'I wish I hadn't done it': Is renting to family or friends ever a good idea?

Home owner Lisa wishes she had never agreed to rent out her Sydney investment property to a friend. 

The decision to offer her two-bedroom flat to a friend who was looking for a pet-friendly place to stay after splitting from her husband has taken its toll on their relationship and left the pair barely speaking. 

“I always said I wouldn’t rent to friends and I wish I hadn’t,” the Sydneysider told Domain. “It makes everything a lot more complex and harder to do the normal things you need to do to keep an investment property sustainable financially.”

“When things go wrong, it’s very hard to tell them that they can’t do that or they need to change what they are doing,” she said.

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Lisa self-manages the flat which she has been renting to her friend at market rate for one year and tried to address her concerns about renting to a friend with extra detailed points on the tenancy agreement. 

“She still complains about every little thing that is no problem at all,” Lisa said. “The cons (of renting to a friend) is that they think they are special and will get special treatment; also they may contact you often regarding things that are not of your concern (as a landlord), seeking help as a friend.

“Simply don’t do it,” was her advice to others considering renting to family or friends. 

L.J. Hooker’s head of property investment management Amy Sanderson said the key to renting to family or friends was setting clear guidelines before they moved in. She said that apart from signing a formal tenancy agreement, the parties should have an upfront discussion about boundaries and the level of contact they will have and their responsibilities for the property’s bills and maintenance. 

“When it works out, it absolutely does have benefits … a home is a really big financial commitment, so to have a complete stranger in there can be quite nerve-racking; to have someone you know in there, can be a big relief and really nice,” she said. 

“Also to be able to give a family member a roof over their head and some sort of stability is lovely – while everything is good, it’s great; but when it’s bad, it goes really bad.” 

Ms Sanderson said it could be challenging to avoid getting emotionally involved and doing yourself a financial disservice by making concessions for your tenant, such as letting them pay you back for rent.

“If it gets awkward or to a point that someone is not abiding by the lease agreement, you need to be comfortable to stand up and have those conversations. If you’re not, you should give it to an agent.”

McGrath leasing team leader James Lovell agreed and noted disagreements could be hard to resolve without a property manager.

“There is the chance that either the landlord or tenant will not hold up their responsibility, whether the landlord is not getting the repairs done or the tenant is not paying rent … when you have a relationship with them, the conflict can be more difficult to handle; you’re probably not looking at it just through the eyes of the law.

“If you are going to self manage, keep yourself covered and reference everything you do, quite often; especially between family and friends, things can be said and not documented.”

Lovell said that if landlords did their due diligence there was no reason the arrangement couldn’t work out well for both. 

Luke, from Shoalhaven, who has been renting out an investment property to his parents at slightly below market rate for about six years, said it was nice to be able to have a tenant you knew would respect your property. 

“My parents know this property will become something used to support us when we retire, so they are always making sure they take care of it. Some tenants just don’t think about having grease on their shoes and walking it over the carpet, or moving thier furniture over the lino or floor boards and ripping or scratching it up – they just think it’s wear and tear the landlord can deal with.”

He said he and his partner would always be willing to rent to selected family members.

“We have refused to rent to some family who drink heavily or have previously been evicted from places for damaging it or not paying rent … we were very close when I was a kid, but at the end of the day, these are investment properties, not charity, and you have to be willing to turn off the heart and work only from the brain.

“If it’s the right fit though it works for both sides. I think they see the positives we offer them – slightly cheaper rent if we can afford it and we regularly maintain the property and make sure it’s comfortable for them, and they offer us the security of having a long-term tenant and a respectful tenant and it means that we don’t have to pay an agent to manage our property.”

Five things you should do if renting to family or friends.

• Do a detailed property inspection and take them through it – don’t skip this step just because you know them.
• Complete a tenancy agreement.
• Set contact boundaries – can they call you whenever they like, can you drop in for a cuppa whenever you like or will you have more of a traditional landlord-tenant relationship?
• Determine what bills you will pay and what bills the tenant will pay.
• Discuss each person’s responsibility for the maintenance of the property to ensure no one is under the wrong impression.