Is renting to family and friends wise?

Salvatore J. Friscia
Salvatore J. Friscia | 3 min. read

Published on May 16, 2011

As a property management company, the majority of our accounts are derived from real estate investors; but many of our accounts come from owners that have only one rental unit, which is usually a prior primary residence. They may have self -managed the property at one time ,but usually something occurs that invokes them to seek professional property management. There are many reasons why, but for some, the final straw comes after dealing with the aftermath of renting to a family member or a friend.

Rental real estate should be treated like any other business venture; but if you’re not accustomed to being a landlord, it seldom is. Many new landlords make the mistake of filling their vacancy with friends or family members to avoid having to actually deal with finding a qualified tenant. At first, the situation may seem like a perfect fit and a great way to reduce costs associated with vacancy and marketing. In most cases, the owner/landlord will typically relax qualification measures and make concessions based on the relationship, including not requiring an application or security deposit.

Right from the start, this creates a relaxed environment and allows the family member or friend to perceive the situation as somewhat casual and flexible as opposed to contractual. Because they know the tenant, the owner often develops a false sense of security and doesn’t anticipate any problems: “I know this person, and I’m helping them out, so why would they take advantage of me?” Unfortunately, the truth is that many of these situations are clouded from the start, and consequently turn out worse than when a normal tenancy goes bad.

This clouded thought process is the failure of the owner to consider the consequences that things can and will go wrong. All tenancies, regardless of how good or bad, have a beginning and end, as well as rent increases, repairs, and other difficulties. This is just the nature of managing rental property. How will you handle the family member or friend that can no longer pay their rent, consistently pays late, or worse—damages your property? Are you prepared to increase the rent on Cousin Mary, impose a late fee on your friend Susan, or evict Uncle John? Will this cause discomfort and issues within your family or strain a long-term friendship? These questions must be considered first and foremost, and should strongly be factored into your business decision.

Please understand that these situations do not always turn out badly and end in disaster. Renting to family and friends is risky, and the consequences should be weighed beforehand; but there is nothing wrong with helping out family or friends when possible. If your situation and financial means allow you to do so without the concerns mentioned above, then it is a judgment call on your part. Let’s face it—there is no guarantee that anyone will pay rent and be a model tenant; but handling the recourse of a bad tenancy is very different when dealing with relatives or friends. Having a third-party property management company as a buffer can be a big help in avoiding these situations and mitigating them should they occur.

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Salvatore J. Friscia

Salvatore J. Friscia is the Managing Broker at San Diego Premier Property Management in California.

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