Renting your investment property to friends or family?

Buying an investment property and finding the right tenant is easier said than done. Most of the times we are look for easier option – like renting the property to a friend or family members.

Renting your property to a friend or family may sound like an ideal solution. Not only are you able to fill your property with people you know, but your friend and or family member is given access to the property at a discounted rent.

While it may sound like a perfect deal, things can go horribly wrong. So, if you are planning to rent out your property to a friend or family member, there are few things you should do to ensure both parties remain happy at all times.

Financial & Taxation Obligations: If you charge anything less than market rent, the Australia Taxation Office will only allow a pro-rata claim of expense. Generally speaking, deductions for expenses can only be claimed up to the amount of rent received. So, if you are significantly reducing the rent for your friend or family member, you are limiting your allowable deductions.

Consider a Binding Agreement: When you rent out your property to someone you know, you may find you relax your general standards or make concessions you wouldn’t otherwise make. For example, you may not implement a binding lease or ask for a security deposit to be paid. If you don’t make things clear and set out a formal arrangement at the beginning, situation can end up being unbelievably bad if the relationship taints.

Repair & Maintenance: Generally, landlords are in charge of the property’s repair and maintenance. If you do not want this responsibility, it is good to indicate that to your tenant upfront and let them know that they will have to look after any repairs and maintenance the property needs as compensation for the reduced rent.

Payment Terms: If you want to ensure you receive a constant stream of rental income, it is important to outline upfront how much rent you will be charging, how often you expect that rent to be paid and where you would like the rent paid to. At the end of the day, you don’t want to be chasing your daughter, brother, cousin or best mate every other month for rent.

Bill for Utilities: Just as it is important to discuss rent and how you would like it to be paid, it also important to discuss how bills will be split. Will all the utility bills be paid by you as the landlord, or will you get your tenant to pay these bills? Perhaps you will pay for the water and get your tenant to pay for electricity. Having this discussion upfront and deciding who will pay for what will help the relationship to run smoothly down the track.

Provided all conversations around money, bills and responsibilities are held upfront and the relationship is managed effectively, renting your property to a friend or family member can be a good experience for everyone involved.