I recently posted an article on how to not go it alone, on your maiden voyage into investment property ownership, First Investment Property Don’t Go it Alone. In addition to choosing a partnership path, I suggested another way to ease that first rental experience would be to line up a friends or family rental. That is exactly what I did on my first rental property and it definitely eased me into the process of managing an investment property. There were of course good and not so good aspects of choosing a party that I was very familiar with.
On the plus side I had a little more latitude in setting up the rental agreement. My first contract needed a few drafts to get to something approaching a legal and fair contract for all parties involved. I did use a real estate attorney but for consultation and review purposes only. I wanted to do all the actual creation and editing so I could understand and apply the process of making a viable rental contract in the future. I could not have done this type of back and forth with an unknown party, (I only make slight adjustments or corrections when negotiating the rental contract with a new rental prospect).
Another bonus was utilizing the personal skills of the person I was renting to for some much needed repairs, (for this service I discounted the rental rate for the first 6 months). I could not have been as sure that the projects would be followed through with an unknown party. One of the greatest benefits was allowing me to ease into the role of property management, without having to constantly worry if I was saying or doing the correct thing. One of the first habits I acquired as a result this, ‘more relaxed relationship’ was to always introduce myself on a first name basis to the rental party and avoid using the terms owner or landlord whenever possible. Theses are but a few benefits that come to mind, but there were a few down sides to renting to a well known acquaintance.
I quickly found that renting to a good friend caused me to greatly compromise on sticking points of the rental agreement. A case in point was the use of a large carriage house, which I Planned to use as my personal workshop and storage area. The renter insisted that this carriage house should be a part of the rental. Sharing the space, I quickly realized it proved very difficult to separate my ‘stuff’ from his ‘stuff’. I could tell we were both getting a bit irritated by the situation.
I found it a bit more difficult to be be persistent with the terms of the rental contract when renting to a friend. I am very firm with new renters on all terms within the rental contract, (when rental checks should be paid and what areas are considered common areas for example). I found myself being much more flexible with the terms of the lease, due to the friend status of the renter.
All things considered, I found renting for the first time to a friend had more upside then down. I have heard the adage, ‘that the quickest way to sour a friendship or a relationship with a relative, is to go into a partnership or have a tenant/landlord relationship with them’. I did not find this to be the case. Having this rental experience under my belt I have learned one important rule in picking a tenant, at least it holds true for me. Make sure you can get along with and communicate well with the potential renter. If you find this not be the case, consider other candidates that will be more suited to your management style. There is nothing worse than dealing with a tenant that you just plain can’t get along with!