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I've never been a landlord but we've looked into it because we hope to be one day. I would say just make sure you execute a lease and know the landlord/tenant laws in your state very well. Don't skip on requiring a security deposit and last months rent for family.

Make sure you're clear what it's your responsibility to fix/replace. So much stuff keeps going wrong with our apartment and my landlord is a pain in the ass about fixing it and I feel like it is definitely her responsibility.

Oh man, renting to family is not something I would do, if I could avoid it!!! But I also won’t do any business with family or friends at all, so maybe that’s just me.

We’ve been landlords for several years without (knock on wood) any issues. My biggest tip is to really draft up a good rental agreement – find and compare a bunch online if you feel comfortable, hire an attorney if you don’t. Make sure everything is in writing: who fixes what, who is responsible for inside and outside maintenance (including snow removal, if that’s an issue in your area), etc.

Take extensive pictures before your tenant moves in, so that in case they trash the place, you can show the damage before/after clearly.

We have a tenant with pets, and the pets are specified in the lease, so she can’t just go out and get a ton more pets because you allowed one dog.

Hire a property manager if you can afford to (ours is a flat fee of about $100/month, others we looked at charge $75+ month or 10% of rent, etc.). My goal is to be an invisible landlord – I don’t want phone calls, I don’t want to deal with issues, nothing. I get the rent check each month and pay the mortgage and that’s IT.

@Mrs. Lemon-Lime: I would hire a property manager even if it's not in the budget! It'll be a lot easier for everyone if she deals with someone else besides you for the day to day issues...

My first rule would be to not rent to family.
Especially without a lease.
I'd brush up on local landlord/tenant laws. Things can be very different in different areas. For example in Ontario you cannot charge a security deposit or pet deposit and all pets are welcome. In NY I paid an extra months security deposit for having a cat.
Good luck.

@Mrs. Lemon-Lime: I think like heating/cooling, plumbing, structural stuff. Our built in air conditioner (belongs to the apartment) keeps breaking and the landlord keeps saying it's not her problem. We had a plumbing issue (the toilet kept running) and we just ended up paying for the guy because we didn't feel like arguing with her. In NYC, it's the building's responsibility to install window guards and she gave us SUCH a hard time about it.

I'm a lawyer so I always see the potential landmines in this kind of situation. I definitely wouldn't do it without a lease. It may be awkward and uncomfortable to talk about it now, but it'll be SO much better doing it now than having the whole thing blow up a year from now and ruining your relationship. The lease should specify the amount of the rent, what she's responsible to pay, what you're responsible to maintain and fix, how much notice either of you need to give to end the lease, etc. One common division of repair responsibilities is the tenant is responsible for anything from the walls in and the landlord is responsible for the rest. So, a leak from the kitchen sink = tenant. A leak from a pipe in the walls = landlord. You can do it however you want, but that's an example.

A tip if you decide to have a lawyer write up your lease - it's usually easier and cheaper to just have the lawyer write up the lease from scratch rather than bringing in a lease you find online and having them check to make sure it complies with the law. Any lawyer that does real estate law will have a standard form lease they use, and it takes much less time for them to input your information into their form than to review a form they're not familiar with.

@hotchildinthecity: your landlord sounds awful! I feel like tenant responsibilities are replacing light bulbs/replacing air filters on AC/maintaining the tiny yard in back and all of that is written into the least (HOA does the front yard). Everything else is the landlord's responsibility.

You MUST get a written lease. Seriously, do not do not do not go into this without it, family or not. If your SIL is reasonable she will understand. You need to have everything in writing. You can find free ones online. If you are in the U.S. just look up "state" Landlord-Tenant Act. Every state has one. You need to know what your and your tenant's rights and responsibilities are in terms of who pays for what, repairs, security deposit, and the procedures if she defaults on the lease, stops paying rent, etc.

We have a condo we rented out for the last 1.5 years (not to family) and have had a few minor issues. I am a lawyer and I used to do landlord/tenant cases. You must get something in writing.

@sarac: I'm in a similar situation now---my last renters didn't *do* damage themselves, but they didn't tell me about a water leak coming from the balcony through the patio doors (wtf!) and now I am scrambling to find a contractor to repair all the mess before the next renter moves in--and I have 1 month where it's unoccupied to do the repairs.

A savings account is a must---I already know one of the AC units is on it's way out, and in the past 2 years I've had to have the roof patched, the refrigerator worked on, the AC repaired, and the hot water heater replace, and the garage door opener replaced. I can write it all off on my taxes but you have to have the money up front!

I'm a renter and not a landlord, but have you considered having a pet rent? I pay $20 per pet each month. It's pretty common in my area to have a pet rent. I'm sure it helps the landlord out when we move and he has to replace the carpets or something. Oh, our landlord had to meet our dogs to approve them to stay.

I guess it doesn't apply to you if you've already got a tenant but in addition to all the above advice, I'd say be choosy about selecting a tenant. Make sure you get credit reports, references etc.

Oh I HATED the property management company I rented from in college. They were grossly unethical. But I'm sure it makes life significantly easier for a landlord.

A lease protects your SIL too. There isn't a downside to getting one that I can think of. You can always choose not to enforce provisions of it, like letting her break the lease early if she wants.

Congrats on the contract!

We set fair rent by looking at craigslist and other online rentals to see what others with similar sized spaces (ideally with similar amenities, etc.) in our area were charging.

For us personally, our rent covers our mortgage, insurance and HOA fees ($185/month).

There are 2 numbers you need to come up with.

Market rate rent -- you can determine this via looking at comparable properties on Craig's List, nearby apartments, etc.

Your profit/costs -- this is what it costs for you to own the place: mortgage, maintenance, HOA, insurance, etc.

Obviously the numbers are related since costs will inform "how low" you are willing to go (especially in the case of renting to a family member for a "deal"). However, as a renter, I only care about how your unit compares to the market rate rents. Personally, I wouldn't go for an investment that is cash flow negative right off the bat.