Are you thinking about renting out your investment property to a member of your family?
Often, renting your property out to a family member can sound like an ideal solution – you are able to fill your property with people you know and avoid paying for a property manager, while your family member is given access to a property at a discounted rate.
But while it may sound like a match made in heaven, as with anything, it is never a good idea to assume nothing will ever go wrong.
If you are planning to rent out your property to a family member, there are few things you should do to ensure both parties remain happy at all times.
Consider your financial obligations:
If you charge anything less than market rent, the Australia Taxation Office will only allow a pro-rata claim of expense. Generally speaking, deductions for expenses can only be claimed up to the amount of rent received. If you are significantly reducing the rent payment for your family member or charging them no rent at all, you limit your allowable deductions.
Consider a binding agreement:
When you rent out your property to a family member, you may find you relax your general standards or make concessions you wouldn’t otherwise make. For example, you may not implement a binding lease or ask for a security deposit to be paid. If you don’t make things clear and set out a formal arrangement at the beginning, the situation can end up being incredibly bad if the relationship sours.
Decide on responsibilities:
Generally speaking, landlords are in charge of the property’s repair and maintenance. If you do not want this responsibility, it is good to indicate that to your family member upfront and perhaps put in writing that they will look after any repairs and maintenance the property needs as compensation for the reduced rent.
Make payment structure clear:
If you want to ensure you receive a constant stream of rental income, it is important to outline upfront how much rent you will be charging, how often you expect that rent to be paid and where you would like the rent paid to. At the end of the day, you don’t want to be chasing your daughter, brother or cousin every other month for rent.
Discuss bill payments:
Just as it is important to discuss rent and how you would like it to be paid, it also important to discuss how bills will be split. Will all the utility bills be paid by you as the landlord or will you get your family member to pay these bills? Perhaps you will pay for the water and get your family member to pay for electricity. Having this discussion upfront and deciding who will pay what will help the relationship to run smoothly down the track.
Provided all conversations around money, bills and responsibilities are held upfront and the relationship is managed effectively, then renting your property to a family member should be an easy and good experience for everyone involved.
Image courtesty of Flickr user Gina Gavan