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August 28, 2009
Renting to a Friend
Hello, all. I'm about to close on a 4-family home in Prospect Heights (yey!). One of my best friends who really likes the neighborhood has asked me if she could rent one of the units. While I know that she would be a great tenant (during the 11 years that I've known her, she's always been very responsible), I worry about introducing the landlord/tenant dynamic into our relationship. She doesn't understand why I think it would be a problem. Does anyone on this forum have any opinions or suggestions? Thanks!
Comments
Keep the renting portion of your relationship formal - use a lease, take rent money in checks or money orders only (no cash), etc.
**Bring Back Robert on Fridays**
Posted by: InsertSnappyNameHere at August 28, 2009 10:56 AM
Add riders to the lease about anything you think might be tacitly understood - e.g. spell out responsibilities for putting out rubbish, separating recycling, etc. & things that might fall between cracks since you (probably) won't have concierge service.
Posted by: Arkady at August 28, 2009 11:02 AM
Make sure it's clear to your friend that this is your business and you need the money on the first and charge a fee to all tenants that don't have rent in X days after. Potential for problems, and potential for it to be a good arrangement for both parties.
Posted by: Johnny at August 28, 2009 11:08 AM
The mere asking of the question suggests the answer. The answer is a resounding "NO NO NO"! Your new endeavor -best of luck, by the way - is a business venture and the introduction of any personal interest in it is a negative. There is no upside to you. Is your friend going to pay you more rent than someone else? The list of potential problems is endless. BTW, you don't say if you will be living in one of the units and if the answer is yes, multiply the intensity of this response by 10. Business is business. And yes, I am a landlord.
Posted by: Hank at August 28, 2009 11:22 AM
What Hank said. Don't do it... instead, help them find an apartment in the neighborhood by talking to your new neighbors.
Posted by: Carl at August 28, 2009 11:26 AM
as a landlord, the biggest risk is renting to some deadbeat, apt destroyer,.... so renting to your friend that you KNOW is responsible is a ton better than to some stranger you HOPE will be responsible. Not disputing what others saying above cause they're legit concerns but rather pointing out a big positive in the situation
Posted by: more4less at August 28, 2009 11:30 AM
Respectfully disagree with "more4less" position. Firstly, you will be surprised at how quickly your friend may come to expect special consideration even including late payments and, worse, no payment (in the event of job loss, etc.) Obviously this can happen with any tenant but personal relationships engender "special" favors more readily. And do not simply "hope" when assessing a potential tenant and NEVER rely on a real estate agent's word as to the quality of the person(s). R/E agents are salespeople and they will tell you anything just to get the commission from the tenant. There are many ways to screen a prospective tenant on your own and past the scope of the R/E agent. Think in terms of: credit check and FICO score; previous landlord(s); current employment, etc, etc, etc. Nothing can guarantee you 100% especially in today's economy but due diligence on your part will mitigate your exposure tremendously.
Posted by: Hank at August 28, 2009 11:46 AM
If she is one of your best friends, your relationship with her won't get that much better, but has the potential to get a lot worse.
Posted by: newhomer at August 28, 2009 12:05 PM
Hank, I respectfully disagree with you. simply because what you describe is not someone I would define as a friend but rather an associate. True friends dont do that to another friend. So issue would not be renting to a friend but be wiser to whom you grant the "good friend" label to.
Posted by: more4less at August 28, 2009 12:05 PM
Don't do it. Her choices expand daily as rents fall. If she fails to understand, she's not really your friend. You've already made a mistake by buying near peak comps. Don't fuck this up.
***Bid half off peak comps***
Posted by: Brownstones Half Off at August 28, 2009 12:08 PM
Well, only the OP can determine whether or not it's a risk that he/she wants to take and how good of a friend this potential renter is. I'd just say if you do rent to the friend, take the advice of Arkady, Johnny and myself. If you don't know or still aren't sure about what to do, err on the side of caution and take the advice of Hank, newhomer and Carl.
Posted by: InsertSnappyNameHere at August 28, 2009 12:11 PM
I have to disagree with most of the responses. As new landlords--we ultimately rented to a close friend of mine. We've known each other for 10 years. Although I wondered the same things that you did--I was very clear that our number one priority was using the rental until as income--and we wouldn't be compromising on getting paid for the apartment and getting paid promptly. Over a year later, it's been a wonderful experience. We respect her space, she is a prompt payer, and the benefits of having a friend nearby are great. We couldn't be happier.
