How to Avoid a Headache When Renting to Family

How can you avoid headaches when renting to family?
Photo: Alan Cleaver

Many real estate investors will ask themselves the question“should I rent to family?“

While it is great to be in a position where you can help out someone you care about, it is important to maintain professionalism – after all, this is your investment.

Always ensure that you plan the details carefully and that everyone knows what is expected of them. Whether you are considering renting out your property to your own children, a brother or sister, niece or nephew, or even just a friend, renting to family comes with an entire extra set of issues.

Here are 5 tips to avoid headaches when renting out a home to family.

1. Charge Them Rent

In keeping with professionalism, you of course need to charge them rent. Even if you are in a comfortable enough place financially that you don’t feel you need to charge them rent and perhaps they’re having a tough time and you would like to help them out, this can cause real long term issues.

Wouldn’t you have liked to live rent free? Your tenants aren’t going to want this to end – and you’re likely to find yourself in an uncomfortable situation down the track.

Even if it’s a discounted rate, or a temporarily discounted rate, when renting to family, always charge rent.

2. Be Strict on Payments

When renting out your home to a friend or family member, ensure that you are strict about payments.

It can be very easy to let late rent payments slide here and there, but this can quickly become routine. There are laws that protect landlords when tenants default on their payments – but being too lenient early on can affect insurance claims later.

It’s important that you inspect the house you are renting to family
Photo: Wonderlane, Creative Commons

3. Inspect Your Property

As with any other rental property, it is important that you inspect the house you are renting to family often.

Although you may trust them to look after your property with good care, this does not mean that you are guaranteed to be free from any liability claims should your friend or family member living in the property hurt themselves due to a maintenance problem.

“It is important that you inspect the house you are renting to family often.”

Again – this point ties back to professionalism. You wouldn’t skip over inspecting your investment property if you were renting it to someone you didn’t know, and you shouldn’t neglect to even if you know the person or people currently living in your rental home.

4. Don’t Neglect Landlord Insurance

Similarly to the above point, if you are renting out your home to family ensure you get landlord insurance as you would if you were renting to a stranger.

You would of course expect the tenant you know to take care to protect your investment property – but accidents happen and damage can occur, whether it is intentional or not.

As an added bonus, some insurance companies will award you landlord insurance at a discounted rate if you know your tenant.

5. Know What You Can Claim

The last point to remember in order to avoid headaches when renting out your property to a friend or family member relates to the first point – charge them rent.

While you may ultimately decide to charge them a lower rental price than you realistically know you could earn if you were to rent your home to a stranger, it is important to know prior to agreeing on a rental price that you know exactly what you are entitled to claim once tax time rolls around.

For example, in the past some landlords have found themselves in the unpleasant situation where they have charged a tenant they knew a heavily reduced rent and were unable to claim the big tax deduction they had hoped for.

For more information, see the ATO guide to what you can claim for rental properties.

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