What to consider as a Land Lord?

[Moordenaarkat]

What is the name of your state (only U.S. law)?

North Carolina

I am staying, temporarily, in another state. I own a house in North Carolina which is still my 'primary' residence. I do plan to return to this house and live there as I did previously. There are no liens on the house.
I have a neighbor/friend who just sold their house. They will have to vacate their old house soon and now have to either purchase a house (really quickly) or more likely rent a place until they find a house.

Since my house is now empty I am considering letting them stay in my house in NC and ask them to at least reimburse me for electric and cable use which I will pay for each month.
What concerns me are tax, insurance, and liability issues. Should I simply let them stay under my roof or should we enter into a landlord/tenant relationship? Can I ask for reimbursement for taxes, insurance, and utilities without a LL/tenant relationship? I assume if we enter into a LL/tenant agreement then I can not claim this house as my primary residence while they occupy it. Can I remove them from my house in the future if need be? I have known these people for nearly half my life and I do trust them but one never knows. I would like to help these people out during their transition but I do not want to hurt myself in the process. The best scenario would be to offset some of my expenses AND let my friends enjoy a reduce living expense for a few months so they can save for their new home.

Thanks for comments and advise.
Regards,
The OP

 

[sandyclaus]

What is the name of your state (only U.S. law)?

North Carolina

I am staying, temporarily, in another state. I own a house in North Carolina which is still my 'primary' residence. I do plan to return to this house and live there as I did previously. There are no liens on the house.
I have a neighbor/friend who just sold their house. They will have to vacate their old house soon and now have to either purchase a house (really quickly) or more likely rent a place until they find a house.

Since my house is now empty I am considering letting them stay in my house in NC and ask them to at least reimburse me for electric and cable use which I will pay for each month.
What concerns me are tax, insurance, and liability issues. Should I simply let them stay under my roof or should we enter into a landlord/tenant relationship? Can I ask for reimbursement for taxes, insurance, and utilities without a LL/tenant relationship? I assume if we enter into a LL/tenant agreement then I can not claim this house as my primary residence while they occupy it. Can I remove them from my house in the future if need be? I have known these people for nearly half my life and I do trust them but one never knows. I would like to help these people out during their transition but I do not want to hurt myself in the process. The best scenario would be to offset some of my expenses AND let my friends enjoy a reduce living expense for a few months so they can save for their new home.

Thanks for comments and advise.
Regards,
The OP

The road to Hell is paved with good intentions. While it is admirable that you are wanting to help out your friends and neighbors, you need to be smart and protect yourself in the process. On these hard times, people we know often do things we don't expect or plan on, and it screws up both friendships and future endeavors.

It's best that you enter into a LL/T relationship with these people. Be sure to spell out very clearly the terms of your arrangement, including the amounts you expect them to pay and how long they can stay in the house. Rather than paying for the utilities yourself, I would instead have the new tenants turn on these services under their own names. Otherwise, you could end up paying for their stay and have the potential of having them stiff you for everything if they choose not to reimburse you for those expenses. If they have to pay for the services themselves, they will be more careful about moderating how the use them, and their own credit would be on the line instead of yours if they choose NOT to pay for whatever reason might occur.

Plus, in a LL/tenant relationship, YOU get to control how long they get to stay there. If, for some reason, they manage to overstay their welcome, they would be subject to LL/T laws which come into play if necessary to remove them from your home.

Last, but certainly not least, be sure to put all of your agreements IN WRITING. Hire a good real estate attorney and have them write up the agreement for all parties to sign.

 

[Who's Liable?]

What is the name of your state (only U.S. law)?

North Carolina

I am staying, temporarily, in another state. I own a house in North Carolina which is still my 'primary' residence. I do plan to return to this house and live there as I did previously. There are no liens on the house.
I have a neighbor/friend who just sold their house. They will have to vacate their old house soon and now have to either purchase a house (really quickly) or more likely rent a place until they find a house.

Since my house is now empty I am considering letting them stay in my house in NC and ask them to at least reimburse me for electric and cable use which I will pay for each month.

Disconnect the utilities in your name, and have them started in their names. This saves you the heartache of missed payments, collecting and shut-off. If you were to have these in YOUR name, if your tenants decide not to pay the utility bill, YOU as a landlord CANNOT shut them off to try and force them to pay. That is considered constructive eviction and you can be found guilty and face a hefty monetary sum.

What concerns me are tax, insurance, and liability issues. Should I simply let them stay under my roof or should we enter into a landlord/tenant relationship?

You do not need a signed lease to enter into a landlord/tenant relationship. Absent a signed lease, your state automatically creates a month-to-month lease between you and the tenants. This is done to protect you and the tenant.

Can I ask for reimbursement for taxes, insurance, and utilities without a LL/tenant relationship?

See above. You right that amount into the lease.

I assume if we enter into a LL/tenant agreement then I can not claim this house as my primary residence while they occupy it.

No, you cannot, and you will need to declare the rent as income on your taxes. This is why MANY landlords instruct their tenants to tell asking persons that they still live there, and to collect their mail. They do it to circumvent the IRS.

Can I remove them from my house in the future if need be?

You will be required to follow your states LL/T laws since there will be a lease, whether it be a month-to-month or set term lease.

I have known these people for nearly half my life and I do trust them but one never knows.

You don't know them %100, and you will never be able to predict what they will do. I would suggest watching several issues of Judge Judy to see how "friends" don't really treat each other like "friends".

I would like to help these people out during their transition but I do not want to hurt myself in the process. The best scenario would be to offset some of my expenses AND let my friends enjoy a reduce living expense for a few months so they can save for their new home.


Thanks for comments and advise.
Regards,
The OP

As stated before, you are well intentioned, and that is good. However we see people like you on this board ALL THE TIME, regarding the SAME issue. Helping a "friend" out turns into a nightmare when the "friend" decides they can't or won't pay anything.

Get a SIGNED lease, have them turn the utilities in THEIR name. This means turning them OFF prior to them moving in. We also see issue where people leave them on as the tenant was supposed to turn them on but never do. All of a sudden the LL is now stuck with a tenant who doesn't pay the utilities and they can't turn them off due to their states LL/T laws. DO NOT let them move in UNTIL you have a security deposit AND don't accept anything late.

Good luck!

 

[Moordenaarkat]

OK. A signed lease and utilities in their name is the message. Also, wise to have a real estate attorney draw-up the lease. Since any rent I collect is 'income' then I will be taxed on it. So, for example, if I want the rent income to offset the property taxes then I should probably charge some percentage above what I pay in property taxes to offset what I will pay in income taxes.

My biggest concern/question now would be where to declare my 'primary' residence if I rent this house out. Thank you so much for the comments and advise. I never considered renting this particular house but I have been planning to investigate investment property in the future so I look at this experience as practice.

My friends and I agree that we may go into this as friends but we have to come out the other side as friends.

Regards,
The OP

 

[tranquility]

One does not "declare" your principal residence. A place just is or is not based on all the facts.