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Discover the secrets of successful property management and investing on "The Property Investors Handbook" podcast. Join Colleen Sutherland as she shares expert insights and strategies for acquiring, managing, and maximising returns on real estate investments. Whether you're a beginner or seasoned investor, this podcast is your essential guide to navigating the world of property investment. Tune in and unlock the keys to financial success in real estate.
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Hello and welcome back to another episode of the Property Investors Handbook Podcast. I'm Adam Bell, and today we're discussing a topic that many property owners find a bit tricky, and that's renting out your property to family and friends.
Now joining us again is Colleen Sutherland from Sutherland's Property Management Group, who brings years of expertise to this sensitive subject. Colleen, great to have you with us and to shed some light on what can be pretty tricky.
It is, yes. Thanks, Adam.
All right. Let's start. I'm going to ask you straight out
yes or no. Should you rent to family and friends
if you're managing, the property yourself, it'll be a straight out. No. So, when you're going through a professional property manager, then consider it. But set some very clear boundaries.
Cool, which is what we'll go through. So could just maybe start by sharing why renting with family and friends.
can be, you know, so challenging for, for property owners.
So what can happen even for the property owner is there's that familiarity that can cloud your judgment. And it's your judgment that needs to stay, have those boundaries very tight, probably even more tight than if they weren't.
So with a landlord, you need to set the boundaries, before they move in. And the same with the tenant, because again, being familiar with each other can lead to quite a, a destruction of both the relationship and the property.
Right. Which is, you know, something that you really don't want to be having happening with someone you're close with.
And some, two emotional subjects, you know, people you have relationships with, and also, money in your investment investment. That's right. You know, put those two together. Yeah. So, I mean, what are some critical steps that property owners should take when setting up a, a rental agreement with someone they know personally?
So before you have them move in, you must have it in writing. So if you've got a lease from the Residential Tenancies Authority in Brisbane, you can download a lease from there and to put all your terms and conditions in there, making sure you're not contracting out of the act just because they're friends.
And have it in writing before you hand over the keys and make sure you've dotted all your I's and crossed all your T's. So
definitely still have a lease.
Number one, a hundred percent. That's right.
Well, actually we go back to the first question. Number one, don't do it. But if you're going to do it, make sure you have a lease.
Okay. You as a property manager, when you, uh, given the role of managing someone's property and they want to put in their family and friends, do you, what additional things do you put in place there? You said you need to set boundaries. Yes. Is that something you get involved with, or do you just advise your landlord to do that with their, the people are going into the property.
So what you'd need to do is have a professional property manager as a third party. So they take the emotion out of the transaction. And then you need to begin with the end in mind. So to make sure that when your family member, your friend, moves out of the house, that you've done everything you can to minimize that risk because.
One of our mottos is education is the biggest form of risk mitigation. So if you can remember that, then you may be okay, you may come out of it unscathed.
So, what about a bond? So, the significance of taking up a bond. Obviously, I would imagine if they're engaging you, you would, you still have to do, do that on their behalf. But again, someone who is putting in family and friends, privately, should they be taking a bond?
If you stopped and considered why you have a property in the first place to lease out, it is for an investment.
So you need to do everything you can to minimise the risk on that investment. And that is following the legislation. And legislation tells you to take a bond which is four times the weekly rent, no matter how high it is that legislation changed recently.
So you can only take four weeks. You cannot take more and I would not advise you to take less because even if they do no damage to your property, they might just stop paying rent. And for you to go through that process, one week's rent is used up very quickly. So always follow the legislation. You're managing a little business.
is one investment property. Do it well and you won't be sorry.
Great advice. Great advice. What are some of the pitfalls that you've seen in these arrangements with family and friends? What, what problems have you seen arise?
Because we're a third party, we can take the emotion out of it, as I mentioned before.
So we've had a couple of properties come to us with, Oh, I've got my brother in there, or I've got my mother's friend was another one. Can you, they're not paying rent, they won't move out, you know, all the disaster things. Those are the ones that you see on a current affair. But with those, we go straight into, business mode and we follow the process, of just treating them like any other person so that we can take away that, Again, the emotion, and it will be treated as any other person, and we will follow the legislation to make sure that they're out, or that they pay their rent, or that they fix that wall, or get rid of all those car bodies, and I, and again, I'm just reeling off all the ones, all the scenarios that came to me as a result of putting in your brother, your friend's cousins, or something like that.
Sure.
Are there any implications to think about with, Insurance and insurance being voided, when renting to someone they know? No, it
doesn't, it shouldn't affect your insurance, but I would, um, review the insurance that you have to make sure that it does cover the building, and any resultant damage that is a general insurance claim, but to make sure that you have landlord's protection insurance because that protects the landlord against the tenant and defaulting.
So whether they have created damage or they have stopped paying rent or whatever, those things can be mitigated with a good insurance policy.
Sure. Okay. And, probably another one here and I, almost having heard your answers to all the earlier questions, I know the answer to this, but, you would obviously, as a property manager, even with family and friends, insist upon normal, regular inspections?
Oh, absolutely. Again, follow procedure as you would a normal, A standard investment and a lease because when you deviate from that and you start showing favours and you start being either slack because, oh, it's so and so in there, I know the tenant, the problem with that is that there can be, it can quickly turn sour.
Yep. And. They can sort of start to go, Oh, you know, this, I've been here for ages, you know what that place is like. So you need to follow that procedure. But I'm not just talking about, the tenant being, starting to get a little bit slack with anything. A landlord thinks that, I own that house, you're my brother, I'm coming in.
And so it can flip the other way. It can flip the other way as well. Oh wow, that was
something I wouldn't have thought of.
Yeah, so when it flips the other way, it can get quite nasty as well.
Yeah, so I can see that from both sides now. One, yeah, the brother's wanting to be there more often than he's entitled to be.
Correct. Or the other way around, that the other brother who's in this, Oh, come on, I'm your brother. You don't need to come and have a look.
Yes. That's right. And I haven't been
there for 12 months. Yes. Goodness me.
So when you've got a scenario like that, and it does happen, I've got a couple where the landlord and the tenant have a relationship, but they've given it to me.
So it doesn't go wrong. And I am able to manage it as any other standard tenancy.
Look, I think it's, it's pretty clear. There's a very simple solution here. And it was in the very first question of this podcast, Colleen. And that is get a property manager to manage your property even more.
So if you're putting in someone that you know. For all of those reasons you've just discussed, it could go wrong in, in so many different places. You want to
maintain that relationship with that person you're putting in there. So you're obviously putting him in there to help them out, or they've asked to be put in there to be helped out.
So you want to maintain that relationship with the person that lives there, the person that owns the house,, removing the emotion and putting it with a property manager just makes sense to me. I don't have the relationship with them. It's purely professional and this is the way it goes. Yeah. And it's easier for me to do that.
For any of our listeners out there, If you are contemplating this kind of arrangement, please remember the tips that we have discussed today and look, I couldn't be more strong in recommending that you consider reaching out to a professional like Colleen at Sutherland's Property Management Group to avoid any of the potential problems that could, could arise with having somebody you know as a tenant in your property.
So, again, visit spmg.com.au for more guidance and, a list of the services that Colleen provides. And look, thanks for tuning in, Colleen. Thanks again for joining us in the studio and look forward to catching you on the next episode of the Property Investors Handbook podcast.
Thanks Adam.