All property owners need to make sure that they have the right type and amount of insurance for their property. The notion of property insurance gets more complex for landlords, due to the wide variety of insurance policies needed to ensure sufficient coverage. Unfortunately, many landlords elect the cheapest coverage, choosing to pay the lowest premiums possible. Although this may seem like a smart short term decision to save money, what happens when there is a fire or a tenant injures themselves on site. Without the right types of insurance, or enough coverage, such events could be devastating for any property owner.
We’ve put together a short list of rental and tenant insurance policies that every landlord would be smart to consider.
This outlines how much coverage you have in case your physical assets are destroyed. This is listed on your policy declarations page. For example, if you have a 3,000 square foot house and it costs $100 per square foot to rebuild, you should have $300,000 in physical asset coverage. The insurance will only cover the structure, not the land. Landlords will also want to calculate the total value of all non-attached structures such as a garage or appliances and then add this to the required coverage amount.
Now, take the above example. If you had a tragic house fire that caused $200,000 in damage, yet you only had $100,000 in coverage, how much would you need to pay? The answer, you’d get $100,000 from the insurance agency, and then you’d be responsible for the other $100,000. As you can imagine, many landlords that opt for cheap plans with low coverage often get burned (no pun intended) in such situations.
Landlords should also check and make sure that tenants have a Renter’s Insurance policy in place. This protects tenants from theft, fire and water damage, as well as liability. Another bonus of having renter’s insurance is that any related claims will go against their insurance first, not the landlord’s main policy. Renter’s policies are very affordable, typically ranging from $100-$150 per year.
General Liability Insurance:
This is third-party coverage. Essentially, it reimburses property owners if they have compensated another for their losses. General liability doesn’t cover intentional wrong doings such as arson, but it usually covers negligence and general liability issues. For example, if your tenant’s dog bites your next door neighbor’s child, you’re going to be sued first. If this happens, your liability insurance will pay for a lawyer to defend you in a legal dispute up till the coverage limit. Any additional expenses beyond the coverage limit comes out of the landlord’s pocket.
Another important point to consider is contractor liability insurance. In order to reduce general liability insurance premiums, landlords should require all repairman and outside contractors working on their rental properties to provide proof of adequate liability coverage and worker’s compensation. Even better, require each contractor to have at least one million dollars in liability insurance. Taking this step will ensure maximum protection against liability law suits.
Loss of Income Clause:
This clause protects landlords if their property is damaged to the point where it is no longer fit to rent. As we all know, if there are no tenants renting a property, landlords are losing a ton of money. A loss of income clause will cover the income lost during such a period of vacancy up until the coverage limit, while the house is under repairs.
Even with all of these different types of insurance, sometimes it isn’t enough. It’s wise for landlords to purchase Umbrella Insurance. This provides property owners with excess liability insurance coverage beyond the limits provided in a general liability policy. Landlords are able to increase their liability coverage in increments of $1,000,000 for $300-$500 per year depending on the provider. Calculate the net worth of you assets in order to make sure you have adequate coverage. If not, invest in an umbrella policy.
Landlords need to sit down periodically (every year) and assess the type and amount of coverage they hold. Don’t fall into the trap of choosing policies with the lowest premiums, especially as your property portfolio expands. In fact, I’d recommend property owners invest in an adequate umbrella policy and take the necessary steps to ensure that all tenants and external contractors have a set amount of liability and renter’s insurance in place.
There are many other forms of insurance that are worthy of discussion in this article. What would you add here?
Whether you’re a new landlord, or professional property manager, knowing and understanding Federal, State and local Fair Housing laws is critical. A small violation of one of these laws could wind you up in court, or even worse, ruin your business. So, we’ve put together a list of common areas where landlords and property managers find themselves violating fair housing laws.
Fair Housing Laws
Fair Housing Laws originated from the Civil Rights Act. These Federal laws make it illegal for property owners/ managers to discriminate on the basis of race, color, religion, national origin, sex, disability or familial status. In addition to Federal fair housing laws, landlords need to be aware of state and local fair housing requirements, which prohibit discrimination based on factors such as source of income and sexual orientation.
1. Tenant Screening
This is one of the most common areas in which fair housing claims arise. Landlords need to ensure that they have a written policy in place for screening and approving prospective tenant applications. Landlords need to outline set guidelines relating to occupancy, availability, screening criteria (credit standards, employment history, past landlord referrals, background check etc). Questions on the application should not ask about physical or mental disabilities, religious background, race or familial status. On the other hand, landlords are allowed to ask questions relating to prior tenant record, evictions, and bankruptcy. The guidelines should always be approved by a lawyer, and strictly adhered to in all situations.
2. Reasonable Accommodation
It is a violation of Fair Housing laws to refuse to make a reasonable accommodation in rules, policies, practices or services when such an accommodation may be necessary to afford a handicapped individual equal opportunity to inhabit a dwelling. The reasonable accommodation must come at the request of the applicant. A landlord must make exceptions to their rules/standards in order to accommodate a resident’s disability. These accommodations should not cause “undue” burden on the landlord. If it does cause an undue burden the landlord may deny the tenant’s application. In the case a reasonable accommodation is deemed to cause an undue burden, the landlord should send an explicit written notification to the resident explaining why. Landlords should always wait for a request of reasonable accommodation. Offering it beforehand could be considered discrimination and grounds for a fair housing claim.
