Leasing an apartment to a friend: good idea?
April 26, 2016 6:53 AM   Subscribe

On a scale of 1 to "land war in Asia," how bad an idea would it be to rent out an apartment to a friend?

A friend of mine has decided to move from very far away to my city. Yay! She and her boyfriend are looking to rent a place in my part of town, which is currently experiencing a massive real estate boom. Prices are going nuts, and 2-bed places are become unaffordable for anyone who isn't a partner at the firm. At the same time, my wife, daughter, and I are moving to a larger place in a different part of town. We're not selling the current place first, and had been planning to touch it up after we had moved all our stuff out, and then try to list it this summer. Real estate is increasing in value so quickly in our area, though, that I've quietly been having second thoughts about selling the old place, since it's appreciating MUCH faster than any other investment would. (Breathless articles in the local papers have projected prices increasing by as much as 30% over the next five years. I'm not drinking the KoolAid, but I do think that prices are going to keep going up)

These two problems look like they have a common solution: we rent the old place my my friend and her boyfriend, and charge them exactly the cost of mortgage + taxes + insurance + condo fees, with an understanding (in writing, probably) that they'll handle things like "the drain is clogged" or "the snow needs to be shoveled" without involving me. They get a cheap(er) place to live, we get to realize any appreciation in the condo.

At the same time, this also sound suspiciously like it's in "never lend money to a friend" territory. Is this a recipe for a disaster, either legally (I don't know enough about tenant law to even verify that you can legally add something like "lessor is absolved of normal landlord duties in exchange for super-cheap rent" to a lease, and Massachusetts is notoriously tenant-friendly) or interpersonally? Are there hurdles to this that I'm not considering?
posted by Mayor West to Law & Government (20 answers total) 2 users marked this as a favorite
i do this. sometimes (quite often) i don't get paid. if that's ok, it's fine.
posted by andrewcooke at 6:56 AM on April 26, 2016 [2 favorites]

Are you sure that your friend wants to do this? For some people, this would be an excellent deal. For others (myself included), one of the big draws of renting is not having to deal with clogged pipes, snow shoveling, burst pipes, electrical problems, the furnace not starting, etc. Which, I think, brings up an important point if you decide to do this - where do you draw the line between the "minor" things (e.g. the drain is clogged) and the "major" things (e.g. a burst pipe has flooded half the apartment)?

In addition, I'm not saying I definitely wouldn't do this, but I would be loathe to do it unless you know your friend (and how your friend is as a tenant) really well. What happens if your friend turns out to be an obnoxious tenant? Or one who is not so great at paying the rent on time? Or if she's great, but her boyfriend turns out to be the tenant from hell?
posted by Betelgeuse at 7:02 AM on April 26, 2016 [6 favorites]

I don't know much about how condos work, but is this something that you are allowed to do? They may either forbid subletting (or renting) completely, or require that you submit some sort of application so that the neighbors know who is living in their building.

We have a three-unit apartment that is currently filled with friends of mine, and it has worked out marvelously. Have a lease, maybe do a credit check first, get a security deposit - that will be your "now I feel taken advantage of because of XYZ" insurance. Good luck!
posted by amicamentis at 7:06 AM on April 26, 2016 [1 favorite]

If you do decide to do this, do it as a completely businesslike proposition, not as a friendship deal. The rent and when its due, security deposits, when late payments are charged and how much, the maintenance and upkeep, everything, should be exactly the same as you would for a total stranger. Use written contracts, never an oral agreement!

The ONLY thing you might cut your friend some slack on is the actual dollar amount of the rent: if you wanted to give her a slightly lower-than-market-value rent, for instance. But make sure whatever you charge her still pays your operating costs.
posted by easily confused at 7:07 AM on April 26, 2016 [16 favorites]

If you rent, rent at market value.

If your mortgage is $2,000 per month, and market value is $3,000, you're paying $12,000 annually to have your friends stay in your place. That's madness. Don't do that. If they want to rent from you, they can pay Market Value.

The other thing that this doesn't take into consideration is risk. You're assuming the risk that the market will cool, and any big-ticket repairs, either inside the unit or assessed by the building. That's not smart. NEVER rent to friends at a loss.

What if your friends don't like your place, or don't want to live there? Then what?

What if someone loses a job and they become financially unstable? They may expect you to carry them, and you might stress your friendship over this, and be out all kinds of money.

If you don't like the idea of being a landlord to a member of the general public, then don't be a landlord to your friends.

