Renting to Friends – Could you be your friend’s landlord?

Figures from the Australian Bureau of Statistics (ABS) show that our largest renting demographic is those aged under 35 with no dependent children. The years of freedom! Regardless of whether you find yourself within this group, here are the ups and downs of living with room-mates and tips on how to split the rent and bills.

Benefits of renting with roommates

Before you start living in a property, provided the landlord is satisfied with your application, you and your room-mates will sign a co-tenancy agreement.

This will effectively ensure that each flat mate has equal legal rights and responsibilities, with no co-tenant allowed to influence others’ authority in. This works especially well if you’re living with a mix of people that you know and can trust.

Having a roommate or two can help you manage the financial burdens of renting because you don’t need to shoulder the total cost of your living expenses.  Splitting rent with roommates also can help you choose a better location that you may not be able to afford on your own plus it will help reduce the amount you pay in utilities and shared household supplies.

Part of the fun of living in a house with roommates is the amount of time you get to spend with friends and relatives that float in and out of your housemates’ lives. You will almost always have someone around to share a drink, to carpool, to order takeaway with and not to mention a saviour who can let you in when you’re locked out!

Negatives of renting with roommates

The benefits that come with a co-tenancy agreement can also become negatives, given the right (or wrong) circumstances. The most important factor that you must take note of is that co-tenants share joint liability. This means that as soon as your pen hits the paper, you’re bound to the agreement both as an individual and a group.

For example, if your roommate had been missing rent payments for a few weeks and their debt had compounded, all the other co-tenants, including you, could be held responsible.

To help ensure your renting experience with roommates goes without a hitch, here are a few tips to take on board with payments:

Paying the landlord

In order to avoid the situation where you could find yourself having to fund your roommate’s rent, you should be vigilant when it comes to the weekly payments.  If you request it, your landlord or property manager will provide you with a receipt of your payment.

Keeping on top of this will allow you to ensure that the necessary payment is being met, and if not, enables you to act quickly.

Splitting the rent

Figuring out how to split the rent can be challenging, but it is an important process to go through before your sign the lease when living with roommates.  Here are 2 solutions to make this process as fair as possible and to help reduce any arguments.

Divide the square meterage

This is an easy and fair way to split to rent.  To get an accurate breakdown, take each bedroom’s square meterage and divide by the property’s total square meterage.  This gives you the percentage of space that each room occupies.  Then take each individual percentage and apply it to the total cost of rent.  This, therefore, breaks down the cost according to the percentage of total space occupied.

Who has the most perks?

Consider what each person gets for the rent – is it fair?  For instance, if someone has an ensuite, built-in cupboards, balconies, and windows, they should pay extra.  You can assign a cost to each amenity and add that to an evenly divided room price.

Paying the bills

One of the main conflict points when sharing a house with roommates is rationing the utility bills because really, no one wants a slice. It is recommended to assign the responsibility to one of the co-tenants as soon as you move in.  This doesn’t mean they pay the entire bill but are responsible for paying the bill on time.

Generally, you should divide the expenses such as gas, electricity, internet and water equally among yourselves, before paying your allocated member the required amount when necessary.

It can get difficult when usage is uneven; for instance, one roommate has an electric blanket they never turn off or another who steadfastly streams re-runs of Star Wars each and every day. If that is the case, it is worth coming to an agreement to ensure they pay extra for their habits.

Good luck with your roommate experience – if you plan it right and sort out the rent and bills upfront, you’ll undoubtedly have loads of fun.

Renting with friends: 5 ground rules to follow.

Moving in with friends might seem like a great idea but to give yourself the best chance of success here are five things to agree on before signing a lease.

If you’re considering moving into a rental property with friends, there are some simple rules of engagement to ensure you’re still besties at lease end.

1. Set up a roommate agreement

For fans of the Big Bang Theory, a roommate agreement doesn’t need to be on the same scale that fictitious Sheldon Cooper foisted upon his hapless roomie Leonard Hofstadter. A contract with many unfathomable clauses and subsections is probably overkill. However, before you start searching for a joint rental home, it’s sensible to agree to a few ground rules to avoid a big bang to your friendship.

Typically, all flatmates should sign the lease agreement. An all-in approach makes all roommates responsible for the lease and the payment of the regular rent. You must also agree on the amount of rent and how it is paid.

One popular strategy involves each roommate paying his or her share of the rent directly to the property manager. This approach also makes it easier to identify tardy or non-payers. That said, in most cases, your property manager will chase up all roommates to ensure any rent arrears are covered regardless of the straggler’s identity. Also, by paying individually, no single flatmate is responsible for chasing up the rent or is left short financially if a roommate absconds.

2. Work out how you will split rent and expenses

The frequency of rental payments should be addressed in the roommate agreement. One housemate might receive a weekly wage, while another roomie gets his or her salary fortnightly or monthly. Likewise, it would be best to determine how to cover utilities such as gas, electricity, phone and internet.

An even split between co-tenants might appear the common-sense solution; however, bill adjustments for electricity and the internet might be required if one housemate regularly travels for work. Similarly, if another flatmate works from home for large lumps of the week, it seems only fair this person covers a more significant portion of the utility bills.

3. Agree to a cleaning schedule

Maintaining a rental property is the tenants’ responsibility and stipulated in the landlord’s tenancy agreement. Nothing rips apart rental households faster than quarrels over-cleaning. Before you move in with friends, agree to a cleaning schedule. This schedule ensures all flatmates share the cleaning and tidying – and the cooking for that matter.

