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How Renting Your House (even to a friend) Could Be a Big Expensive Mistake

Nov 05, 2017

 

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It happens a lot – for convenience, compassion, or cash, people decide to rent out their house, and they soon discover how bad an idea it really is.  

Which is why I've advised against it. Often.  
 
It keeps happening though, so I'll keep telling these cautionary true stories in the hope that somewhere, it saves someone truckloads of frustration and piles of money.  

 
Once upon a time, a couple moved out of province to a new home and decided to rent out their original house.  

"Okay, hold on," I said, "you need to know two things. First, the moment it becomes a rental, your capital gains become taxable whenever you sell it in the future."  

"Capital gains..?" She asked 

"Yes. Right now, you could sell and not pay taxes on the profit. As a rental though, it is subject to taxes. That alone could cost you tens of thousands of dollars."  

"Oh. I didn't know that. … what's the second thing?"  

"That you'll be absentee landlords unless you have a professional management company looking after it for you, you're giving your tenants Carte Blanche with your house."  

They nodded and thanked me for my advice and decided to rent it out anyway 

 

A year or two later....  

 

Now the couple was ready to sell the property and free up some cash. They still lived out of province, so arranged for their parents to drive in and meet me at the house. 

 
"The tenants said they were leaving for vacation," said the dad as he jiggled the key in the lock, "so they didn't have a chance to clean it up."  

 
I wish I could tell you it was in A condition.  

 

The moment we walked in, we were greeted by the sight of dirty, stuck-on dishes piled in and beside the sink, on counters, and even on the table. Under the kitchen sink we discovered mouse droppings and the carcus of the mouse who had made them.  

The bedroom was the worst. Every square foot of that carpet was caked with dog feces. Soiled dog diapers were strewn about, too. I know... I was grossed out too. 

And the entire house was littered with stuff and junk and garbage. The house was in really rough shape.  

 

The most surprising part isn't that it happened, but that the tenant had been a friend of the owners. That "friend" then invited her friends to come live there with her, and they capital-D damaged the place.  

 

I did list it for them, but only after they replaced that soiled bedroom carpet. Even so, the property was in rough shape, and they took a hit on the price 

 

The lesson they learned was a costly one.  


It cost them a relationship (though, in hindsight, maybe that was a good thing), it cost them a great deal of stress as they managed the situation from afar, it cost them in capital gains, and it also cost them tens of thousands of dollars on the price, which would have been much higher had they sold it in excellent condition just a year or two earlier.  

 

Please, if you or someone you love is considering renting out their home, share this story with them. It might just save them a lot of pain.  


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Category: Selling A Home


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