I’ve never been a fan of renting to people that I know, particularly if they are someone that I know well and care about. Nearly always I tell people “don’t do it!” but not for the reasons they might be thinking.
This goes to the heart of the Process-Expectations-Behavior Model that I’ve often talked about with my clients. I’m sure you’ve heard the old saying “never do business with friends”, which does hold some merit in this particular instance. Renting to friends is often not a good idea for several reasons, nearly all of which are things that you have direct control over.
Ignoring Process – Starting Out On the Wrong Foot
Most times I hear of rental deals (and friendships) like this going sour because their process is completely ignored. Think about it, your friend likely knows you’re in the rental business otherwise they wouldn’t have contacted you in the first place. You have to consider it a possibility too that they contacted you because they are likely to get preferential treatment when it comes to bypassing some policies and procedures that no one else will do for them. Not only are your policies being ignored, it’s likely you’re also giving them other concessions such as discounted rent, no security deposit, and perhaps conveniently “ignoring” the fact that they have three full-grown roosters. But hey, the roosters are family too, right?
You have a solid process in place, use it!* Your friend must understand that this is a business for you and it is how you provide for your family. If he or she doesn’t understand that, or won’t set aside their own needs for a moment, then it might not be as valued a friendship as you may have thought.
Honestly, if your friend means that much to you then consider cosigning a lease for them somewhere else, or perhaps loan (or gift) them some money to get them on their feet. Putting them in one of your own rental properties should be one of the last things you should be considering.
Expectations – “But I Thought you Said…?”
When expectations are not clear, in any behavioral situation, it’s a recipe for disappointment. Oftentimes, expectations within friendships are much more lax because we don’t hold our friends as accountable as we would with other people in our lives, our coworkers or subordinates, for example.
In the process of renting to our friend, it is unlikely you have properly laid out the Expectations because you’ve already shown that you’re willing to circumvent your Process in the name of “friendship”. Understand that you might be doing your friend a solid, but it can come at a very high cost. Not only in money, but in the friendship itself.
When the Wheels Come Off the Wagon – Behavior
You knew it was coming, you just didn’t know when. Every single phone call that comes in from your friend, you’re now wondering when you answer, “Am I acting as the friend in this conversation, or am I the landlord?” Even if YOU are able to mentally separate these roles, it’s very difficult, if not impossible, for the other person.
Put yourself in the shoes of your friend for a second. He only has enough money to pay some of his bills, but not all of them. Which is easier, to go to your friend and say “Hey, can I catch up with you in a few weeks on the money I owe you?” or is it easier to go to your bank and ask the same question? You might get some grace from your bank, but you can rest assured that they will have no trouble charging late fees in accordance with the promissory note they signed. If enough time goes by, the bank will also have no trouble repossessing your car or initiating other legal action. As a the owner of a real estate business, it shouldn’t be any different.
The reality is that when you’re operating your rental business without a solid process, you’re setting yourself up for failure in situations such as this. Consider if you shielded yourself by your process to avoid getting into conversations like this in the first place, how much simpler your life would be. If your friend is well-qualified, great, move forward and let someone else run your process the way it was designed. If your friend owned a restaurant, would he let you walk in the kitchen and start cooking your own meal? I would hope not. Why then should you let him dictate how you run your real estate business? Stick with your Process, and you’ll avoid a lot of headaches. If you don’t have a solid process in place, we should talk.