Posted by: MeanRich at August 28, 2009 12:13 PM
As many people here know, I rent to my friend bxgrl, who I've known for over 20 years. It couldn't have worked out better. We were both worried that the landlord/tenant situation could affect our friendship, but it has only strengthened it. She has a lease, and we early on laid out parameters on what was cool and what wasn't. We stay out of each other's hair and personal spaces, which was our biggest worry. She knew going in that I don't have a lot of money, and has been very understanding about certain improvements that I just can't do right now. Fortunately, my 2 rental units are both in better shape than my part of the building, because a previous owner upgraded the rentals, not his/my space.
At any rate, I'm glad someone I know and trust is here in the building to keep an eye on things when I'm gone, accept packages, etc. She feeds my cats when I travel, and I do the same for her. While you never know what's going to happen in life, regarding even the most highly recommended tenants, it's still easier with a friend.
They are taking risks on renting from friends, too. A friend could be getting a landlord who ignores their legitimate needs, thinking they can wait forever, or expects too much of them, or is otherwise awful. Being a landlord is hard work and responsibility. I wouldn't automatically accept or reject a friend. You have to take the time to have an honest conversation with them, draw up everything as legally as with any tenant, and proceed from there.
Posted by: Montrose Morris at August 28, 2009 12:15 PM
I have over 15 apts in 5 buildings in Brooklyn and have owned rentals for over 11 years.
I have a good relationship with all my tenants. I even go out on occasion to restaurants with them and some have invited me to go on their vacations. I throw a "residents party" in one of my tenant's apts once a year during the summer so they get to know each other.
In fact, one happens to be a personal injury lawyer. Also, 1/4 my residents are Lawyers.
It's a matter of separating out your personal from your business.
The way I think of it, if you have a friend who is renting, and you explain why you need to raise the rent for what ever the reason and it is legitimate... increased heating, taxes, etc. then a friend would be agreeable to the increase. If not, then what kind of friend is it?
However, if you give no explanation, then your friend may believe that you are just raising the rent because of greed. I also make it a point to always raise rents. Even in years where I don't need the extra cashflow, I will ask for a 1% or 2% raise, giving specific dollar increases or maintanence costs, expense increases, etc. I also always compare my market rent increases to the DHCR increases and let my tenants know that I'm here to support them should my rental increases are below the DHCR increases for that year.
I will also say that now that we are in a severe downturn, all my tenants are staying put mainly because they have a wonderful relationship with me. I take care of my residents (notice, I don't call them tenants) and they in turn feel a loyalty and know that many other landlords will treat them more like tenants and not residents or customers.
It's wonderful to be in a housing down turn where rents are dropping but my rent roll still moves up overall.
What's funny is now that the weather is really crazy, I remembered last winter it snowed twice in 1 day, I went over to shovel the snow on one of my properties on the 2nd time it snowed that day. Really weird weather.
The Husband of a couple came out of my building and told me his wife fell down while walking out the building earlier, before I had a chance to clear the snow the 2nd time that day. He laughed hard when he remembered it and thanked me for being such a great landlord for shoveling the snow. His wife was perfectly fine as she fell on her bum and that everything is ok with her!
I can only imagine what would have happened had the residents hated me. How much money do I actually save in defending myself or even losing a personal injury lawsuit because the Judge is sympathetic to tenants? How much stress in my life as a landlord is minimized by just being nice and doing what I am suppose to do?
I look back at a lot of these small incidents and I say to myself, I'm glad I'm a customer oriented, relationship oriented LandLord.
Also, because I have a lot of Lawyers in my building, they will tell me when I have a possibility of negligence. I immediately address and take care of the problems. The way not to get sued is just not to be negligent. Residents who are lawyers can be incredibly helpful.
But I'm sure most landlords will not agree with me, though I really don't know why. It would be nice to hear from both tenants and LandLords.
Posted by: InvestorLlew at August 28, 2009 12:25 PM
As always, Montrose is spot-on and sagacious. I've been renting to friends for several years, and after several early mistakes, it's been going very well. You just have to be clear and upfront about it, and have everything in writing.
Posted by: Frederick Law Homestead at August 28, 2009 12:48 PM
I can speak from experience and second what Montrose said. As a tenant I had to be very clear with myself, first and foremost that the most important thing to realize is this house is MM's investment, not mine. As a friend and tenant my priority is to make sure I do nothing to jeopardize that. I can't say I separate our friendship from the LL/tenant relationship but then again if I screwed her over, i wouldn't be a friend. When it comes to renting, I am a tenant with a lease. I won't say being friends doesn't affect that (I make her feed me lunch almost every day), but certain things are sacrosanct. I pay my rent on time. If she says she needs an increase, I accept it- I know she wouldn't ask if it weren't important.
