Property Insurance & Tenant Screening: Do Landlords Need Both?
Property insurance can help protect your investment from damage caused by renters, but it's a smart move to minimize risk from the outset by screening each online rental application upon submission. Tenant screening services help you weed out bad renters. Prescreening all applicants and getting good landlord insurance coverage are complementary ways to protect yourself and your investment.
How Property Insurance Protects Your Investment
Property insurance designed specifically for landlords helps reduce the financial risk of owning an investment property. Homeowner policies don't generally cover damage to homes you aren't living in, so you need a separate landlord policy for effective coverage if your rental is a whole home or a separate building on your property. Rental units in owner-occupied homes, such as half of a duplex or a rented room in your primary home, usually require an addition to your existing homeowner insurance policy instead of a separate landlord policy.
There are a few different forms of landlord insurance, each offering varying levels of coverage. Payouts on damage are also available at different tiers, which means the payout after any damage might be for the cash value of the damaged structure (with depreciation) or the actual replacement cost depending on your coverage.
If a tenant damages your property, whether accidentally or on purpose, a landlord insurance policy will typically cover some or all of the damage. Depending on the specific terms of your policy, coverage might include incidents such as repairing a kitchen damaged by fire or fixing floor damage from a leaking shower. Landlord policies also cover loss of rent if the unit is damaged and requires repair before being rented again, so you will continue to have income in the event of a major disaster. Although some landlord policies have optional add-ons that cover for vandalism, damages caused during a burglary, or specific natural events not covered by the primary policy, coverage does not typically extend to scenarios where a tenant leaves suddenly or you’re forced to evict a current renter, however.
Property insurance on your rental investment can also protect you by covering damages and legal expenses in the event that a tenant sues you. Please keep in mind that for this type of coverage, your landlord insurance policy will need to include a liability clause.
The Limits of Property Insurance
While property insurance on your investment properties protects you financially from unexpected events, tenant problems can still cause mental and emotional stress. Finding new tenants is time-consuming and, while landlord insurance might cover some of the income loss from an empty unit, it doesn't compensate you for time spent trying to find a new tenant. There is also typically a limit to how long your landlord policy covers loss of rental income, so you’ll likely need to find a new tenant quickly to avoid going months with a vacant property and no rental payments.
Property insurance also doesn't cover minor cash-flow issues, such as late rent or losses associated with attempts to collect rent from reluctant tenants. The costs associated with evicting non-paying tenants are also uncovered by property insurance, and your insurance won't cover any maintenance issues left untended over long periods of time or cosmetic damage to interior fixtures and appliances. Choosing good tenants from the outset is the best way to lessen the risk of incurring these costs.
Using Tenant Screening Services to Reduce the Risk of Bad Renters
Landlords often make the mistake of renting out a home after just a short meeting or phone call and a basic paper rental application, only to find out later that the tenant can't pay the rent or treats the property poorly. Tenant screening services reduce your risk of engaging bad renters on the front end, before the lease is signed and the new residents have moved in. Without screening processes in place, you have no way of knowing how reliability or responsibility of the people living in your rental unit until it’s too late.
When it comes to determining whether a particular applicant is likely to be a good renter, MyRental tenant scores can help simplify the decision-making process. This single, three-digit score takes into account an applicant's credit history, housing inquiry history and any previous evictions, so that you can assess risk at a glance. With scores ranging from 200 to 800, you can quickly compare prospective tenants. For more detailed information about prospective renters, you may consider getting a full credit report, criminal background check and full history of all prior addresses. Terrorist database checks and sex offender registry searches through MyRental can also help you weed out specific applicants.
Screening applicants early in the rental process also reduces your risk of frivolous lawsuits from disgruntled tenants. Renters with a positive rental history and responsible habits are likely to maintain a good relationship with you as their landlord. These tenants may also be likely to notify you about potential problems before major maintenance or safety issues develop.
Simplifying Screening with an Online Rental Application
About 36% of Americans rent their homes, so you’re likely to have many applicants for any unit that becomes available. Requiring prospective tenants to complete an online rental application makes it easy to run screenings on each applicant. By using the same data points for each potential renter, you can quickly compare applications to find the most responsible tenant for each available unit. The fast, online process helps reduce your unit vacancy time, and the convenience of automated tenant screening frees you from running extensive background checks yourself.
More Ways to Protect Your Rental Unit
Property insurance and tenant screening are both essential for landlords and can be part of a comprehensive strategy to protect your rental unit from damage and reduce your financial risks.
A good lease agreement also serves to protect you and your investment property. It’s important to ensure that your lease agreement includes details on how damage deposits are handled, maintenance responsibilities of both the landlord and the tenant, and policies regarding rent due dates and late rent penalties. You might also consider including a stipulation that maintain renter's insurance to cover things your landlord insurance doesn't.
Contacting references personally and asking former landlords about the renter's history also helps ensure the person you're renting to is a good tenant.
Essentially, protecting your property should involve multiple strategies. Both property insurance and tenant screenings provide distinct benefits when it comes to maximizing your rental income and minimizing your risks as a landlord.
Posted by Admin 11:49:39 AM