Rental Strategies with Daughter as a Tenant

[Edward Jakubiak]

Hi all,

I tried finding this scenario on the forum and couldn't find something similar.  I am buying a rental property for my 22 year old daughter to start out after college.  It is a 3 BR townhouse in a vacation area.  She will have 2 roommates, 1 right away and one in September.  There is a good possibility of a 2 month summer renter to fill in. I am discounting her third of the rent by $240 a month to get her on her feet.  I am planning to keep it at least 10 years (possible summer weekly rental at some point). I have 2 questions:

1. Since she is family getting a one half discount, would it be better to have a third of it as a second home and write off a third of the mortgage and taxes.  Then have the other 2 as income producing renters?  I see the advantage as being similar cash flow and income with less depreciation write-off (more $ when I sell).

2. Is it okay to do 2 leases for the roommates?  One lease agreement will be tough with different start dates and 1 being my daughter with no lease.  I read it's always better to do 1 lease. 

Thanks everyone.  

Ed 

[Marcia Maynard]

Do not discount your daughter's rent. Keep it the same as all of the parties. If you want to help her out, give her money as a gift that she can use to pay her share of the rent. Treat your daughter and the other two tenants the same, using the same rental agreement and terms. Treat it as a business.

There are sound reasons for doing so...

1. Tax reasons. Income and expenses must be properly tracked. If you are renting one unit to family at a discounted rate, you may still be held accountable to pay taxes on the fair market value of the unit.

2. Resell reasons. Future purchasers will want to know what income the unit generated, not what potential income it could have generated.

3. Education reasons. Your daughter will learn how to be a tenant and she will be able to establish a rental history that could serve her well. Showing favoritism to her may negatively affect the relationship she has with her roommates.