Hi - I hope you are all doing fine.
I have a quick question that I thought someone could answer. I was talking with a friend about real estate investing and he was telling me that there are insurance policies that would cover damage done to rental units by the tenants. Is this true? I thought if the tenant does damage to the property above the security deposit, than the landlord is stuck with the bill.
Does anyone have information about this?
Thank you and have a nice evening!
If you require the tenants to have their own renter’s policy, you might be able to file a claim against the tenant’s policy.
In your own landlord policy, tenant abuse is usually not covered.
You can’t get coverage for tenant damage.
On some policies, you can get coverage for vandalism, but the insurance company’s definition of vandalism is quite narrow and it doesn’t cover the sort of damage that can be expected to happen with tenants.
You don’t need tenant damage insurance. What you need is to buy right and use the proper number for operating expenses. Tenant damage is included in operating expenses. Then, stir in a dash of proper management and a heaping tablespoon of tenant screening, and everything should come out alright!
Mike
Make the tenants “self insure” by getting the appropriate security depost.
Keith
Thank you for all the responses…
Keith - I thought about using the security deposit. However in Arizona there is a limit on how much security deposit I can demand (1.5 rent). So it is my understanding that I can’t ask for more than that.
Mike - I understand the formula. I was only thinking on how to reduce the unknowns. If I could get insurance, than it might be worth to pay the premium (known amount) to reduce the risk of unknown expenses.
Dave and Tatertot - I will check with my insurance agent.
this brings up another question - do you usually ask your tenants to have renter’s insurance?
thank you.
Yeah, I used to have a rental property in Phoenix…get as much as you can and don’t return any until you’ve cleaned their mess and repaired theirt damage…take pictures before and after!
Keith
Mike - I understand the formula. I was only thinking on how to reduce the unknowns.
Damage done by your tenants isn’t an unknown - it’s an absolute certainty and a normal part of the operating expenses.
Mike
You can require that your tenants have renter’s insurance. It’s a bit tricky to enforce, though, since they can cancel the policy after they’ve bought it and shown you the proof of purchse.
Your local judge probably will not evict them just for cancelling their renter’s insurance, no matter what your lease says. Judges have a tendency to not throw tenants out unless it is a major violation.
I simply strongly recomend it, and let the tenants know that my insurance does not cover their stuff, so if they want thir own belongings covered, they’d better buy it.
Tatertot - thank you. I am actually talking about protection for the landlord, not the tenant. I understand renter’s insurance will protect their belongings. However, would it protect also damages they do to my property?
Thank you.
When you get renter’s insurance, you tell them what amount you want to insure your own belongings for. That’s what you’re insuring (your furniture, appliances, keepsakes, etc). You’re not insuring the structure. That’s why the LL has to have a LL (or Non-Owner Occupied) policy. It covers the structure and all things that come with it (appliances, fixtures, etc), but not the tenant’s belongings. I specifically have a paragraph in my lease that explains this.
Justin - Now I am really geting confused. I know! I know! I need to ask my insurance agent and I will do it…
But in the meantime here is what I am confused about - are you saying that the NOO policy would cover damage done by my tenants to my property? I thought it would not cover intentional damage… Am I mistaken?
I will still follow up with my insurance agent to understand this better… But if anyone has an insight, please feel free to share… Thank you. And have a nice evening!
No, I am not talking about damage done by tenants at all. I’m saying that if there was a fire, tornado, etc. your NOO policy would cover your structure, fixtures, appliances you own, etc. They will not pay any extra for your tenant who has $10K worth of furniture or belongings. The insurance company doesn’t care about that.
When you check into NOO insurance, check into insurance for replacement cost vs. Actual Cash Value. They are two completely different types of policies that deal with how things will be paid in the event of a loss. They are priced totally differently as well. You need to know what you’re getting quotes on so you can accurately price shop among different companies. Also check into the difference between say $300-500k worth of liability insurance vs. upping it to $1 million. There’s likely not much of a difference in your annual premium for that. I was part of a thread on here a few months ago about that. I upped mine and the price difference was minimal. IMO it’s a very good investment to up that liability amount in case something bad happens and you get sued. Look at some posts from BLL regarding people getting sued and having the opposing attorney settle for the liability insurance amount. Looks like most of the time, that’s what happens.
Bottom line for tenant damage:
Your insurance is going to have clauses in there that exclude them from damage like this. You can get a judgement against the tenants, but search on here about how unlikely it is that you’ll ever see a dime of that judgement. The occasional tenant damage is going to be part of what raises your operating expenses to 50% of your gross rents over time.
The damage won’t happen with every tenant, but if you do enough rentals it will likely happen in time.
Think of it like this… That few (or several) hundred dollar deposit is a substantial amount of money to some people. Most people aren’t going to want to lose that. Even propertymanager has said in his posts & blog that 90% of his many tenants are no problem, 9% pose somewhat of a problem, and 1% are just bad. It’s just like the news. You rarely hear of good things happening. It’s always the negative that makes the news. Same thing for talking about tenants. Most of the time you’ll hear people talking about late payments, evictions, damage, etc. Think of how many posts we’d have on here if everyone said “I had no problems with my tenants today.”
Justin - thank you for the explanation. It aligns with my initial understanding. And thank you for the tip on the two types of insurance (actual cash value and replacement cost). I wrote that down to discuss with my insurance agent when I call to talk about my business and my insurance needs. And actually I am going to check what type I have for my onw home… :O) Thank you.
Having said that - it seems that the answer to my original question: “Can we get insurance to cover for damages done by tenants?” is NO. Am I right?
I am still going to ask my insurance agent and post what I find here…
Have a great weekend!
[[[…it seems that the answer to my original question: “Can we get insurance to cover for damages done by tenants?” is NO. Am I right?..]]]]]
That’s correct. Except that maybe some vandalism might be covered.
Also you would be covered if the tenants set fire to the house or drove their car through the living room.
But not normal tenant damage like dirt and breakage.
Their tenant insurance does not cover any of the damage they do, either. Unless it is something like setting fire to the house. Your insurance company will pay and then they will go after the tenant. Possibly (but not always) his tenant insurance will then reimburse your insurance cmpany.
If the tenant drives his car through your house, your insuurance will pay and then go after his car insurance company.
Tatertot - thank you for the info. Makes sense. Have a nice weekend!