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Strengthening Family Ties: How to Rent Property to Loved Ones

Last Updated: October 30, 2023

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Key Takeaways:

  • When considering renting your property to family, ask yourself questions and consider the pros and cons about taking family on as tenants.
  • Know your rights as a landlord, the importance of a lease agreement, and further steps to take when renting to family.
  • Resolve tenancy disputes through channels of communication and seek legal guidance or eviction if your family violates their lease.

Renting to family can raise questions about relationships and finances. Online forums and real estate blogs will tell you the horror stories of renting to family to deter you from doing it yourself.
No matter what you hear, there is a chance to make renting to loved ones a positive experience.
From following good rental practices to knowing your rights as a landlord, there are things you can do to create a stronger relationship with your family members as tenants.
We have put together a guide to help navigate the questions and responsibilities of renting to family members so you can learn how to support yourself as a landlord to your family.

Can I rent out property to my family?

Yes, you can rent property to your family like you would to any other tenant. Family members can rent spaces in your home like spare bedrooms, in-law suites, or basement suites.
The key thing to remember is this: you may be family, but a rental agreement imposes new roles of landlord and tenant, and firm boundaries must be set.
If it’s your first time renting out a property, it’s crucial to understand your legal obligations, which include paying taxes, creating contracts, and setting expectations.

Questions to ask yourself before renting to family

Renting to family is more than helping out someone in need. You will take on landlord duties while your family rents your space.
Before taking the first step, you should ask yourself if you’re ready to take on the responsibility. Questions you can consider include:
  • Do my family members keep their home the way I would like my property to be kept? (e.g., Are they smokers? Are they clean? Are they responsible for their pets?)
  • Am I able to fulfill my responsibilities as a landlord?
  • Am I financially stable enough to rent to my family members if they can’t, or don’t, pay their rent on time?
  • Will I be able to evict my family if needed?
Once you explore the answers to these kinds of questions, it’s time to weigh the pros and cons of renting to family members. Consider the following:
Pros Cons
✔ You already know who they are, making the vetting process simpler and faster. ✘ Family members may feel more comfortable crossing boundaries that normal tenants would not cross.
✔ You can help family members in need of a home. ✘ Required maintenance may go unnoticed if family members feel like a burden requesting property upkeep.
✔ It can help with your financial obligations for your home. ✘ Mixing business and family can create tension if arguments take place. For example, asking for late payments, a rent increase, or ending the lease early can be difficult.
✔ Family members may feel obligated to pay rent on time to avoid damaging family relations. ✘ There may be an expectation of special treatment like leniency on rent payments or other contract terms.

Only you can decide if renting to your family is the best decision. Once you agree to bring your family into your property, you can take proactive steps to make a positive experience for everyone.

What steps should I take when renting property to my family members?

Once you decide to rent to family members and take on the landlord role, there are steps you can follow to help protect yourself and your family members throughout the rental process. It’s good practice to do the following:

1. Check that your space meets rental building requirements

Before you can rent out a property, your home must be in a good, livable condition. Your family might not be as picky as a regular tenant, but it’s necessary for you to complete a contract that follows landlord and tenancy laws.
Consider the structural requirements of your property. Fire escapes, smoke detectors, occupancy limits, etc., must follow building codes. Check your local laws for what your property must have as a rental space. You can have a professional inspection to determine if everything in your home is up to code to continue renting.

2. Do a tenant screening

All landlords do a screening for their tenants. Have your family complete a Residential Rental Application to help find out more about them. You might be familiar with a close family member, but distant relatives you might not know as well. What’s more, some families may consider money a sensitive subject.
Fill out the application together to help make the process less formal. This way, you can discuss the important issues before making a contract.
For example, this will reveal details about their rental history, employment, and proof of income—valuable information to help you determine if it’s a good idea for your family to rent from you.

