Friends and Finances: Renting a Room to a Mate
03rd September 2019
Renting out a room to a friend sounds like a perfect way to dip your toe into the landlord waters – and it really can be. You’ve got less worry about a stranger taking up space in your home or other property. You’re probably more comfortable talking money with a mate than a total stranger and you can keep things fairly flexible and informal. Like any other big financial decision, though, you’ve got to go in with your eyes wide open. Here’s a quick guide to the ups and downs of renting to friends.
The Good: Knowing who you’re getting into bed with
Okay, that’s probably not literal unless you’re really short on space or know each other very well. When it comes to trusting someone to take good care of your property, though, a little personal knowledge goes a long way. If your mate’s good with money, you probably already know about it. If they’re not, you’ve at least got some forewarning. If there are any particular needs or health issues involved, you’ve got some personal experience to fall back on in accommodating them.
The Bad: Getting too personal
There flip-side to this, obviously, is that you’re really not keeping your business and personal lives separate. However close you may be, you’re still entering into a business relationship with your tenant. That means you’ve got to protect yourself with a lease agreement and some basic house rules set out. There’ll be payment rates, deadlines and details to nail down, plus you’ll have legal responsibilities as a landlord to live up to. Whatever personal information your mate gives you as part of your agreement, for example, you’ve got to be smart about how you protect and use it.
The Good: One hand washes the other
Friends and family help each other out, whether that means offering a lift when your car’s broken down or minding the kids while you treat yourself to a night out. When you’re renting to someone you know well, you’ve got an opportunity to pitch in for each other that most landlord/tenant set-ups would have a hard time matching. If your mate’s handy with a spanner, for instance, you could organise a lower rate of rent for them to take care of any odd jobs you’d otherwise have to call in a stranger for.
The Bad: Peer pressure
When you’re charging someone money for something, you’ve got to be able to back up your rights. Booting a stranger out of your property because they’ve missed a year’s worth of rent or wrecked the place is one thing. Putting a friend on the street in the same situation can be something else entirely. It’s tough to play the hard-nosed businessperson with someone you actually know. You’re more likely to see their side of the story, or let them take advantage of your friendship. Arguments over money can ruin relationships of any kind, and resentment over even small quibbles can build up over time. It cuts both ways, of course, and you might not always be in the right. Your friend might think you’re less likely to chase them over missing cash – but equally, they might be less likely to press you over fulfilling your own responsibilities.
The key point to remember in all this is that, while renting to a mate might seem like a great excuse to slacken the rules a bit, the taxman doesn’t care how well you know each other. All he sees are a landlord and a tenant. Even if you’re keeping things super-casual, don’t fool yourself into thinking you can handle the money side of things “under the table”. Depending on your situation, you may have to file a Self Assessment tax return to declare the cash coming in, or you may qualify for the Rent a Room system, which allows you to earn up to £7,500 a year from renting out furnished rooms. Either way, checking out what your rights and responsibilities are will keep you in HMRC’s good books.
We’re all about friends and family at RIFT. That’s why we pay you a reward of £50 for every mate, colleague or family member you send our way, when they go on to make a claim with us. Refer 5 people and we’ll throw in an additional £150, for a total of £400! There are loads of prizes to win alongside the cash rewards, and there’s no upper limit on what you can earn. Check out our Refer a Friend scheme for more details.