Renting to your relatives is never a good idea, especially if you value the relationship you have with them.
Part of your job as a landlord is to hold tenants accountable for paying rent on time, maintaining the property, and following the terms of the lease agreement. This isn’t always easy when you’re working with a sibling, cousin, or even a distant aunt or uncle.
We always recommend not renting to relatives. We’re going to share some details on why this is a bad idea, and we’re also going to make some recommendations about how to protect yourself if you absolutely must rent your property out to someone you know (and maybe even love.)
Charging Long Beach Market Rents
Rents are pretty high in Long Beach right now, and you might have some trouble charging what your property is worth when you’re trying to help out a family member. There’s a risk that you’ll give your relatives too good of a deal, which leaves you earning below market rents on your investment.
The other danger of charging below-market rents is that you can lose some of the valuable tax deductions that come with owning rental property. Consult your tax advisor because too much of a rental discount would classify your property as being used for personal reasons and not as an investment.
Take the time to do an analysis of what comparable properties are renting for, and don’t underprice your home. To protect yourself financially, you’ll want to do everything you’d do for any other tenant: collect a security deposit, charge market rents, and enforce a strict rent collection policy.
Enforcing Your Long Beach Lease Agreement
One of the biggest mistakes people make when they rent a home to a family member is not to sign a lease. You’re basically giving away your property if you don’t sign and enforce a lease agreement. You need a written contract that spells out the terms of the lease agreement, the amount of rent you’ll collect, and the expectations and responsibilities of you and your tenants.
Produce a lease, have your relatives read it and sign it, and then use it during the course of the tenancy to answer questions, resolve disputes, and hold them accountable to what they need to do. They might be your relatives, but they’re also your tenants.
What If You Have to Evict Your Great Aunt Alice?
You never imagine that your family members would need to be evicted, but what if they stop paying rent or they use your property for criminal enterprises? What if you decide you want them out, but they refuse to leave?
Eviction will be complicated. Not only do you have to meet the requirements of a just cause eviction, you also have to face the possibility that you may need to take your relatives to court. This is going to make future family gatherings terribly awkward.
Successful Long Beach Property Management
Professional property management in Long Beach is always a good idea, but it’s absolutely critical when you’re renting a home to relatives. Your property manager will serve as a buffer between you and your family member. You won’t have to do any of the communicating, rent collecting, or follow-up. By being completely removed, you may be able to rent to family members if you’re working with a great Long Beach property manager.
If you’re thinking about renting to a family member, talk to us first. We may have some other options for you. Contact our team at HCM Property Management.