A strong fence makes for good neighbors:
The prospect of renting to friends and family is something that comes up from time to time. Some people like to steer clear of that practice because of the potential damage it can do to relationships. I’m normally one of those people because our relationships are too important to put in jeopardy. That being said, we’ve done it in the past – both successfully and unsuccessfully.
This topic came up when I was talking to a couple who’s planning to rent a property that adjoins theirs to some friends. The conversation was a really good reminder about what you should and shouldn’t do in order to rent to a friend and not lose the friendship. First, let me tell you what we did wrong and then how we fixed it moving forward.
We had a friend who was moving to town and needed a place short term. After dinner one night, we sat down and laid out an agreement. Basically the friend would receive discounted rent; this was to keep costs low so they could have a down payment to buy the house they were looking for. In addition to the low rent, they were required to do some maintenance on the house. We set a term on the agreement and they moved in.
The first couple of months everything was great, but then the maintenance responsibilities started getting neglected, and payments began to be late. They eventually stopped.
When this happened, Ashley and I pulled out the agreement to see what we should do. That’s when it hit us like a ton of bricks: in our haste to help, we hadn’t drawn up a true lease. What we did was make an agreement with a list of obligations that didn’t define any recourse should those obligations not be honored.
Because we were dealing with a friend, we didn’t think about defining what would happen should things go sour. We didn’t think we had to – and it nearly cost us the relationship.
Moving forward, the best advice I got on this subject came from my buddy Mike Tarpey and again from my main teacher Bill Cook.
Bill put like this: anytime you enter into a business relationship with a friend, you should draw up your agreements as if you don’t know each other. Taking your friendship bias out of the equation will help you both clearly define your expectations of what will happen if things go well or if they go sour.
Tarpey told me he never has a problem renting to friends. That’s because he and his friends have a frank conversation before the arrangement begins. He tells them something like, “Renting houses is how I make my living. This agreement we’re making is a bunch of promises. I’m promising to give you a nice place to live and to take care of my landlord duties while you live here. You’re promising to do all the things a tenant is supposed to do that are set forth in this lease. I plan on keeping my promises, and I want you know that if this ruins our relationship, it will not be because I broke my promise. It will be because you chose to break yours.”
The wisdom Tarpey shared in that conversation is enormous. The point of a lease is to clearly define expectations for both parties. It lays out what the landlord expects of the tenant, it tells the tenant what the landlord will do for them, and it also lets both parties know what will happen if either of them doesn’t do what they promise.
In the case of the couple I mentioned earlier, the lease is a fence that clearly defines boundaries and expectations between friends. And as the husband so eloquently put it, for them, “a strong fence will make for good neighbors.”
Joe and Ashley English buy houses and mobile homes in Northwest Georgia. For more information or to ask a question, go to www.cashflowwithjoe.com or call Joe at 678-986-6813.