Renting to Relatives: What Every Nashville Landlord Needs To Know

Lee Blackburn

Renting a home to your relative may sound like a good idea, as it can be easier to maintain a good landlord-tenant relationship. However, such transactions between family members can be delicate. If things go wrong, it may tarnish your relationship or cause you to incur significant financial damages. We have seen several landlords who rented out their investment properties in Nashville to their relatives, only to regret the decision later.

Therefore, before you consider renting out your Nashville property to your relatives, here are a few things you should consider:

The Pros of Renting Your Nashville Home to a Relative

Renting to relatives can be beneficial due to a lot of reasons, the most important being that you can freely discuss your expectations regarding the use of the property. Let’s look at some more advantages of renting to relatives:

  • Your Home Stays in Good Hands

Your relatives may go the extra mile to ensure that your rental remains clean and well-maintained at all times. Occupying a family member’s rental is like living in their own house. Therefore, there are high chances that they may take extra care at a level that you may not be able to expect from other tenants.

  • You Develop a Stronger Landlord-Tenant Relationship

Since your tenants are your relatives, you have multiple opportunities to visit them and keep an eye on the condition of the property. There is a lesser need to stand on ceremony or send formal notices every time you want to make a visit. Such dynamics only enhance your bond as landlord and tenant, and simultaneously as a family member.  

The Cons of Renting Your Nashville Home to Relatives

As pleasing as it can be to have your relatives be your tenants, there are certain risks that you must evaluate well. Some predicaments of renting to family members are:

  • Your Rental Investment Can Become Their Permanent Home

It may be tempting to charge your relatives a lower rent than the fair market rent for a property like yours. However, doing so can make your property a personal residence and not a rental unit. Suppose you use your rental as a personal residence for 14 days or 10% of the total rented days at fair market rent. You can lose your significant tax deductibles like rental expenses, including advertising and utilities, material participation, and travel expenses. 

Even if you charge your relative tenants with fair market rent, there are chances that your rental home might still qualify as a personal residence. Such a situation may arise if your relatives have their own home, use it most of the time, and still use your rental home for a comparatively lesser period. Behavior like this can still lead to the loss of your valuable tax deductibles. 

  • Your Relatives May Take Undue Advantage of Your Trust

As a part of the family, you are likely to have more faith in your renter-relatives than an unknown person. However, this can lead to them taking unfair advantage of your trust, by delaying rental payments, not taking proper care of the property, or defaulting on the security deposit by giving your family relation as an excuse. This can be highly problematic as it interrupts your cash flow and affects your ROI. Also, sending constant reminders or legal notices to your relatives can make things awkward on the family front.  

Finding The Perfect Balance

It is essential to maintain a balance between being a landlord and being a family member, if you rent your Nashville property to a relative. Ultimately, you need to be firm about the fact that this is your investment and that you need to earn a profit from it. Here are some tips to sustain your home as a rental unit and make a profitable deal while maintaining a healthy relationship with your relatives. 

  • Screen Your Relatives Using the Same Criteria

You may have specific criteria for qualifying applicants as your tenants. Use the same standards to screen your relatives if you wish to rent your Nashville home to them. Check their credit score, income stability, criminal background, and rental history. 

However, do not be assured of their credibility only because you are related to them. If you find that they do not qualify to occupy your home, you can ask them to consider other options or help them find another suitable property. It will help avoid problems down the line that might put your relationship with them at stake.

  • Save Documents Proving the Rent is Fair

We highly recommend you save the hard copies like printouts of the rental receipts, security deposit payment slips, and the legally compliant rental agreement to show that you have charged fair rent.

  • Do Not Foot Any Bills 

Do not offer your relatives cash gifts that help them pay the rent. The chances are that both your and your relatives’ transactions will get recorded. If the transactions show that the amount you receive from your tenants minus the amount you gave them is lower than the fair rent price, your house would still be considered a primary residence.

  • Communicate Expectations Clearly

If you are serious about your profession as a Nashville landlord, you must communicate your expectations to your relatives the same way you would with any other tenant. You need not make any exceptions just because they are family. 

For instance, if you expect your tenants to mow the lawn once a month or take the garbage out every two days, you should be clear about such expectations. After all, when your family members leave, you would want to see your home in good condition that can be re-rented.

  • Hire a Property Manager

The best way to ensure that you comply with the law, get your tax deductibles, stay practical in your business and manage your relative tenants well we suggest you hire a property manager. Property managers can carry out all your landlord responsibilities, including communicating your expectations, collecting rent, and ensuring lease enforcement. Without damaging your personal relations with the renter.

How a Property Manager Can Help

Property ManagerAn experienced property management company, like Omni Realtors and Property Management will help you draw a line between your personal and professional relationship with your tenants. Additionally, they will ensure that you do not miss out on any potential profits because you rent to your relatives. We have been in Nashville real estate since 2005. Whether you are renting to a relative, a friend, or anyone else, we will ensure that your investment is protected.

For more information regarding rental management in Nashville, contact us now.