3. Put a contract in place

You might trust your family, but you can’t rely on a verbal agreement as you may remember the discussion differently than they do later.
For example, a landlord lets their cousin move into their rental property and says there will be a late fee for missed rent. However, the landlord doesn’t put it in a contract. Their cousin moves into the property and doesn’t pay rent for two months. When the late fees are charged to the cousin, they begin a dispute over the additional charges and refuse to pay. Though both parties hope legal steps won’t be taken, it can take months to settle the matter.
Whether you rent a single room or an entire property, a Lease Agreement keeps you and your family accountable. Some jurisdictions even require written agreements for some or all leases.
When creating your document, talk through the process to outline boundaries and expectations. Be clear that this will be a mutually beneficial discussion and document. Boundaries can include using common areas, having no pets, respecting neighbors, and more.

4. Get the right insurance

Getting more insurance can seem like a hassle when renting to family–especially if you already have homeowner’s insurance. Still, landlord and tenant insurance is necessary because it protects you both from natural disasters or unforeseen events.
For example, imagine a tenant is renting the basement suite of a relative, and the area has had flooding issues in the past. If a flood occurs, home insurance would only cover the home and its owner’s belongings—not the tenant’s. In this case, tenant’s insurance could be helpful.
As a landlord, insurance will cover certain expenses you incur while operating your rental property, such as lost or damaged personal belongings, wear and tear, or property damage.
Landlord insurance also provides liability coverage. This means that if someone is injured on the property, insurance can help cover medical bills. With this kind of coverage, you can prevent financial disputes and strain on your relationship with your family.
Each state has its own set of tenant laws that apply whenever you enter a landlord-and-tenant relationship. Some relatives may disregard the legal requirements when renting property, but it’s important to know your responsibilities to avoid the risk of liabilities and disputes.
For example, some families come and go freely between each other’s living space, especially when a landlord shares their property with a tenant. However, it’s important to remember that tenants have the right to privacy.
Without the tenant’s consent, landlords are often legally required to give written notice before entering the tenant’s unit. The exception to this standard is in the event of an emergency like a fire or flood.
Constantly entering the property for maintenance without letting them know ahead of time might become disruptive. So, giving your family a form of notice can help keep a peaceful relationship with respect to each other’s privacy.
There are also responsibilities for your family member as a tenant. For example, tenants are responsible for repairing damages created by themselves or their guests.
It is your right to have your property returned to you in the same condition as before the lease. If the property isn’t maintained beyond normal wear and tear, it is up to your family to cover the repair expenses.

What are the tax implications of renting to family?

Even if you’re renting to family, collecting rent is a form of income you must report on your taxes. The property is classified as a rental property if the owner uses it for personal reasons for less than 14 days or 10% of the tax year if rented at a fair market price.
Charging fair market rent presents opportunities for tax deductions on things like maintenance, utilities, and homeowner association fees. No matter how much you charge, rent must be filed on your taxes as additional income. You just won’t be able to claim as many tax breaks renting at a lower rate as you would at a fair market value.
The difference between renting a room and a whole property will be how you report the rental income on your taxes. You can still deduct certain expenses, like renting out an entire property, but you must divide the expenses between the room you rent and the part you live in as if they are two separate properties.
If you receive a service from your family member instead of a rent payment, you must file the amount they would have paid. For example, your family member repaints the house exterior at a fee equal to a month’s rent. You then deduct a month's rent as payment. You will still file your income tax for that month’s rent but include it as an expense for your rental property.

It is important to follow tax guidelines when renting property. Tax laws are subject to change from year to year. Consult an accountant to assist with tax matters.

How do I set a fair price for rent?

