How Well Do You Know Your Tenants?
by Chad Yoder, Personal Lines Manager
The unpredictable stock market and low interest rates have lured many investors into the rental property market. In addition to paying their rent, landlords may also expect their tenants to maintain and look after their investment. The truth is, few tenants will treat your rental property as if it’s their own home, increasing the likelihood of claims. These real-life claim scenarios emphasize the point:

• At Christmas, a tenant plugs in too many lights into a poorly wired outlet and starts a fire.
• A tenant is hosting a party when a guest falls off an elevated deck and is severely injured.
• A tenant throws a cigarette butt into the flowerbed. The mulch catches fire and burns down the apartment.

Because of the property loss or liability claim potential, many companies have stopped writing rental policies, and the handful of remaining carriers are charging more. If you already own, or are considering purchasing rental properties, here are some important considerations:

1. Make sure you have a signed lease agreement for each tenant. The lease agreement should address restrictions on pets, trampolines, and temporary pools as well as a requirement to obtain a renters insurance policy.

2. Consider hiring a property manager. Many realtors offer this service and will take care of details such as the initial credit check, collecting the security deposit and monthly rents, and drawing up your lease agreement.

3. Require proof of renters insurance every year. Your insurance policy will not cover your tenant’s personal belongings in the event of a claim. More importantly, if they are responsible for injury sustained on the property or for the physical damage to your property, a renter’s policy will ultimately provide some coverage.

4. If you’re going to manage the property yourself, ask for referrals. A good tenant is irreplaceable and can provide you with good income over many years. Staying on good terms with your tenants will keep them around and may bring referrals when they are ready to leave.

5. Make sure the coverage on your rental dwelling is adequate to rebuild your investment if you would have a total loss. Also be sure to include Loss of Rents coverage to continue your income flow if the tenant needs to move out because of a claim.

6. Maintain your property well and keep it properly updated. Good plumbing, wiring, a newer roof, and a properly serviced furnace will help keep your rental property claim-free and give you fewer headaches.

With property values consistently on the rise, owning rental properties has become a lucrative way to earn better returns on your money and an excellent way to balance your investment portfolio. Be sure to use the same careful consideration when purchasing and managing these properties as you would when analyzing various mutual funds. Call FIFS at 267-384-5300 for more information about protecting yourself from tenant liabilities.

FIFS Connection, Spring 2006, Vol.3, No. 2