Blood is thicker than water as the saying goes. It makes many property owners think that it is better to have their relatives as their tenants than renting them out to strangers. But, there are some risks involved specifically if you bypass some important rules.
The following are some guidelines to follow if you want to avoid seeing yourself in unwanted situations:
Have A Legal Tenancy Agreement
Regardless of your closest to your tenants, having a formal legal agreement is a must. It protects your rights as a landlord and your tenants at the same time. This tenancy agreement will act as a reminder for all parties that each of them has a responsibility in the tenant-landlord set up.
Maximize Tax Efficiency
When your relatives are also your tenants, your property has a high tendency to become a personal use property. It can affect your tax efficiency. You will lose rental deductions and may need to claim rental as income in returns. Prevent this from happening by structuring your property correctly. It means you have to prove that it is a rental property even if you have a relationship with your tenants.
Be Strict with The Rent
Do not forget that your rental property is your business. You need rent payments if you want this business to be profitable and successful. Charge your relatives a specific amount and try to address missed or late payment accordingly.
Start on the first few months and continue to do so. It can help prevent any conflicts from happening if you decide to charge only after several months or years.
Communicate with Your Tenants/Relatives
Setting aside your relationship, this is mainly a business transaction. Talk to your relatives and discuss any topic that is under the tenant-landlord relationship. Talk about the duration of this arrangement. What are the expectations and responsibilities of both parties? Include the guidelines your tenants need to follow, as well as who will deal with certain repairs.
Register Your Rental Property
According to the local government laws, you are required to register your rental property. However, the rules vary when relatives are renting out residential property. Check the rules in your locality and abide accordingly.
The family is important, but it is also important to keep the peace while being a landlord to them. Consider it also as a business transaction and check with your agent about umbrella insurance. At Mauser & Tobin Co., Inc., we aim to make our client's life easier with policies that are tailored to their needs. You can get more information about our products and services by calling our agency at (516) 747-0171. Get your free quote today by CLICKING HERE.