More than all that, I am living in a place where I know a friend is close by, and we are mutually supportive. When you live alone it can mean everything. She does cut me slack on occasion and in return I try to help around the building and I fix what I can in my apartment myself. I also allow her the honor of giving me lunch, and often dinner, letting me watch rented movies on her TV, and allowing me to use her washer/dryer :-)
Just be completely honest and upfront with each other about your expectations and your needs. Neither one of you should take the other for granted and if needs be, put it in writing. A friend will understand this part of your relationship needs to be legally and professionally defined and that both of you will adhere to that. If stuff happens and one or both of you mess up, (and sadly that can happen), you're at least protected. If it works, its the best.
Posted by: bxgrl at August 28, 2009 12:50 PM
All I can say is:
Think about the RICARDOS and the MERTZES in "I LOVE LUCY"
Howard
Posted by: howrealnyc at August 28, 2009 12:52 PM
Oh, and I just wanted to point out that MM is also known as the Great EVLL whereas I am also known as "The Sainted Tenant." Ahem....just sayin' :-)
Posted by: bxgrl at August 28, 2009 12:53 PM
howrealnyc- Gosh, maybe MM and I could get work in a candy factory together! :-)
Posted by: bxgrl at August 28, 2009 1:00 PM
I have rented to three friends and currently have one upstairs. I prefer having a friend in the building where I live for a number of reasons. All the silly things you might worry about like a friend expecting she can paint the walls neon green or never paying rent never come to pass. What does happen is that a friend takes care of your place, watches out for safety issues, will take the mail in and put the trash out when you aren't around and generally doesn't act like she has no stake in whether the building falls down or not. I also let my dog wander the halls secure that my tenants won't complain and will watch out for him as he patrols.
The downside is that if my friends want to leave the building before a lease is up I let them go. But frankly, its hardly worth pursuing tenants who break leases in NY's housing court anyway.
I have an acquaintance who said the water pipe in her building's basement broke and the tenant just left a message for the landlord and went out leaving the basement flooding. That is my horror story of tenants.
Posted by: breukelenbelle at August 28, 2009 1:09 PM
I have 2 rentals upstairs I rent out. One is to person I met in college (35 years ago). So I see no serious problem.
My mistake has been keeping the rent too low.
I would say you have to have good sense of you and your friends personality - both good and bad - and being self-critical is tough. How demanding, entitled is the friend...when you go to restaurant are they often finding fault with food/service never satisfied?
How about you? Often critical of how other people keep their apts, kitchens, find most people irresponsible, and do friends consider you controlling?
Posted by: Petebklyn at August 28, 2009 1:29 PM
Petebklyn- I am a perfect human being with almost no flaws so I make it easy for Montrose :-) (and if you believe that I have a bridge to sell you).
But seriously, everything you said is right.
Posted by: bxgrl at August 28, 2009 2:02 PM
Thank you everyone for your helpful and thoughtful responses. I didn't realize how common and often positive this situation actually is. I'll definitely reassess some of my thinking and have an honest conversation with my friend.
Posted by: New Owner at August 28, 2009 5:12 PM
Thank you everyone for your helpful and thoughtful responses. I didn't realize how common and often positive this situation actually is. I'll definitely reassess some of my thinking and have an honest conversation with my friend.
Posted by: New Owner at August 28, 2009 5:13 PM
I've never owned apts as a LL but in my 20's I owned a big house with an extra room to rent. I had 3 roomates over 10 years. 2 were good friends and both of them were awesome to have as my tenants/roomates. 1 was a stranger, a friend of a friend, and was a complete disaster. He painted the ceiling of the room black without asking, never cleaned up after himself in the kitchen, dragged an upright piano (also without asking if he could have it in the house) across my newly refinished hardwood floors leaving huge scratches, hit the neighbor's car with his car and years later I learned he never followed through with paying for the damage. A friend may expect favors sometimes but at least you know a friend well enough to know they aren't crazy. You never know if a stranger is crazy or not. This guy was a Princeton graduate, had money, seemed normal, but was a spoiled rotten brat sociopath. A credit check wouldn't have shown that. It would only be by knowing the guy somebody would be aware how irresponsible he was.
Posted by: traditionalmod at August 28, 2009 8:38 PM
Renting to a friend/family that wouldn't qualifiy otherwise is a big NO NO. But if you say that she is a "responsible" person that you've known for years then consider it. Just be warned when it comes to rent increases, house rules etc. of the potential awkwardness, if you think it's not worth risking your friendship then take the advice of the others and tell her to find somewhere else.
Posted by: Crownlfc at August 28, 2009 11:28 PM
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