First, determine a fair market price. Fair market rent is the average rental price of a residence based on information like property size, amenities, and location. You can determine a fair rental price by:
  • Asking a realtor to assess your property.
  • Looking at similar properties on listings like Craigslist or real estate ads.
  • Using a fair market rent calculator.
Keep documentation of your research for your taxes or other references.
Second, research your area’s rent control laws. Like tenancy laws, rent control regulations vary by jurisdiction and change often. Some jurisdictions don’t even have them.
Knowing these laws will help determine rent increases if you renew your family’s lease. For example, California requires rental control for most residential spaces but the state does give some exemptions.
State the price clearly in your contract, including details such as when it’s due and how to make payments.
There are ways to help your family member with rent. As discussed before, you can help by deducting a certain amount of rent in return for services. Having them provide a service keeps costs down for your family and can help you with maintenance or family obligations. Note that you’ll still have to report the service as rental income on your personal taxes.

What happens if I rent to family without using a Lease Agreement?

It’s difficult to enforce your rights without a contract. More importantly, you may be breaking the law if a Lease Agreement is required in your jurisdiction.
A properly executed lease is a strong, legal document that outlines everything you and your family member require when renting. It sets a standard that you would expect from any other tenant.
Knowing there are consequences for breaking your contract can deter your family members from taking advantage of you. It can even give your family members peace of mind knowing everyone’s responsibilities throughout the rental process.

Can a family member rent-to-own?

Yes, creating a rent-to-own agreement (i.e., giving the option to purchase) with your family member can offer benefits such as flexibility and familiarity.
For instance, this may be a suitable option if you wish to sell your property, but your relative doesn’t qualify for a mortgage or have a down payment.
However, money matters can put a significant strain on familial bonds, and rent-to-own agreements come with several potential risks and challenges.
Without clear and legally binding agreements, disputes can arise over the terms of the arrangement. You will need to determine the following:
  • The purchase price of the property: Property values fluctuate. If it declines, the tenant-buyer may end up paying more than it’s worth. Conversely, if it increases, the relative selling may regret the purchase price.
  • A non-refundable option fee: Consider charging a fee to reserve the option to purchase the home at a set price. You can also charge a deposit toward the purchase.
  • Clear contract terms: It’s crucial to avoid ambiguity. Create a well-drafted document that specifies terms, such as if there will be an expiration date for when the option to purchase the property ends.
Rent-to-own lease agreements come with a set of risks that may prevent the sale from happening. Be prepared for the possibility of:
  • Financing and mortgage issues: A tenant renting-to-buy may face issues securing a mortgage or finances in time for the sale to be completed. This can be due to a poor credit score or the lender has yet to approve the loan.
  • Default and eviction: If the tenant-buyer fails to make payments or violates the lease, the landlord may need to evict them. This would generate financial hardship for the landlord-seller.
Treat the process as if you were selling your property to someone outside your family. Create a contract that keeps you and your family member accountable for payments.

Can I rent to a family member with Section 8 housing vouchers?

Section 8 is funded by the Department of Housing and Urban Development to assist low-income renters through a voucher system. Although it’s a federal program, the local housing authorities administer the vouchers and enforce the regulations.
Renting from a family member is generally not permitted under Section 8 Housing. The rare exception is if the family member has a disability. In this case, you must prove to the housing authority that the unit has accommodations for this person specifically.
Regulations also don’t allow anyone using vouchers to sublet or assign their rental property to other people—including relatives.
Check with your local public housing authority on the regulations of renting to Section 8 housing tenants.

How do I evict a family member?

When an arrangement isn’t working, sometimes it is better to agree to end it than to force it to work.
If you can all agree on terms for ending the lease early, you can use a Termination Agreement to part ways peacefully. For instance, you can offer compensation for needing to end the agreement early.
Unfortunately, ending a lease with a family member isn’t always positive. No one wants to tell their family to leave, but knowing your legal rights to eviction may strengthen your resolve to do so. While laws vary by jurisdiction, typical grounds for a legal eviction include:
  • Lease violations (e.g., not paying rent, damaging the property, etc.)
  • The landlord is selling the property
  • The need for extensive renovations
  • The tenant fails to leave after the lease expires
  • The tenant performs illegal activities on the property
It probably goes without saying that an eviction can sour family relations. As such, this may not be the route you want to take.
Evictions are costly and time-consuming. Before proceeding with this legal process, consider all of your options for resolving a dispute.