Can you afford to pay the mortgage if the rent stops, for whatever reason? If not, don't be a landlord. Can you afford to write a check for a new A/C unit? If not, don't be a landlord.
posted by Ruthless Bunny at 7:10 AM on April 26, 2016 [11 favorites]

Reading between the lines, I got a sense that you want this to be a no-hassle, handshake-between-friends kinda deal. easily confused et al., supra, have it right: Do this by the numbers, spell everything out in writing.

Now for the IMHO part: Giving them a break on the rent is acceptable, but don't go overboard. Maybe split the difference between market rates and covering your costs.
posted by whuppy at 7:13 AM on April 26, 2016 [2 favorites]

As long as you identify and agree on how to navigate the red flags, it can work.

Some things for you to think about and possibly discuss with them:
How trustworthy are they? Have you been to their home? How well do they keep it? Will they be staying there indefinitely? Are they planning on saving money to buy in the area? What happens if one party needs to end the agreement? What happens if they can't afford rent one month or their finding dries up altogether? What will you allow them to change? Who will pay for it?

If you can pinpoint any specific issues, say "We're very excited for this opportunity and we want to make sure we're all happy in this situation. We don't want to sour the friendship so we'd like to be a little more careful about a few specific things than we would for strangers. We're wondering about x, y, and z. Here are some solutions/thoughts. What do you think?" (If you decide it won't work for you: "Were so sorry but we've given it a lot of thought and this situation just won't work for us. We wish you the best of luck in finding a place and look forward to taking you out to dinner/helping you move in/showing you some of our favorite spots.")

Definitely draw up a contract and encourage written communication about the place.
posted by meemzi at 7:22 AM on April 26, 2016 [1 favorite]


1) If you intend to take any business-related tax deductions on the property, you must make a profit in three out of five years you're renting it (this assumes that the rental is for the longterm). So even if you charge below market rate, you should still charge above your expenses.

2) Leaving maintenance up to the tenant is land war territory. It's not their property, and even if they're your friends, they aren't going to maintain it to the standard you desire. (This is the other reason to charge rent above expenses.)

3) Tenants, even your friends, have an unfortunate habit of paying rent late, not paying rent, incurring damages, violating HOA regulations (you have checked that you can rent your condo?), &c. You will need to be able to cover this.

4) Renting a property may actually lower its resale value. YM (or realtor) MV.

5) You will very likely need to do much more than "touch it up" for resale after a rental period--at a minimum, new paint throughout, refinished floors (if hardwood), and in all likelihood, new carpet. For a start. You may also have to replace appliances. Again, bear in mind that even a friendly tenant is not as invested in the home as you are.
posted by thomas j wise at 7:26 AM on April 26, 2016 [4 favorites]

I once rented my condo to my best friend and his wife. Even though that sounds like a setup to the punchline "and that's why we're no longer best friends", it's not. Everything went well. I was in a different city so if anything broke he took care of it and just deducted the expenses from his rent.

I can still imagine 100 ways it could have gone south, and now that I'm older and wiser I would never do such a thing again. Okay I mean for him I'd do it again, but there are just so many ways to end up with a screwed up apartment and a busted friendship that it's not worth it.

I agree wholeheartedly with everyone that says "rent for market value" and "have a signed contract" as well as "decide in advance if you're willing to lose your friendship with this person over some silly dispute."
posted by komara at 7:40 AM on April 26, 2016 [1 favorite]

Be sure that your friend is pretty cool about rental type things - if they are high maintenance, then it'll be a disaster as it will just create resentment for everyone.

I've rented to a friend for several years and it has worked out great. We started as you are suggesting, just covering basic expenses like mortgage and taxes, but I've had to increase the rent substantially over that time due to wear and tear. New water heater, new oil tank, new washer and drier - I lived there for TEN years without any problems - new people moved in and WHAMO! (No fault of their own, mind you) So, you can totally do it, but live a little in reality. MeMail me if you'd like more details.
posted by Toddles at 8:13 AM on April 26, 2016

we rent the old place my my friend and her boyfriend, and charge them exactly the cost of mortgage + taxes + insurance + condo fees, with an understanding (in writing, probably) that they'll handle things like "the drain is clogged" or "the snow needs to be shoveled" without involving me.

