After the birth of her second child, Sara Kirner’s family had outgrown their two-bedroom Bethesda condo. She and her husband, Kevin, bought a house in Silver Spring but decided to hold on to their former property and rent it out.
When Kirner was approached by college friend Dora Hunter about renting the condo, she had no hesitations becoming a landlord to a pal.
From a young age, we’re all taught to share, so it seems like a no-brainer to rent out that extra room in your house or your former bachelor pad to a buddy. But becoming a landlord—especially to a friend—comes with serious responsibilities, and if you don’t approach the task in the right way, you could find yourself losing money, a friend, or both.
“It’s very difficult to be business-like with friends,” says Janet Portman, an attorney and the author of a number of books on landlord-tenant issues, including “Every Landlord’s Legal Guide” (Nolo, $39.99). “You need to understand from the beginning that either the friendship or the business relationship could suffer.”
To prevent that, it’s wise for the two parties to put things in writing. “A lot of friends think they don’t need a lease, but I always recommend that people have a written contract,” says Emilie Fairbanks, a D.C.-based attorney who specializes in landlord-tenant law (202-681-4694, Efairbankslaw.com). That allows landlords to spell out their expectations (like when rent is due and what happens if it’s late) and ensures that tenants know exactly what’s required of them. When things aren’t clear, it can lead to resentment, disagreements and, in the worst-case scenario, situations that wind up in court.
Kirner used a standard lease found on the Montgomery County government’s website as the basis for her agreement with Hunter. She also created a move-out checklist for when Hunter’s lease is up, after talking with her aunt, who owns several rental units in upstate New York.
“We spelled out everything for when the time comes,” she says.
If you and your renter are sharing the same condo, be aware that even the most carefully crafted lease might not help you deal with personality conflicts.
“When you’re renting a room to someone, it’s far more likely that there will be conflict over all those intangible things that a lease doesn’t cover, like the fact that this person watches TV all of the time,” says Mark Wellborn, editor-in-chief of UrbanTurf, a website that focuses on the D.C. area’s residential real estate market.
While it might be hard to talk finances with a friend, it’s a conversation that needs to take place. “The person who owns the rental unit should treat the friend exactly like they would treat a renter [who’s a stranger],” Wellborn says.
That means running a credit check and ensuring that the friend-turned-renter has the funds to cover a security deposit and rent. “If your friend balks at that, that’s your first hurdle,” Portman says. “If you don’t get that credit report, you’re taking a chance.”
The landlord also needs to understand how the situation will affect his or her own finances, including the possible tax implications of the rental income collected and the costs of any permits or licenses required.
“Most people don’t need to get an occupancy permit if they’re just renting a room inside their house,” Fairbanks says. “But if they want to be able to enforce their lease, I recommend that they do get a business license.”
Soon-to-be landlords should also check to see if there are any rules or regulations governing their ability to rent their particular space. Some condo associations, for example, might not allow an owner to rent out an extra bedroom in their unit. And basement rooms can pose all kinds of challenges.
One common issue is whether the space meets code. “A large number of basement rooms in D.C. don’t, because they don’t have the proper fire exits or have illegal kitchens,” Fairbanks says.
And check your insurance policy.
As many D.C.-area dwellers recently learned, you never know when a freak storm might cause damage to your home. You might think your homeowners insurance policy will come to the rescue no matter what, but it may not cover someone renting a room in your home.
“You need to inform your homeowners insurance that you’re renting a room,” Fairbanks says. Your rate may go up, but Fairbanks says it’s worth it. If the renter’s room is damaged you don’t want to be on the hook for damage or get into a standoff with the renter about who’s paying for what. It’s also possible for your renter to get his or her own policy.
For Kirner, there was an added level of comfort, because her tenant, Hunter, was becoming a landlord herself. Hunter’s recent marriage necessitated bigger digs, leading her to become Kirner’s tenant. Hunter then had to rent out the studio she owns.
“She knows both sides,” Kirner says. “So we’re not going to get into one of those situations where someone is saying, ‘No, that’s your responsibility.’ She gets it.”
Even when all the stars seem to align, Portman still advises friends to tread carefully when entering a landlord-tenant relationship.
“How often have you heard someone say that their best friend is their best friend, but they wouldn’t want to live with them?” she asks. “There’s some wisdom behind that.”