Occupancy limits are written different in every city. For example, in Boise Idaho, a maximum of 5 unrelated adults are permitted to share a unit. However, Bend Oregon has no limit. Further, landlords need to be mindful about how they market rental occupancy limits. For example, if a landlord states that they can only rent to a family of four because it is only a 2 bedroom dwelling, they could be discriminating based on familial status. As a result, landlords need to check their local occupancy laws. There are different occupancy limits based on whether or not individuals are related or unrelated, and some cities remove all occupancy restrictions on families. This is an area where due diligence is very important.
4. Source Income
Landlords need to be mindful that some states have additional state and local fair housing requirements that must be adhered to in addition to federal laws. Currently, in 12 states it is illegal for residential landlords to discriminate against applicants based on source of income. For example, a landlord may not refuse to rent to an individual who’s source of income is unemployment benefits. This is not to be confused with income amount. Landlords are still allowed to deny tenants that don’t make enough money to pay for rent. Typically, a landlord will require applicants to show proof that their income is triple the amount of rent. Make sure to check with an attorney regarding your state’s laws regarding source of income.
5. Marketing Practices
Landlord marketing practices are crucial for finding tenants and filling rental properties. However, landlords need to be mindful that marketing materials should only be used to showcase “property features” and amenities, and not contain content outlining screening requirements. For example, landlords should never post things such as “great for elderly couples” as this could be deemed discriminatory against young single people. Do not make reference to nearby landmarks that may be racial, ethnic or religious in nature, and don’t use location references such as “Hispanic neighborhood”. It is also a good practice to include copy at the end of all marketing materials that indicate compliance with fair housing laws.
Landlords can evict tenants for legitimate reasons such as non-payment of rent or property damage. However, it could be illegal to evict a tenant that has not violated the lease agreement, or it is an unprecedented event. Ask yourself, have you evicted tenants for the same behavior before in the past. Landlords need to make sure that they are applying the same written policies to all residents. Any apparent favor could be construed as discrimination in the courts.
Every landlord should be mindful of fair housing laws in every practice they encounter on a day to day basis. Whether that is marketing rental properties, screening applicants, providing accommodations for handicapped individuals or evicting troublesome tenants. Landlords should also develop strict written policies for all operational tasks and apply them equally and consistently to all residents and applicants. Finally, if you’re a landlord, have a lawyer review all your documentation and policies.
By Robbie Richards.
The question that every property investor must ask themselves:
“Should I manage my investment properties or outsource to a property management company?”
The answer to this question depends primarily on preference, proximity and capacity. Many people with smaller property portfolios and more time on their hands will decide to save money and handle the daily management of their properties. On the other hand, investors with larger property portfolios that have little availability will often decide to outsource to a professional property management company.
For the investors choosing to outsource to a property management company, there are a number of questions you need to ask, and expenses you need to be aware before making your hiring decision.
Below, you will find a checklist of fees and questions to help choose the right property management company for your needs:
All property management companies charge a monthly fee to manage a rental property. This fee varies, but typically an owner will pay between 6-10% of gross monthly rent.
1. What services are included in the monthly property management fee? Basic services will include rent collection, maintenance, financial reports, tenant relations, rental analysis, screening and property marketing.
2. Is the monthly management fee paid against collected rent, or do you need to pay the fee regardless of whether or not your property is occupied?
3. What types of properties do you manage? Residential (MFH/SFH)? Commercial?
Property management companies will charge a fee for placing a tenant in your property. This placement fee is typically half to a full month’s rent, depending on the company. This is often higher for companies that use extensive multi-media marketing services to quickly find qualified tenants. Many property owners shy away from companies charging higher leasing fees, but often these are the companies that have the lowest vacancy rates. Further, owners will want to understand the specific screening procedures used to find quality tenants.
1. What marketing tactics does your company use to find qualified tenants?
2. What screening process do you use to find high quality tenants?
3. What is your average placement period (time to find a tenant)?
This is a fee property management companies charge when they renew a leasing contract for a set period of time. Many home owners despise this fee. However, maintaining existing tenants can save a landlord thousands of dollars in turnover expenses. Without a doubt, tenant retention is gold when it comes to maintaining consistent cash flow and maximizing your bottom line.
1. Do you charge a tenant renewal fee?
2. What is your average tenant retention rate?
Property managers will often ask investors to set aside a reserve fund for essential property repairs. Property owners may set both a reserve fund and ‘maintenance limit’. They are typically the same, but not necessarily. To distinguish, a reserve is the amount of money left to address unforeseen issues and a maintenance limit is the amount the property manager has permission to use to take care of problems without prior permission from the owner. This typically involves setting up an escrow account where the property manager can pull funds as needed. The underlying purpose of this account is to promote efficiency.
1. Do you require a separate escrow account for maintenance and repairs?
2. Do you contract a third party for handy man repairs, or do you have a handy man on staff?
3. Do you provide 24/7 maintenance assistance?
Having repairs contracted out to a third party can significantly increase the amount landlords pay for property repairs.
1. What professional property management groups are you associated with (NARPM, IREM, EIAA)? Does the staff or company have any professional designations?
2. Do you carry a fidelity bond for insurance protection?
3. What are your accounting procedures?
4. How long has your company been in the property management business in the area?
5. Do you take calls or schedule showings over the weekend?
6. Do you have copies of recent reviews/ testimonials that you could show?
7. Do you implement Fair Housing training for your employees?
Making a decision:
The types of management fees that a landlord encounters will vary depending on the company. However, the checklist above should arm you with the questions and basic knowledge needed to make an informed hiring decision. Also, make an effort to understand the maintenance procedures of each company. Typically, property management companies that have an on-staff maintenance crew, as opposed to a third party contractor will be more efficient and charge lower repair fees.
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