If you’re renting out a house that you own, it’s better to rent it to people that you trust than to total strangers. Still, renting to friends can sometimes be a hassle, and you’ve got to think everything through before attempting such a venture. Here are some tips for homeowners who want to rent their houses out to friends or people that they know.
1. Write out a lease. No matter how much you trust the friends you’re renting your house out to, you should always get them to sign a lease. Lease templates are available online, and, in addition to serving as a legal agreement, you can use a lease to let your friends know what to do and what not to do in your house. A lease helps to clear up any early disputes that might arise over what bills you’re covering and what bills they’re covering, how to deal with repairs, etc. If you’ve been renting to friends for a while without a lease, it’s still OK to write one up and get them to sign one–make sure that you’ve got it all down on paper.
2. Talk to your insurance company. You probably aren’t automatically covered for any damage that your friends might inadvertently cause, or any damage that may occur to your home while you’re not living in it. Advise your friends to purchase renter’s insurance and make it clear that their property isn’t on your plan. If you know anyone who can check on the property regularly (or if you can do this yourself), that’s best–check for any repairs that need to be made, and if at all possible, make repairs quickly to avoid undue stress between you and your friends.
3. Report rental income. The government sees it as income, just like anything else–and you definitely don’t want to get caught owing rental money in back taxes, if you’ve learned anything at all from the United States Senate. Even if you take cash under the table, an audit will quickly discover how your home is being used, and you can’t ask your friends to lie to the IRS for you. You can still deduct home improvements, though, so you can probably minimize the tax damage.
4. If a dispute arises, refer to the lease. If your lease didn’t cover the dispute, or if you don’t have a lease (shame on you), have an objective friend decide the situation for both parties. Obviously you want to avoid going to court, as it’s really difficult for a friendship to be repaired from that point. Try to avoid disputes by listening to your renters and doing your best to accommodate them.
Do you have any other tips for renting a house to friends? Post in the comments section below.