Catching the Boomerang

If your adult child needs to move back home for some reason, should you charge them rent? This is another recent question from a few different clients that I thought I’d address in this blog.

We all know how expensive it is to live in Sonoma County. We’ve seen home prices rise in recent years (and even more after the fires) to a current median sales price of about $611,000. The high cost makes it difficult for young first-time buyers to get a foothold in the market unless they have a higher-paying job.

But the situation is just as bad, if not worse, in the rental market. According to the website Rent Jungle, the average rent for a one-bedroom apartment in Santa Rosa is about $1,900 per month, up around 14% from last year. These housing costs contribute mightily to Santa Rosa being roughly 70% more expensive in overall cost of living than the national average.

Many of us are also painfully aware of how expensive a college degree is. The average debt load for recent grads is about $37,000 while your own child’s loans could be much higher. It can also be difficult to find a good job. The Bureau of Labor Statistics says that four-year college grads have an unemployment rate that’s almost half that of the national average, but that doesn’t necessarily mean their job pays enough.

Add all this up and it’s no surprise that many “boomerang kids” are moving back home. According to the Wall Street Journal, more than a third of young adults aged 18-34 live at home, up from about a quarter a decade or so ago.

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But if they move back home, should you charge them rent? I think it’s necessary. My reasoning has mostly to do with stories I’ve heard that often had an unhappy ending. Stories of “it’s just for a few months until they get back on their feet” turning into several years, and other stories ending with strained relationships and a sense of regret. What’s the thing folks almost universally regret? Not charging rent.

Charging rent, especially if it’s part of a rental agreement, sets the stage for a quasi-professional relationship now that junior is an adult. It also lets your son or daughter know that things are different now. They’re not moving back as a child returning home for the summer, but instead as an adult who can use the family home as a springboard and not a safety net.

Along these lines, here are some thoughts about how you could structure a rental agreement. In my opinion, the agreement doesn’t need to be notarized or anything like that but does need to be signed by all parties. It should contain the following sections:

Setting clear boundaries – Make sure everyone knows which space in the house is being rented, which are common spaces, and which are off limits. It’s also a good idea to set a curfew in the agreement. Add any other household rules that seem appropriate while trying not to go overboard.

Intended length of time – Ensure a target date for move out so that everyone is on the same page. Of course, you could include an option to extend assuming certain criteria are met, but don’t leave things open-ended.

How much rent and how it will be paid – Some recommend charging a percentage of the son or daughter’s income, perhaps 25% to 30%, so the rental amount can be reflective of what they’re actually earning. It also roughly corresponds to what’s considered financially prudent to pay for housing costs, even though folks in Sonoma County often pay closer to 50% of their income. This could be paid as a flat monthly amount, either in dollars or a combination of dollars and household chores. If the latter, ensure the chores are specifically listed in the agreement.

Another pricing method could be based on the square footage being rented (matching up with the “boundaries” section above) as a percentage of the house and a corresponding percentage of household utilities. You would then do the math based on your actual costs (monthly mortgage, taxes, insurance, water, cable, etc). This should be easy to explain and tweak assuming some costs rise more than expected. An example of this is food – should you charge separately for food or make them buy their own? I would suggest using the same percentage method and review periodically.

Does all this seem a tad draconian? Well, it should. You want to help your son or daughter in their time of need. Maybe there’s a period of free rent at the very beginning to reduce their burden. Some folks even suggest gifting the rental money back after a successful rental term as a carrot to keep things moving forward. The general point here is not to make money from rent, of course, but to help your son or daughter as they get ready to launch on their own. I just don’t think they need a long-term freebie at your expense.

Have questions? Ask me. I can help.

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