Renting Out Your House to Family

I am constantly asked “Should I rent out my house?” If a client is unsure about selling, if the house is vacated during disposition of the estate, or if the house has not sold for an extended period of time, renting can be an option.

So what do I tell my clients? The answer to renting is “it depends.” Even with the best tenant, being a landlord takes work.

Which leads to the second question: Should I rent my house to a friend or family member? At first, this seems like a win-win option. It’s always better to have someone in the house during the winter to watch for frozen pipes. An unplowed driveway attracts unsavory characters who may want to get their hands on your copper pipes. There is no background check or paperwork. And the assumption is that while you might be taken advantage of by a stranger, you’d never get taken advantage of by someone you know and trust.

However, in my experience one of the biggest mistakes a homeowner can make is to rent out their house to a friend or family member (typically an adult child) without a signed lease. Friends and family members can sometimes be the worst kind of tenant because they tend to look at the house as more of a gift than a responsibility to you, their landlord. They can also take advantage of your generosity. After all, you’d never kick your friend or child or grandchild out of their home – would you?

Over the last year I saw several clients who rented to their children without a lease be taken advantage of. For example, a client recently rented his $180,000 home to his daughter. His only requirement was that she pay the utilities. He hoped it would give her a chance to get ahead financially.

Unfortunately, the daughter soon brought a mid-sized dog into the home that proceeded to urinate on the new laminate floors while she was at work. The urine penetrated the laminate glue and then the sub-floor making it impossible to get the ammonia smell out without completely tearing out the floors.

To make matters worse, a drip started behind the wall from the bathroom into the basement that she did not notice for quite some time. This caused a plumbing bill, a drywall bill and a bill for a painter.

In addition to the urine and water damage, while the house was being rented the roof got older, the furnace got older and weeds took over the once pristine landscaping. Not only could the daughter not afford paying rent, but she also couldn’t afford the 100 other little fixes that need a homeowner’s regular attention.

By the time the daughter moved out, the home’s value had dropped from $180,000 to a little less than $130,000 – the amount the parent still owed on the house. All the equity was swept away in what started as a simple, kind gesture to a daughter.

While I was finally able to sell the house with my client bringing only a nominal amount to the closing, I could not help but think that this situation could have all been avoided by implementing a simple lease signed by the daughter that required a deposit, a monthly stipend and a pet policy. This would have forced the daughter to have some “skin in the game” and would have motivated her to take better care of the house. If the parent really wanted to help their daughter, they could have put all the rent in an account and handed it back to her (less any maintenance bills) when she moved out.

I can personally attest that when I wanted to help my son out in the past, I had him draft, then sign a personal contract with me. Below is an excerpt of the terms:

1. OFFER TO PURCHASE – The undersigned, hereinafter known as “Buyer(s)” hereby agrees to purchase 2014 Cadillac ATS listed with Motormax of Grandville, Michigan.

2. Purchaser accepts the current condition and mileage of the vehicle, and also is aware of the remainder of GM 5 year/100,000 mile Powertrain Warranty on the vehicle for the sum of Sixteen Thousand Eight Hundred and Forty Two dollars ($16,842.60).

3. TERMS OF PURCHASE – As indicated by “X” below, (other unmarked terms do not apply). Payment of the cash portion of the purchase price is to be a cashier’s check or certified funds.

_X_ New Loan: The full purchase price upon the delivery of a recordable title conveying title in the condition provided for herein. Contingent upon and Buyer(s)’s ability to obtain a  Mother’s Love Loan mortgage, at no cost to the Seller(s) unless agreed to in writing, amortized for no more than  18 months, in the amount of _$6842.60_, which requires buyer to put down $10,0000.

Buyer(s) agrees to make written application by (Date) 4/19/2017.

4. CONDITIONS OF LOAN – Buyer agrees to several conditions:

  • Buyer is required to pay back all student loans on time
  • Buyer is required to receive college diploma by July 1, 2017
  • Buyer is to live at Mother’s house post graduation and work diligently to maintain grounds/interior
  • Buyer is to not drive the new Cadillac until he has returned to Genesee county to sell real estate
  • Buyer is required to hold open Mother’s open houses at her request for 1 year

Of course, he got the loan and the car, then fulfilled his portion of the contract. Even though it might not be legally binding, as a proud mother I never get tired of reading it.

If you find yourself considering renting your vacant home to a friend or family member don’t be afraid to first draft, and have them sign a lease. Over the years I’ve shared a copy of a boilerplate lease/pet policy I use with my clients. If you have a realtor, they should have one at their fingertips they can share with you at no charge. If you want to go one step further I recommend the site for a lease and related forms for $33.00 for one month which is all you will need.

As usual, I am available to you as friend and trusted advisor. I LOVE questions. If I can ever help you with your family’s real estate related matters don’t hesitate to contact me – Jennifer

Photo by malcolm garret from Pexels