Should you rent to friends?

Landlords are often faced with friends interested in renting their properties, which can create a potentially delicate social situation.

Friendships and business do not always mix well, making it critical to think carefully before making the decision to rent to friends. While it can work out, there are some important considerations to think about beforehand, and it's a good idea to take some simple steps in advance to plan ahead for disputes or other issues that might arise.

Friends should be treated like any other tenant, which means it is a good idea to perform a background check to determine if they would be suitable tenants. While they may be great people, it doesn't mean they will pay the rent on time, be able to afford your rental, keep the property in good condition, obey city ordinances, or follow the terms of the lease. Ask for a credit report and references from prior landlords — and rely on your experience as a friend to get an idea of how well they keep up their homes, manage their finances and organize their lives.

If someone seems like a good candidate as a renter, sit down with your friend and discuss the fact that this is a business relationship, making it necessary to have a firm lease or rental agreement. Templates are available online, and you can modify as needed to cover specific issues. Make sure that everything is in writing: If you expect your friend to mow the lawn, put it in the written agreement, rather than making a verbal agreement.

Your lease or rental agreement should cover the amount of rent, when it's due, the deposit and expectations you may have, such as keeping quiet at set hours. Make note of any late charges or fees you will charge for late rent, who is responsible for the utilities, and other financial arrangements. One advantage to using a template customized for your region is that it won't inadvertently include clauses that could be illegal, which might become an issue in the event of a dispute with your tenants.

It is also a good idea to include a clause on handling disputes. It's important to keep landlord-tenant lines of communication clear, and your friends should be encouraged to report any problems to you immediately so they can be addressed. In a dispute, you should decide whether you want to have a neutral friend moderate, send the issue directly to a paid moderator or have all property-related communications go through a property manager. Be aware that if a situation does end up in court, it could rupture your friendship in addition to being expensive and time-consuming for you as a landlord.

The decision to rent to friends is up to you, but it's important to consider the strength of the friendship and how much you're willing to risk. While some friends can make excellent and very responsible tenants, others might be a poor choice; either they aren't good tenants to begin with, or they get lazy because they're renting from friends and think it's acceptable to slack on property upkeep, timely rent payments, and other responsibilities. Consider the existing balance of give and take in your relationship when you mull the decision to rent to friends.

If you do decide to reject friends as renters, make it clear that you had concerns about mixing your business and your friendship and felt more comfortable with tenants who don't know you socially.

S.E. Smith writes about San Francisco-area remodeling and painting issues for Networx.com.