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Leasing to a friend

Discussion in 'General Property Chat' started by Ethantheeel, 15th Feb, 2016.

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  1. Ethantheeel

    Ethantheeel Active Member

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    I am in a bit of a quandary. I am about to lease an IP to a friend and his family. Would you think it's a wise move to use a property manager with the lease? What are the pros and cons of either way. What are the costs of a property manager?
     
  2. Propertunity

    Propertunity Exclusive Real Estate Buyers Agent Business Member

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    I've leased to friends before but always use a PM. I'm glad I did. One wanted to break a lease early but decided not to when she discovered she'd be up for the rent until a new tenant was found. Another complained about the PM requesting they clean something following a routine inspection.

    PM's only cost 5-8% of the rent collected and it is money well spent (and tax deductible) to keep business (your PI business) separate from friendship (the PM is the badie - what can I do?) :rolleyes:
     
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  3. jpcashflow

    jpcashflow Well-Known Member Business Member

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    Hi,
    Is there any reason why you want to lease to a friend or family? With so many people looking at renting I would rather work with a real estate company and lease the property to people I don't know.
     
    Balman likes this.
  4. Jamie Moore

    Jamie Moore MORTGAGE BROKER - AUSTRALIA WIDE Business Member

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    This is exactly what I'd be doing.

    Remove yourself from the picture - and have the tenants deal directly with the PM.

    Cheers

    Jamie
     
  5. Lisa Parker- Buyers Agent

    Lisa Parker- Buyers Agent Well-Known Member Business Member

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    The pros of using a property manager are;

    Arms distance between you and your friends - ie) will keep business business and friendships friendships
    You will most likely be following all the rules and regs as a professional should be completely up to date with legislation for your state.
    The rental manager can be the bad guy in the event you have to deliver news to the tenants you may not feel comfortable delivering yourself


    The cons of using a manager

    I don't think there are any. (Unless you hire a bad one). There is obviously a small cost, however I think the fee is totally worth it. There are others who would disagree and love managing their own properties.

    It comes down to how likely you are to want to read up on all the rules and develop your own systems for managing the property effectively while following those rules. If that doesn't sound like fun it's likely you won't do it properly and let things slip which could in the end cost you the money you saved by not hiring a manager. If organization, spreadsheets and reading legislation floats your boat, then perhaps self managing will be a good fit for you.

    If you are not comfortable with setting and maintaining boundaries and if you are not completely comfortable with assertive communication I would suggest self managing will not be an easy or comfortable process.

    Personally I would hire a manager, but it comes down to what is important to you and what skill sets you have to lean on.
     
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  6. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Another benefit is if something went wrong, accident type of something, you would have someone to deflect the blame.
     
  7. hobo

    hobo Well-Known Member

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    We manage our own properties, yet IF for some reason I ended up about to rent to a friend, I'd put it through a PM. Cost would be worth it to mitigate the risk of tension later if things don't go perfectly or if people's expectations aren't exactly aligned.

    That said.... I doubt I'd ever rent to a friend.
     
  8. Ethantheeel

    Ethantheeel Active Member

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    Thank you to all who posted responses. Major reason is to simply help a mate and his family. Not in this to make anything ie positive gearing or loose anything. Simply to help him and his family get back on their feet. I treat him like a little brother and his family like my own.
    From advice given I think it is much wiser to use PM simply as a buffer if anything goes wrong.
    Much appreciated.
     
  9. THX

    THX Well-Known Member

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    Always ALWAYS keep family and friends at arms length in commercial dealings. If you're uncomfortable about that, look at it this way; it protects both of you.
     
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  10. Johnny Cashflow

    Johnny Cashflow Well-Known Member

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    I would avoid this.

    Make up some story such as" I have found a tenant willing to pay an extra $50 per week" or just tell them you don't mix business with family
     
  11. Paterson00

    Paterson00 Well-Known Member

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    I own a property which i rent to my brother. I set the rent 4 years ago at slightly below the market rate and at the level that i would have received if I'd used a manager so he could benefit without me missing out. 4 years on and every issue we have had with the house has been easy to deal with and hasn't had to be a rushed solution. He knows i need to live too so let's a few things slip that a regular tenant may not so all sounds good right?

    The flip side is that the rent is still the same even though the market rent in the area has shifted quite a bit. Why don't i put up the rent? Because i know that my sister in law is now going through her nursing degree which requires a lot if time from her. She had to reduce her hours at work to be able to complete the course. If I put the rent up to normal market conditions they will not be able to afford it on just my brothers wages so she will have to quit the course and go back to work and that could mean that they will not be able to fulfill their dream of emigration to Australia to join us. They live in the UK where in from.

    I'm losing about $400 per month which is huge. Would i change it? Not sure. WWJD?
     
  12. sanj

    sanj Well-Known Member

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    I've leased to 3 friends, 2 of them currently. Did not use an agent for any of them but had open and Frank discussions about pros and cons with my friends before and boundaries.

    I've also leased from friends and relatives multiple times in the past and they never used agents too.

    I'm currently renting off someone in an apartment project I was hired to deliver, another tenant is a friend and the other 2 apartments are managed by an agent. I've found with a personal approach even with the 2 other tenants everything runs a lot smoother

    Renting or doing business or lending money etc with friends and family is often spoken about as a silly thing to do, I have always done it and continue to do so. The key is to do it with the right friends and family and not simply because of the personal relationship. There are some people I'm very close to I'd never do it with because they lack the understsnding/perspective needed, no big deal there are others who do
     
  13. WalkaMile

    WalkaMile Member

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    Don't Do it. Unless your friend is a super reliable person to begin with, you are courting difficulties. If you are going to do it, make sure you are in a position to be generous and helpful. That being said, I have become friends with almost every one of my tenants.
     
  14. Ted Varrick

    Ted Varrick Well-Known Member

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    Have a good hard think about how long your friend will still be your friend, should something go pear-shaped... or. on the other hand, should you decide to move back in, which means they are required to find a new place...
     
  15. wylie

    wylie Moderator Staff Member

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    Sounds like this has already been decided. I would say that you be honest with your friend and ensure he knows you need the rent to pay your mortgage. I do think many people think we just put the rent into our pockets. For us no rent = no food because we pay our bank whether we get rent or not.

    I would ensure you do everything "by the book", all forms done, bond lodged as you would for a stranger. If you don't know how to do this then learn quickly or hand it to a PM at least to set you up and then take over.