Uncle Pete needs a place to live, and everyone in the family is looking at you because they know you have rental properties.
How will you respond in such a situation?
We would like to caution you: renting out a property to a family member or a friend can be a risky business.
As property managers in Las Vegas, we generally don’t recommend it. Lines can get blurred between the personal and the professional, and it can be difficult to set boundaries with someone you see at Sunday dinner.
While we don’t love the idea, we know that sometimes it’s inevitable – you’ll rent your property to a person you are related to. Or, maybe a friend who feels like family.
The important thing to remember is this: you’re running a business. And, you need to protect yourself.
If you’re going to allow a family member or a friend to move into your rental property, make sure you’re working with a Las Vegas property management company. Professional management is always a benefit to landlords, but in a situation like this, it’s absolutely essential. You’ll need an objective party managing the day to day business so you don’t have to.
Let’s take a look at some of the risks that exist when you rent to a relative, and what you can do to avoid them.
What Will You Charge Your Relative in Rent?
Las Vegas rents have risen recently, and when you’re renting out a home to a family member, you may feel pressured to give them a good deal. That’s hard to swallow when you find yourself in a thriving rental market, where you should be earning a comfortable rent.
Keeping rents artificially low just because you know your tenant will cost you a lot.
When you give your relatives too good of a deal, you’ll be left losing money. The rent you earn every month will be far below the market. You’ll never get your family member or friend out of your unit when they get comfortable paying your lower-than-market rents. Anywhere else they moved would require a much higher rental rate, and why would they want to pay that? This keeps you stuck, and you’ll never make up the money you lose with below-market rental values.
The other danger in 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. This could have a dramatic effect on what you’re able to deduct at tax time.
Charge your relatives the market rent. And, make sure you’re treating them consistently – the same way you treat other tenants. You’ll want to:
- Screen tenants, even if they’re tenants you know
- Collect a security deposit
- Charge market rents
- Enforce a strict rent collection policy.
Be clear about what your property should be earning. Don’t collect much less than what the market demands.
You’ll Have Access to Personal and Financial Information
Do you really want to know your relative’s credit score? Are you comfortable checking their criminal background? This is another potential problem: the access you’ll have to very personal information.
You might think there’s no need to screen your friends or family members. But what if they’re bankrupt? What if they’ve been evicted from three rental homes in the last two years?
These are things you need to know before you hand over the keys to your investment property.
As you know, a successful screening process includes the following:
- A credit check.
- An eviction check.
- Verification of income and employment.
- Reference checks with past landlords.
- Criminal background checks.
Do you really want to know what your family members earn and what your friends earn? This could make things a bit awkward when you gather at Sunday dinner or meet up for brunch.
Not screening is impossible. You have to know that your tenant is a good risk, even if it’s a tenant that you know. Talk to your friend or family member and let them know that the screening process is required for everyone. They’ll have to fill out an application and consent to a background check.
Your Cousin Moves in with an Unauthorized Pit Bull. No
Hold your relatives accountable. If you don’t allow pets, don’t let your family members bring pets into your property. If you don’t allow smoking, send them a lease violation letter if you detect smoking at the property.
A lot of Las Vegas landlords who rent their homes out to relatives or friends don’t bother putting together a lease agreement.
This is a big mistake.
You need to have a lease agreement in place, no matter who you’re renting to. Even if it’s someone you’ve known your whole life, a lease protects you and your tenant, and it also protects your property.
Just like any lease you’d sign with tenants, it needs to be legally enforceable in Nevada, and it also needs to comply with all of Nevada’s rental laws. The lease agreement you sign with your friend or family member must include:
- Your rent collection policy, including how much rent is due, when it should be paid, and how it should be paid. Include information on grace periods as well as late fees and other consequences.
- The process for letting you or your property manager know about a repair need. Maintenance requests need to be made promptly, to avoid any expensive deferred or unreported maintenance.
- Pet policy information. If you’re allowing pets, charge your friend or relative a pet fee and pet rent just like you would with any tenant. You’re still protecting your property from the potential damage and risk that comes with pets.
- Rules and requirements. Address smoking, guests, prohibitions against changing the property, and any HOA regulations and rules if your property is in an HOA.
- Note the security deposit that was collected and the things your tenant will have to do to get the deposit back.
- The terms of the lease agreement. It cannot be open-ended. When does the lease start and end?
Think about how you’ll handle a potential lease violation. Will you be able to keep your friend or relative compliant? Can you hold them accountable?
Las Vegas Property Managers Protect Your Investment
Don’t be a landlord to a family member.
Instead, partner with experienced Las Vegas property managers.
When you have property managers taking care of the leasing, the management, and the maintenance of your investment property, you don’t have to worry about allowing your rental to become a source of stress for you. The business of your investment is continuing to operate as it should.
Property management allows you to set important boundaries with family members. You don’t have to discuss rent, maintenance, or what’s going to happen at the end of the lease term. All of that is between your tenant and your property manager.
This will keep your family relationships exactly where they should be. When rent is a day or two late, the late fee is coming from the property manager – not you.
The problem is that your friend or family member will still have access to you. When landlords and investors rent out a property through a management company, they don’t expect to interact with their tenants at all. Residents usually don’t even have their contact information.
But, your tenants know you. Whether it’s a friend or a relative, they’ll know how to get in touch with you and where to find you. Always keep the boundaries you’ve created with your property management partner. Don’t be afraid to kick any conversation back to your property manager. If your tenant complains about a late fee, refer them to the management company. If they want a new appliance, have them talk to your management company. You have to keep yourself completely out of it, as difficult as that may be.
This is an important buffer to have between you and your tenants. You won’t have to worry about hurting anyone’s feelings or hurting the profitability of your rental property. It also keeps you compliant with all fair housing and other rental laws. You can easily get distracted by what you’re responsible for when you’re renting to people you love.
Hire a property manager. It’s best for you, your tenant who happens to be related to you, and your property.
We believe that renting to relatives is not a great idea. Especially now, when rents are so high and there are plenty of well-qualified applicants willing to rent your home. If it’s inevitable, however, and you know that a relative will be moving into your rental property, make sure you get protection and good advice from a Las Vegas property manager.
We can help. Please contact us at New West Property Management. Our team expertly manages residential rental homes in Las Vegas and throughout Clark County, including Henderson and North Las Vegas.