be posted.

When you have a property that is available for rental, it can make a lot of sense to offer it to a friend or family member. For one, it makes you feel good to be able to provide assistance when someone you care about needs help or is struggling. And for another, it’s easy to believe that because you are providing them assistance, they will appreciate your good will by paying rent on time and being good stewards of the property. As an added bonus, you probably think you’ll always know where you can find them if they DO try to skip out on paying for rent or damages.

But if you are contemplating renting to a friend or family member, first ask yourself a few important questions:

• Are you violating any Fair Housing laws, rules, or regulations by favoring a friend or family over another qualified tenant? 
• Are you considering a friend or family member as a tenant based on sound business practices? 
• Have you considered that this could strain or permanently affect your personal relationship?
• Are you creating a difficult relationship with them, yourself, and other members of your friend group or family?

I once had an owner client who hired my company, Front Porch Property Management, strictly for the purpose of renting a family estate to her niece and her family. She hired us because, even though she knew she would rent to them, she wanted them to go through the vetting process using an independent third party. Then, after offering them the home, the owner retained our services for rent collection. It was really smart of her to stay out of the rent collection process and let Front Porch Property Management take responsibility for that portion. We became the middle-man – so to speak. And because we were neither emotionally attached to the people, or the property, we could connect them to the rent in a strictly business fashion.

It is critical – when considering any family member or friend as a tenant – that your actions comply with federal and state law, particularly regarding Fair Housing. Your friends and family need to undergo the same processes involving showings, applications, processing, security deposits, rental payments, and more. If another applicant were to accuse you of ignoring the practices you required of her in favor of your family member, you could find yourself charged with discrimination, which could be very costly in fines and attorney’s fees, and not something you want on your landlording history.

Hiring a property manager to help with this process is a savvy move. As such, we have numerous methods to properly qualify a tenant, and we don’t take into consideration that they are family. Since conducting background, employment, and credit checks are very personal, it’s probably an area you and Cousin Jerry would prefer you are left out of anyway. Knowing those kinds of details are best left to professionals who protect that information securely and aren’t interested in possibly using it against you in the future.

Consider how this tenancy could affect your personal relationship, particularly if they do not pay rent or if they damage your property. When things are difficult, emotions can easily turn into explosive situations, causing more complications than you might have expected. Therefore, this friend or family member must be able maintain a business relationship without using their personal connection with you to drum up sympathy or empathy for their situation.

Another consideration is that it can strain or permanently dissolve the professional relationship with your property manager. As your management company, we want the best for your investment and we may not see your friend or family member as the best solution for your property. We must operate within the federal and state laws or jeopardize our entire business and licensing; otherwise we cannot work for you. Therefore, we will require your friends and family members to follow the same processes for tenancy as everyone else. Remember, our procedures are to protect you.

If a friend or family member approaches you about renting your property, here are some tips on how to handle the situation:

• Try to look at them objectively as tenants, not as a friend or family member.
• Let them know that as a landlord you are required to follow all federal or state laws and regulations. You are not in a position to suffer losses if there is a Fair Housing complaint.
• Take steps to outline expectations from the beginning, detailing what they can expect from you as a landlord and what you should expect from them.
• Have a sound Lease document that addresses as many scenarios as possible in a legally sound way.
• Consider hiring a property manager to be your “barrier” to issues concerning the property like rent and maintenance. This takes you out of the day-to-day matters, and reduces the likelihood that feelings or personal issues will interfere.
• If you hire a property manager, make it clear that your personal telephone numbers are for friend or family time only and that all other issues must go through the property manager.

You may have experienced a tenancy with a friend or family member in the past that was satisfying and successful, or it could have been a complete disaster. Either way, before you embark on this journey again, consider hiring Front Porch Property Management as your gatekeeper. We will help to ensure that “business” doesn’t get in the way of personal relationships.