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AU Pitfalls of renting to family

Property Here - Wednesday, August 14, 2013

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It's a nice gesture to rent to family but often an expensive one. Picture: Thinkstock

It's a nice gesture to rent to family but often an expensive one. Picture: Thinkstock Source: News Limited

YOU can't choose your family, but if you're a real estate investor, you can choose to help them out by putting a roof over their head.

It's most common for parents to provide a home for their adult children, but these days the lines can get blurred and involve grandchildren, brothers and sisters, cousins and even friends.

It's often a nice gesture but also an expensive one. And if you're not careful it has the potential to destroy a relationship or a family.

Money is the cause of many arguments between friends and family, and providing a property - at either full rent, reduced rent or no rent - can be dangerous if both parties are not completely on the same page at the beginning.

Firstly, it's important to charge them a rent, even if it is reduced. Giving something for nothing will only breed a welfare mentality and probably spark jealousy among others.

Remember that if it's a negatively-geared investment property, you have to declare that you are receiving rent at prevailing market rates. The taxman will not allow you to declare a small amount - such as $50 a week - then claim a big tax deduction when interest costs outweigh income. Some property experts say you can charge slightly less than a market rate, but you need to be careful.

Be strict with getting your rental income. "It can be easy to turn a blind eye if a family member or friend is late on their rent, or promises that they will pay as soon as they can,'' says Terri Scheer Insurance manager Carolyn Majda.

She says there are laws around tenant defaults, and failing to be vigilant can also affect later insurance claims.

Inspect your property regularly, as nasty liability claims can still eventuate if your tenant is injured by a maintenance problem.

And landlord insurance is still important even if the tenant is well-known to you. Some insurance providers may charge less if it's rented to a family member.

"Even the most trustworthy tenant is able to damage a property, whether accidental or otherwise,'' Majda says.

The key rule is to manage your property like a professional. Madja says it is essential to appoint a property manager to prevent your role as landlord damaging your personal relationships, but I disagree. Speaking from experience, a good family relationship and understanding of who pays what can overcome the hefty cost of paying a percentage of weekly rent to a property manager. Just make sure you write down some sort of agreement so everyone knows their responsibilities.

Keeping communications open is usually much easier with families than with strangers, and if done properly can save you some of the troubles that affect other landlords.

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