Renting to Relatives and Friends: Tips for Success

 

Most would argue that nothing is more important than family, but meet a landlord and ask them this, do you do your business with family?

Those that are hesitant, have stories to share, and some of these are landlord stories. Renting property to relatives or close friends can turn out in two ways. On one hand, it’s an opportunity to help someone you care about; on the other, it can quickly lead to misunderstandings, conflicts, or financial strain if not handled properly.

While it’s natural to want to extend a helping hand, it’s important to remember that real estate transactions—whether renting, buying, or selling—work best when handled with professionalism and clarity. This is where the concept of arm’s length transactions comes into play.

What is an Arm’s Length Transaction?

An arm’s length transaction is a real estate deal conducted by parties who have no close personal or familial relationship. This ensures that all terms of the agreement, including pricing, are fair, transparent, and free from bias. It is Ideal because an Arm’s length agreements protect both parties by keeping things strictly professional. When emotions or personal connections influence a deal, it can lead to unrealistic expectations or financial loss.

But what if you’re renting to a family member or friend—a situation far from "arm’s length"? Here are some tips to ensure the arrangement works for both parties:

Tips for Renting to Relatives and Friends

1. Treat It Like a Business Agreement

It needs to be business as usual when renting to them. The Danger is in failing to approach the arrangement professionally may result in unpaid rent, disputes, or damaged relationships. So, create a formal lease agreement that outlines all terms clearly, just as you would with any other tenant. Include details about rent amount, payment deadlines, maintenance responsibilities, and consequences for late payments or breaches of contract.

2. Set Boundaries Early On

Uncommunicated expectations by landlords only lead to losses so you need to clear mark out the personal and business relationships to avoid misunderstandings. Discuss expectations upfront and stick to them. For instance, clarify that rent payments should be made on time or on a specific date, regardless of your personal connection.

3. Conduct Proper Screening

Yes, you know this person, you might have a rough idea of their finances, or it may be that you don’t want to ask for personal information like income and credit history or recommendations. If you can’t do it, at least hire a property manager to do it and pretend it’s a formality. Background checks confirm their ability to pay rent and maintain the property. This protects both your investment and your relationship.

4. Maintain Professional Communication

Family and friend will always have more reasons to call you, together with more reasons, excuses and favors to ask. I mean, they are still family so in most cases, emotional conversations will cloud judgment. So, Keep all communications about the rental arrangement professional. If problems arise, address them calmly and constructively.

5. Have a Backup Plan

If the arrangement goes south, it could damage your relationship and your finances. So consider have a “worst case scenario plan” or simply “an exit plan.” Consider setting a time limit on the lease or agreeing to revisit the arrangement periodically. This gives both parties an exit strategy if things don’t work out.

Most landlords that cannot be religious about doing this choose not to rent or mix business with family so assess yourself and see. Renting to family or friends doesn’t have to be a recipe for disaster.

I’m thanks you for joining us in this article, and I’ll see you in the next. Let us know your thoughts—have you ever rented to a relative or friend? How did it go?