Just be aware, that even if you have a contract written out to state they're supposed to take care of maintenance, depending on your jurisdiction, that can be illegal, and language like that written into a lease agreement is basically void. I'm not familiar on the rules around your hood, but from what I've been told, it's very renter friendly. You write that kind of stuff into a lease, and you're just screwing yourself.

We had some landlords that expected us to do that kind of stuff in exchange for below-market rent. I'm pretty handy, so when it came to basic plumbing stuff, or fixing the running toilet, yeah, no problem. I just did it...but when bigger stuff started failing that we really couldn't afford? Yeah, we basically had to bail.

Given the rental rates reported in your zone, I'm guessing there's a pretty big difference between covering your bases, and charging them 'market rate.' You can find a line between actual 'market rate' and giving these folks a deal.
posted by furnace.heart at 8:45 AM on April 26, 2016 [2 favorites]

Think about all the ways in which this could go wrong. They could call you up every time something broke and be a terrible high-effort tenant for a casual landlord. Or they could put gouges in all your hardwood, scorch marks on the kitchen counter, take sloppy wet showers that cause rot on the bathroom floor and walls, break the washing machine, and get endless noise complaints from the other condo owners. If you can come to an emotional understanding that at least one of these awful things is going to happen, and it will cost you money and/or the friendship, then this is a good plan. Be clear too on the difference between maintenance and repair/renovation: if their kid breaks a window, do you expect them to replace the glass? replace the window? replace the window with high-quality Anderson double-panes up to your specifications? shrug and say it's all still in one piece and put some clear tape over the crack?

You sound like you think you're doing your friend a favor, and that's great, they probably would think so too - but this will not strengthen your friendship, and may weaken it considerably. Even if there's not a problem, a damage issue or rent issue or maintenance issue, having a check-in about the state of the condo looming over every interaction will sink the quality of a friendship.
posted by aimedwander at 8:54 AM on April 26, 2016

Can you afford to pay the mortgage if the rent stops, for whatever reason?

Nthing this. I was transferred to a different city last year, and while real estate was touted as "rising", in reality it was dropping. I tried to sell my place in the previous city, and now two years later, I still own it. Am now going to rent to a trusted friend who I know is by-the-book, he knows I'm by-the-book, and on top of that our shared friends know we're both by-the-book. I originally wanted to give him a price at which I'm comfortable and is a touch below market; he's so by-the-book he didn't let me, ha, he's making me earn a profit on it.

That is the ONLY case I would rent to a friend. I rented from a friend last year, for just over a year, and it actually is the setup to "we're not friends any more" because we had everything written, on paper, and at the very end he pulled the rug out from under me. He went AWOL when it came to reimbursing the deposit, pretended I'd stolen stuff that wasn't on the inventory we'd both signed (that didn't last long, he didn't have a leg to stand on), waffled on how he wanted the keys back, ending with a wondrous surprise of a group of texts at midnight saying "I can't get into my apartment you can't let me sleep on the street please come give me your keys Right Now!!!" (his brother had just told me they were inside his place, so yeah). And I had been a renter who always paid on time, kept the place pristine, and was a quiet neighbor. Part of me hopes he has crossed the other sort of renter by now. Don't Do That. Sign I should have paid attention to: he was the sort to whom terrible things always happened and were always the fault of everyone else. Don't rent to or from someone like that. Irresponsibility ahoy.

Go by the book, itemize everything in detail in your inventory, assume you may not get paid, that things will break and need repaired, things will be damaged and dirtied, assume the market may crash and you might be underwater on your mortgage (hi! this is me too). Do you still want to do this? Then you're good.
posted by fraula at 9:01 AM on April 26, 2016 [1 favorite]

IANAL, TINLA, etc. etc.

If your mortgage states that you will use the property as your primary residence, things could get wonky if you don't.
posted by Lucinda at 9:17 AM on April 26, 2016

One idea might be to use a management company. It would cost a bit more, but it could keep everything from becoming too personal with difficult boundaries.
posted by Vaike at 9:18 AM on April 26, 2016 [3 favorites]

I have held my condo as a rental property ever since I moved into my husband's condo (in the same neighborhood). Check your rules & regs to ensure that you can rent it out (as well as what the rules of that are) and verify that you are out of the "this property is my primary residence" stage of your mortgage (Generally, mortgages only "prohibit" renting the property for the first 12-24 months of the mortgage. Generally, it's a clause that makes the entire mortgage due upon your no longer using it as your primary residence, rather than a direct prohibition. Generally, this is because interest rates are better for residential property than second/vacation homes or rental properties and the mortgage lender wants to ensure you're not lying about the purpose of the mortgage). Then run the numbers about your costs (mortgage, insurance, condo fees, depreciation and major maintenance costs) against what you plan to charge in rent.

