One of the hardest parts about being a property manager is finding quality residents. Although financial records and credit checks can help, you can never truly know a person’s character and ability to make payments on time until they are in the unit. If you own an investment property it may be tempting to rent to a friend or family member to avoid any bad apples who pass a credit check but still refuse to pay. But there are a few things you should consider before renting a unit to someone in your inner circle.

The Pros of Renting to Friends or Family Members

There are definite benefits to renting to someone close to you. It can help you save money on marketing costs or hiring a broker to market the property. In many places, the property owner is on the hook to pay the broker’s fee, which may not make sense if you have a large pool of personal contacts you could tap into to get your unit rented.

Another advantage of renting to someone you know personally is that you will probably have a better understanding of their character than if they were a random stranger. There's only so much you can learn about a person based on their financial credentials and credit history, so it may be beneficial to rent to someone you’ve known for a long time if you're confident that they are reliable and will make payments on time.

Plus, if you are new to owning a rental property and haven’t developed a system yet for collecting rent and responding to maintenance issues, renting to someone you know may allow you to work out the kinks before taking the risk of dealing with strangers.

Not to mention, being close to your resident personally may create an added sense of obligation for them to make payments on time — especially if you're family and see each other frequently.

That being said, there are also a number of disadvantages to renting to a friend or family member.

The Cons of Renting to Friends or Family  

Sometimes personal relationships and business just aren’t a good mix. Owning an investment property can be a great way to generate passive income, but it does carry risks that can end badly if you don’t think and operate like a business owner. This can sometimes prove to be difficult when dealing with friends or family members.

They may expect you to cut them more slack if they are late on rent or can’t pay at all. But if you’ve got a mortgage to pay using the rental income, you likely can’t afford to make those kinds of allowances.

They may also take try to take more liberties with how they use the rental property and decide to invite a guest who is not on the lease to live in the unit or make unapproved alterations to the interior or exterior of the unit, thinking you’ll make an exception and let them get away with it because you know them personally.

Make Expectations Clear

If you're going to rent to a friend or family member, you must make the expectations clear from day one. You don’t have to be a jerk about it, but you should let them know that despite your personal relationship, they can’t expect special treatment. Otherwise, you may risk damaging a friendship or ruining a family bond over a petty disagreement.

You don’t want to put yourself in a situation where you are forced to decide between evicting someone close to you or losing money on your investment. That’s a serious lose-lose situation that may turn you away from real estate altogether.

Of course, things happen, and people go through hard times. Just because you’re a property owner doesn’t mean you have to be heartless and if your resident is genuinely struggling but otherwise responsible, it’s fine to cut them some slack from time to time if you can afford to.

But if you want to maintain your personal relationship with them, you have to be upfront that they will be treated just like any other resident. As long as that’s understood and respected, you shouldn’t have too many problems.