Charging the right rent
The first thing you’re going to need to consider is rent. You may be tempted to offer your friends or family a low rate, but this could have a negative impact on your own finances. You need to be careful about what you charge, as the Australian Taxation Office (ATO) says that if you’re renting something out below market value, then some or all of your tax deductions may not apply.
While renting to your family or friends at a discounted rate may seem great for them, you’re likely not going to be able to claim any tax deductions you would ordinarily be able to.
Speak to your accountant or a tax consultant about this as your rent will be determined by the market rate. This is something that’s constantly fluctuating, and determining whether you’re close enough to it or too far under to claim anything can be challenging.
Keep it professional
You’re not just doing your friend or family member a favour. You’re earning something off this, which means you need to be as firm with them as you would any other tenant. This not only helps ensure everything runs smoothly, but makes it easier to separate your finances from your personal life.
While you may be more lenient with a friend, keeping everything strict and professional minimises the risk of money ruining an important relationship.
Get a rental agreement
Rental agreements are crucial, no matter the relationship between you and your tenant. They help protect everyone involved, regardless of whether you’re renting the property or the owner of the place.
Not only can you state any relevant terms and conditions, but you’ll need a rental agreement in order to make claims against your insurance for accidents and damage.
There are also several reasons a tenant may need or want a rental agreement, and it’s important not to dismiss their concerns. They may need one in order to move forward with a job, a credit application, or even to receive financial aid.
You can have a rental agreement written up by a lawyer or find one online. Obviously hiring a lawyer to handle the case and ensure everything is in order is the ideal course of action, but we understand not everyone has the means to do so.
Consider a property manager
While you will need to pay a fee to work with a property manager (typically around 6-8% of the rental yield), they can be exceptionally helpful. This is especially true if you don’t live nearby, or if you don’t have the time to manage maintenance or follow up with administrative tasks.
They can also help keep the relationship separate between you and your tenant, since they’ll chase up on late or unpaid rent and handle the late night calls saying that something has broken. This makes the rental more of a business matter and less likely to damage the relationship with your family member or friend.
Get landlords insurance
Accidents happen. You may trust your friend or family member implicitly but even the most careful of individuals can’t avoid mishaps. Landlords insurance protects you from many of these risks, be it house fire or natural disaster.
However, it can also help cover things like chronic illness or disappearing tenants. Landlords insurance can help with these aspects and more, ensuring you won’t ever be significantly out of pocket should the worst happen.
This undoubtedly makes it easier to continue with your daily life without being hampered by extra pressure.
Thinking of buying to rent?
There are certain situations where letting to friends and family is going to be the right thing to do, but make sure you’re protecting yourself. Be it financial and related to the cost of rent, or simply outlining some guidelines and rules on paper, working through the admin at the beginning of the journey will undoubtedly save you a headache later.
If buying a home to rent is something you’re interested in, speak to one of our brokers today for expert buy-to-let advice. If you already own a buy-to-let property and you have questions or are considering changing mortgages, then get in touch today.