Mixing personal with business is a set up for souring both pursuits; the real estate field is no exception to overlap in family and enterprise. Renting a property to family can get sticky whether your cousin is running a store out of your commercial space or whether your son is living in your basement.
A good rule of thumb is simple: don’t rent to relatives. In fact, don’t even tell them you have space to rent!
Wouldn’t it be nice if life was that cut-and-dry?
Sometimes people need a break, and you want to help. If a family member wants to use a space that you can provide and you want to rent to them, then you are best off treating them like any other renter.
What to Consider When Renting to Family
Consider their application fairly
If a relative’s application ends up in the pool of potential renters, you cannot deny them simply because they are family. Do your best to consider their written application as objectively as the others. Hiring a property manager who will handle this step for you is a great way of taking your bias out of the equation.
Charge a fair market price
If you do choose to rent a commercial or residential space to family, charge a fair market price. Make certain that your rental price is within a similar range of comparable rental spaces in the area, and be able to prove that the lease is an appropriate value.
You may not have thought about taxes, but charging a lower rental price to someone you know can cause your property to be regarded as a personal residence by the IRS. You could lose thousands of dollars in business deductions.
Be Consistent with a Written Lease Agreement
An oral agreement and a handshake is not a binding business record. Insist that your tenants sign a detailed, written lease. Not only will a written lease protect you and your property but it also sets clear boundaries and expectations from the beginning of the rental arrangement.
Remember, if your tenants violate the lease, you will need to take action. A property manager can be invaluable when you need someone to enforce an agreement with relatives.
Consider their usage of the property
If the relative is not going to be residing in the residential property full time, the status of the home as a rental property is compromised. Make sure that you have a tax professional help you understand the complexities of rental usage.
Collaborate with a property manager
Hire a property manager to be the liaison between you and your renting relative. This step can preserve the relationship if things go sour with the property or vise-versa. Blue Mountain Real Estate can help you with that!
We manage properties all over Colorado Springs, and we are prepared to handle yours with the same detailed care and professional respect that we give our own families and properties.
Renting to relatives can be sweet or sticky. We are here to make sure things stay on the sweet side.