My association fees pay for most routine maintenance in my condo, so that's another factor to consider. What sort of maintenance and repair will your association do? What will you expect your tenants to do? Be very clear about those lines. I once had a tenant leave a broken refrigerator full of food unrepaired for 6 weeks. It was completely disgusting and I had to clean it because I had to replace it and the appliance company was not going to haul it away full of rotting food. And I could not legally make my tenant do it--even though she's the one who left it full of rotting food without telling me it was broken and needed to be replaced.

Your friends may well take care of the place as lovingly as you would (my current tenant does; prior tenants did not) but the place is still going to need updating, maintenance and repair that you can't rationally expect them to pay for over time--even if you can rely on them to coordinate. (For instance, I will need to replace the shower in my condo in the next 5 years or so. Unless my tenant is incredibly understanding and will to live without a shower--she'd not pay rent during that time--I will have to wait until she moves to update the bathroom. With friends as tenants, you may be will to work out those sorts of arrangements without having to have the place vacant.) But basic stuff: wear on the flooring; dings on the counter tops, scuffs in paint; lighting and other fixtures aging and looking out of date--those things are all going to happen, even with the best tenants in the world and that is on you, not them. So just keep that in mind.

Require a real lease. Verify what ownership/maintenance tasks you can abdicate in a lease in your jurisdiction. Require a real deposit. Require (if you can) them to carry renter's insurance. Never ever assume you can stop by and check on the place, unless there is an actual "the landlord needs to see this" situation which they call you over for. Recognize that even if they are getting a great place to live and a great rent, you are accruing a benefit on their backs if they are caretaking to your standards and the place is appreciating value. So really, don't approach this question from "should I rent to friends" but from "is keeping this condo as a rental property a sound financial decision" perspective.

Now that I'm in my 40's and most of my friends are people in their 30's and 40's with steady lives and steady jobs and a generally good sense of responsibility about their place in the world, I would not be too nervous about renting to a friend, but I would still hesitate. What happens if they break a window and think they should not have to pay for it? What happens if they lose their jobs--will I let them be late or forgo rent? For how long? I feel the same awkwardness about these issues with tenants who are not my friends, but I'd feel worse with tenants who were. But in the end, for me, keeping my place as a rental unit is all about the numbers, as long as those work, I'd do it.
posted by crush-onastick at 9:59 AM on April 26, 2016 [1 favorite]

One more thing: Write down explicitly what's gonna happen when you choose to sell the house halfway through the lease.

Also, what happens at the end of the lease. Typically they automatically go month-to-month but maybe you want to make that explicit, along with, say a 60 day lead on notice to vacate.
posted by whuppy at 10:51 AM on April 26, 2016

How responsible is the friend?

Do you know a lot about their prior living situations, work history, economic situation, etc? Will they be relocating to your area with jobs/some kind of way to pay the rent? Have you visited their previous homes? Were they well kept? Are they the kind of people who are like "We decided to paint the kitchen cabinets black!" Or are they stickler types? Can they fix a drain, shovel snow, etc. without somehow doing it wrong? How are their communication skills for when something unexpected happens?

I rented from a friend in exactly this way for three years. It worked out great! On the other hand, I've also personally witnessed friendships ruined forever because one person in an arrangement like this turned out to not be trustworthy.

Agree with everyone else, too, that you should get a sense of how long they plan to stay and what happens if you decide to sell, want to move back in, or anything else that could affect their living situation. If this is less than a 5-10 year thing, you need to communicate flawlessly what the situation is and how/under what circumstances it can be dissolved.
posted by Sara C. at 12:01 PM on April 26, 2016

Can't say enough good things about Nolo Press books about landlording!
posted by jasper411 at 4:16 PM on April 26, 2016

The biggest red flag I see is that you'd be renting to your friend and "her boyfriend".

Whatever you decide to do, it's going to come down to the relationship you have with these people, and how honest and responsible they are.

Given that you trust your friend and know her very well, I'd recommend not assuming that her boyfriend is the same kind of high-quality person that she is. A couple of years down the road, maybe you'll conclude that he is a great guy. But for right now: you don't know.
posted by doctor tough love at 8:12 AM on April 27, 2016

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