4. Set rules about overnight guests

Rules about guests and partners staying over is a must, and Big Bang Theory’s patronising Dr Cooper addressed this issue amusingly with the infamous “overnight guests notification clause”. This subsection of the Cooper/Hofstadter roommate agreement decrees that “there has to be a 24-hour notice period given if a non-related female is staying overnight”.

Once visitors turn into something more, there must be an agreement about how they contribute to the rent and other expenses. Also, if a partner joins the household permanently, this tenancy change must be communicated to your property manager.

5. Decide on what will happen if someone wants to move out

It’s a good idea also to include rules about how a flatmate can leave the tenancy early, especially if his or her name is on the lease. A roomie breaking a lease early is often a factor in the breakup of friendships. Before a co-tenant leaves, there must be an agreement on the length of time they continue to pay rent until a new flatmate moves into the property.

6 Reasons You Should Rule out Renting to Friends                    

Many rookie landlords think renting to friends is an easy solution to tracking down top-class tenants for consistent rental income. You don’t have to pay for vetting – because you know them. You don’t have the expense of advertising your property. You can trust them to pay rent on time and look after your property. The perfect tenants.

Unfortunately, this rarely proves to be the case. I’ve heard many landlords say that they will be renting to friends. I’ve heard almost as many says, “I wish I had never rented to friends”. Here are the major reasons you should rule out renting to friends.

1. Friends Can Take Advantage of You

They may not mean to, but friends have a knack of taking advantage of you when you are their landlord. They may be a little slower to pay their rent or expect every little issue with the property to be taken care of immediately.

The chances are that you won’t have vetted them. You won’t have run those background checks that are designed to uncover potential problem tenants before you sign them up.

Also, because your friend is renting from you, you are less likely to treat the tenancy agreement seriously. You’ll do a lot of trust and a handshake. If only it were that easy. Remember, if it is not in writing, you don’t have a leg to stand on.

2. Friends Might Not Tell You When You Need to Make Repair

While some friends will take advantage of you and your kind nature, others might feel uncomfortable when making a complaint or reporting a repair. Because of your close personal relationship, they may know that you don’t currently have the finances to make a repair or undertake maintenance work.

To spare you your blushes, they don’t tell you – or they try to make a temporary repair themselves. The result is an unfixed issue that gets worse – and more expensive – or a poor repair that costs more to put right. Either way, renting to friends is going to cost you money.

3. Your Friendship Will Become Strained

I can’t remember who it was that said you can’t mix business with pleasure. Whoever it was, they are right. When you rent to friends, the power in your relationship becomes balanced in your favour.

If they are late paying their rent, they probably won’t join you on a night out. You might question how they can afford a meal, a little wine, and a couple of cocktails, yet they can’t pay the overdue rent.

On the other hand, because you are the landlord, you may feel that you should be buying them their drinks – to say thanks for being a good tenant. You’ll end up spending more, while your friends (your tenants) enjoy yet another cheap night at your expense.

You’ll feel guilty asking for late rent, especially if you know your friend has had a tough month. So, you’ll take the financial strain for them – and that is going to put a strain on your friendship, too. You’ll be out of pocket, and you’ll keep quiet. Until you can’t keep quiet any longer. Then the emotions that have been simmering away will boil over – and that great friendship will never be the same again.

4. You Will Probably Ignore Damages

If you rent to friends, you should take a tenancy deposit. More fool you if you don’t.

When it comes to a tenant moving on, the tenancy deposit is there to pay for any unpaid rent or damages to the property. It becomes extremely difficult to do this when the tenancy deposit is your friend’s money.

There is usually some discussion about the tenancy deposit at the end of a tenancy. You’ll argue your case, and the tenant will argue theirs. You will come to an amicable amount that covers damages. If not, it may go to arbitration. When it is a friend’s tenancy deposit, the conversations and process can get messy. Other friends may get dragged into the argument and asked to pick sides. Before you know it, a whole group of your friends aren’t talking to you – because you’re not a friend, you’re a ‘greedy, money-grabbing landlord’.

5. It’s Almost Impossible to Evict a Friend

So, your friend has missed a couple of rent payments. They have promised to pay you. They’ve had noisy, late-night parties. They have promised to calm down. They haven’t been looking after your property. They have promised to do better in the future. If this was a just tenant and not a friend, you would have started eviction proceedings a long time ago. Not so easy to do with friends. How do you make a friend homeless, and not be seen to be the evil one by your other friends?

6. You Won’t Maximise Your Rental Income When Renting to Friends

Let’s be honest, when renting to friends you are going to cut them a good deal. You’ll offer mates’ rates. Let’s say you charge £50 less per month. That’s £600 in the first year.

You probably won’t increase the rent by as much as you would if the tenant were not your friend. Let’s say you forego a rental increase of, say, £25 per month in year two. That’s another £900 shortfall in potential rental income. Over three years, you are out by, perhaps, nearly £3,000 in rental income. That’s how much renting to friends has cost you in lost rental income.

Renting to Friends Is a Mistake

Renting to friends is a mistake. Don’t do it. You’ll be out of pocket, and your friendship will never be the same again. Even if not done purposely, a friend may take advantage of your good nature. Repairs and damage may go unreported, and this will cost you more in the long run.

My advice is to always rent your buy-to-let property out to bona fide tenants, never to your friends. If your friends are homeless, offer them your couch for a few nights.

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