I own a rental property single-family home. I rent the rooms out individually for $1,200 per month plus utilities (about $1,300 all in). I have a very good track record of maintaining full occupancy. One of the tenants is my sister, who has lived in the house for 10 years.
Due to our family ties, I’ve only charged her total rent of $800 per month (and I know that any attempt to increase her rent would be met with her fierce hostility toward me).
She is 33 years old, does not have a track record of holding down a steady job, and pays rent late in the month. Generally speaking, she has a poor work ethic — often waking up at 11 a.m. or later each day.
Needless to say, the landlord/tenant dynamic has put a strain on our relationship, and I fear she takes advantage of my generosity. I want to encourage her to take control of her destiny to grow both personally and professionally, but I don’t want to risk damaging our relationship.
You have painted yourself into a corner. Offering your sister a room at $800 a month, while others in the same house are paying $1,300 may not sit well with the other tenants, assuming they know of and/or discovered that she pays far less than they do. It may not be fair to your sister as it could enable her to rest on her laurels rather than look for a full-time job, even though it helps to support her financially. What’s more, it may not be fair to you.
That said, raising your sister’s rent by over 60% to $1,300 would be a harsh wakeup call for her. She has learned to manage her financial life on an $800-a-month rent so to jack it up so drastically would be a shock to the system. You have several options:
1. Tell her that you want to rent the room at full market rate, and give her 12 months to find a job, and make other arrangements. Divorce yourself from her response. You have been good to her for 10 years. Take heart in that.
2. Tell her you will raise the rent by a certain amount each year until you reach market rate. Keep in mind that some states, including California, have a limit on the amount a landlord can raise rents per year.
3. Maintain the status quo, but ask her to pay the rent on the same day as the rest of the tenants, and let her know that this is not a long-term prospect as you may at some point wish to rent the house to a family or sell it.
Any one of those options seem fair to me. It’s important to do what makes you feel comfortable and gives you less anxiety moving forward. Do you want your sister living in this house for another 10 years? Is it worth the hassle? Does having her live there make you more invested in her life than you ought to be? Surely, as long as she pays her rent on time it should not matter to you — as her brother or landlord — what time she rises in the morning.
Mixing finances and family, romance and finance, and friendship and business often result in one or both parties leveraging the emotional bonds for financial ends. It often does not end well, and somebody ends up feeling taken advantage of and treated unfairly by the other party. You risked damaging the relationship by entering into this agreement, and it seems like that arrangement is already taking its toll on both of you.
Whatever you decide should be the right decision for you. You could also help her find a new apartment or studio. Given the monthly rent of your rooms, I assuming it’s in a very hot rental market like New York or San Francisco. The national median rent is closing in on $2,000 for the first time, so finding something within your sister’s price range will be a difficult task.
It’s highly likely that your sister won’t like your decision — whatever you decide — and you must prepare yourself for that.
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