What to do before eviction

Use these tactics to have a productive conversation with your relative about an issue with their tenancy. If you can resolve the problem on your own, you’ll save yourself from a troublesome legal battle.
1. Talk to your family about your concerns.
Remember to notify them as soon as an issue comes up, just as you would with any other tenant. Open communication allows you to revisit what you established in your Lease Agreement. In fact, pointing to specific terms in the document will remind your relative of their legal obligations and the consequences of not meeting them. Talk to them in a neutral space so you both feel open to discussion. The two of you may come to an agreement that allows you to maintain your relationship (e.g., adjusting the rent amount, granting new permissions, or changing another lease term).
2. Use a third party to help determine a fair resolution.
Can’t resolve the problem on your own? Hire a third party to mediate the discussion. A mediator doesn’t take sides to negotiate an issue, helping to keep the conversation relevant and peaceful. This may be crucial when people have trouble regulating their emotions or staying on topic.
A mediator is available for more than just obtaining late rent. You can discuss noise complaints, property damages, and more.
Please note that a mediator cannot give legal advice or make a decision for you. In the end, you must decide on a solution for yourself. However, having a mediator act as a conversational referee can make a tough talk much easier.
3. Seek an out-of-court legal third party.
Arbitration is an alternative to litigation. In this case, a neutral arbitrator (i.e., a legal professional) reviews your case and rules on the outcome. You submit your evidence and disposition in a court-like setting, but it’s a streamlined process compared to a formal legal action in court. Most importantly, the arbitrator’s decision is binding. For example, if an ongoing dispute over a tenant’s responsibility for lawn maintenance goes unresolved, an arbitrator can decide who is responsible for the task based on your lease terms rather than resorting to eviction first.
However, arbitration can be a costly alternative to mediation and it’s crucial to note that local laws may affect whether arbitration is an ideal path. Each jurisdiction may have regulations that don’t create timely results should an eviction be your decided route. For example, in California, arbitrators aren’t held to the same 20 day time limit as courts are with unlawful detainers.
If you can’t find a solution through these approaches, you may wish to look for legal advice.
Eviction is probably the last thing you want to do to a relative, but if negotiation fails, it may be necessary. Depending on your circumstances, there are options available to seek legal help.
A step you can take is to seek the advice of a lawyer in filing an eviction lawsuit. This is especially important in high-stakes situations, such as when you suspect illegal activities on your property. A lawyer can ensure you aren’t violating any tenant’s rights while obtaining evidence to support your future legal action.
As a landlord, you may also ask the court to help remove a tenant from your property. In some jurisdictions, this eviction lawsuit is known as an unlawful detainer.
The important thing to remember is to treat the situation like any other tenant; don’t feel obligated to be lenient.

There is a specific process of do’s and don’ts you will need to follow, as each jurisdiction has its own laws for evictions. However, the first step is to send an Eviction Notice.

Repairing a relationship with a family member after eviction

Rebuilding a relationship can take time, but consistency and communication can be a major steps in reconnecting. Acknowledging and empathizing with your experiences opens opportunities to be honest with one another. If open communication leads to an apology, forgiveness, or mutual understanding, you can slowly restore a healthy relationship.
Reconnecting with family through shared activities allows you to find common ground for a relationship. Take the time to celebrate the small milestones you develop along the way to encourage positive progress. As you’re building this new connection, remember to put new boundaries in place and show respect for each other to create a healthy relationship.

Are you ready to rent to your family?

There can be hesitations about finances and relationship dynamics when deciding to rent to a relative, but knowing your rights and responsibilities as a landlord can make the process much more approachable.
You have already taken that first step by giving yourself the knowledge of insurance, rental prices, contracts, and more to support yourself as a landlord. So, you can start a positive rental process with your loved ones with confidence.