So you have a rental property, and you’ve got a friend or family member wanting to rent it from you. Sounds perfect, right? You’ll know who is living in your property, so they’ll take better care of it and pay rent on time. Peace of mind for sure!

Sometimes, it really does work very smoothly, but other times, a deal like this can quickly go south. Over the years, I can’t tell you how many landlords have called me that tried renting to a family member or a friend, and they’re completely in over their heads. That “friend” isn’t paying rent, they destroyed the property, their lease is over and they won’t move out, and on and on and on.

Thankfully, there’s some pretty easy steps a landlord can take to help mitigate those risks.

Conduct a Proper Screening

First, do a proper screening. It sounds silly, running your co-worker’s credit report and doing a background check, but you want to make sure they’re fully qualified to rent their house. Just because you know them, doesn’t mean they’re going to make a good tenant. I would actually recommend having a property management company do the tenant screening and writing up your lease. Then, not only do you make sure you have everything done by the book, but you can also blame the screening on the property management company. “Aw, sorry co-worker Karen, my property manager has such high qualifications and they’re not letting me move forward with your lease.”

Sign a Lease

Next, be sure to have your tenants sign a lease. And make sure you have a proper, attorney-approved lease that is consistent with your state laws. Don’t grab a lease off the internet. It’s going to be missing important content that is applicable to your specific state. And by all means, make sure they sign a lease. Don’t just let them move in without a lease.

And speaking of the lease, make sure to enforce the lease when needed. If your friend is late on their rent, charge that late fee. If they want to have another adult move in, make sure to fully screen that person and get them added to the lease. If you don’t enforce the lease, then your tenant is going to think they can take advantage of you.

Collect a Security Deposit

One big mistake I see people make who are renting to family or friends is they don’t collect a security deposit. You have to collect a security deposit! This protects you, the owner, should the tenant damage the property or not pay rent. Do not skip out on this!

Document the Property Condition at Move In

Then before the tenant moves in, be sure to thoroughly document the condition at move in. Take many photos of all areas of the property, and write down any current damage. You can even find a move in condition report template online to do this. It’s important to document the condition so that when the tenant moves out, you can complete another inspection, and can easily determine what was tenant caused vs what was already there.

Check up on the Property 1-2 times a year.

During the time that your tenant lives in the property, even though you know them, it’s important to check up on the home every now and then. I recommend once or twice a year. You want to make sure that not only are they taking care of the rental property, but also that there are no unreported maintenance problems.

And while we’re talking about maintenance, I strongly don’t recommend allowing the tenants to complete their own maintenance repairs. Unless they are 100% qualified and insured to do the work, you run the risk of them getting hurt, or not repairing something properly. I’ve seen many landlords who end up having to spend more money correcting the problem than they would have spent just fixing it right the first time.

Charge Market-Rate Rent.

And before I finish up, one major bonus for you to remember. Charge fair rent. Just because someone is your co-worker, doesn’t mean they shouldn’t have to pay you fair market rent for your rental property. Why should you take a hit in the monthly rent? So many landlords do this when they rent to friends and family, and I don’t understand why.

Ensure Tenant has Renter’s Liability Insurance

And last, make sure your tenant has renter’s liability insurance. This is very important, and it’s pretty cheap for the tenant to get.

I hope this helps. Renting to friends and family is doable as long as you have the proper channels in place. My advice would be to hire a property manager to do the screening and lease for you, and then that way you’re started off on the right foot.

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