At NREIG we see multiple property claim submissions each day. Some losses aren’t avoidable, like hail damage. However, many losses we see are preventable, and to our dismay, those types of losses, if with a few subtle variations, happen over and over again. So, is there any silver lining? Yes! Because of the data we’ve collected, we can anticipate the types of property losses you might experience this year and hopefully help you avoid them altogether! Let’s explore the six most common property losses we see and what you can do to avoid them in 2020. (And hopefully, every year after that!)
Common Loss #1 – Fire
Not only are fire losses in the top six of most common losses we see, but they are also the most damaging. Both the United States Fire Administration (USFA) and the Insurance Information Institute (III) report the average house fire causes approximately $40,000 damage. The losses we’ve seen at NREIG would support this average, but also bear in mind that many times a fire results in a total loss. The average replacement cost for an investment property is typically around $80,000, but properties in certain parts of the country could range from $150,000 to one million.
If a fire can be contained to the area of origin, you are very lucky indeed. However, in addition to the materials fires burn, the resulting smoke and soot can also damage your property or its contents, leaving odors that may not be possible to remediate without complete replacement of the damaged item. Think of soot-damaged sheetrock or the odor of smoke in textiles, for example.
Preventable Fires We See Often
1. Cooking fires.
Statistics from the National Fire Protection Association agree that cooking is the leading cause of home fires. Many times, cooking fires start either from a grease fire that gets out of control or from unattended cooking. Someone can be easily distracted by the T.V. or when folding laundry in the other room, for example.
2. Heating fires.
These can result from someone using a space heater improperly or a person taking shelter in a vacant property starting a fire to keep warm.
How to Stay Fire-Free in 2020
- Test Smoke Alarms Monthly to be sure they are working.
- Keep Fire Extinguishers in the Home and make sure your tenants know how to properly use them.
- Install Fire Suppression Products like StoveTop FireStop that can help extinguish cooking fires and prevent a larger fire from occurring.
- Layer your security to make sure “uninvited guests” can’t enter the home.
- Make the property look as lived in as possible until it is sold or occupied; abandoned homes invite mischief and theft.
- Recruit the neighbors to be on the lookout for any unfamiliar faces in the neighborhood and call the police if necessary.
Common Loss #2 – Water
As the saying goes, “if I had a dollar for every time… I might be very rich.” Water losses, most often caused by burst pipes during winter freezes, are also one of the top six most common preventable losses we see. If the leak is discovered quickly, damage can be minimized, but if the water runs for several days before discovery, these losses can be just as severe and costly as a fire loss. Data we’ve collected over five years shows that the average water loss for an investment property ranges from around six to $16,000 in damages. The clean-up is messy and it can take a significant amount of time to restore a property back to an inhabitable or sell-able condition.
Preventable Water Losses We See Often
Without question, the most common type of water loss we see are those resulting from a burst pipe. These losses tend to occur during extreme cold snaps, but especially when an owner, property manager or tenant fails to take preventive measures to protect this type of loss from occurring. Many losses we see in vacant properties occur when the heat is either set too low, turned off or is disrupted when the electricity goes out during a storm. Other water losses have occurred when the occupant has left the residence for an extended period of time and an extreme weather event happens while they are away. In recent years, Arctic vertices have pushed freezing temps further south, damaging properties simply not equipped to handle that type of cold.
How to Prevent a Burst Pipe in 2020
- Insulate pipes on exterior walls, crawl spaces and the attic. (Remember, insulation does not create heat)
- Open cabinet doors to allow heat to circulate to un-insulated pipes under sinks and appliances.
- Let warm water drip overnight, especially for faucets on outside walls.
- Set the thermostat to no lower than 55 degrees Fahrenheit – may need to be higher for properties in more northern locations or when colder temperatures hit.
- Ask your property manager, a friend or neighbor to check the house daily during cold snaps to make sure it’s still warm.
- Shut off the water at the street and drain the plumbing system (i.e. winterize it).
Common Loss #3 – Theft
Theft is the most common type of loss we see at investment properties. Properties under renovation or properties on the market for sale tend to be a thief’s favorite because they both have relatively low traffic and contain valuables such as new appliances, HVAC systems, construction materials and tools. Did you know that the average theft loss for an investment property is four times the national average per break in? Statistically, the average break-in in an investment property totals around $8,000 while the average break-in on an owner-occupied property generally totals around $2,000.
How to Prevent a Theft at Your Investment in 2020
You may wonder if theft really is preventable. Because some of the areas popular for investing can experience higher crime rates (Areas of Detroit, for example), it may feel as though theft or vandalism are just part and parcel of your life as an investor. However, that is simply not true! There are steps you can take to make your property less appealing to thieves and vandals:
- Make thieves and vandals believe the house is being lived in – you don’t want to be the easiest target on the block.
- Make sure the property is properly secured – lock doors and windows and reinforce them with sturdy hardware.
- Consider reinforcing your exterior doors with Door Armor to keep the bad guys out.
- Enlist your neighbors to be a second (or third or fourth!) set of eyes and ears on your property.
- Have the neighbors call the police if they notice any unfamiliar or suspicious faces in the neighborhood.
- Keep the yard cut and clean and trim back trees and shrubs that may block views of the house and provide thieves places to hide.
- A well-lit exterior may discourage thieves from approaching your house at night – just be sure they are placed high enough where it’s not easy to disable them.
- When appropriate and required, board up your property with plywood, a cage system, steel or plexiglass shields.
- Use an alarm system with monitoring – if someone does break in, they may turn around and leave just as quickly.
Common Loss #4 – Tenant Damage
Can you envision your “perfect tenant”? I would be shocked if you didn’t have a fast answer to that question. Many of the claims that we see involve tenant-caused damage, whether an unintended event like a cooking fire or malicious destruction of property when someone is evicted. Placing the best tenant possible is one of the best ways to reduce unnecessary losses at your property overall.
Preventable Tenant Damage We See Often
The most common types of tenant-caused losses we see are three-fold:
- Cooking Fires: According to the National Fire Protection Association, the long-standing leader for home structure fires and home fire injuries, as well as home fire deaths is cooking. Many of the reports we see indicate something cooking on the stovetop was forgotten when the tenant was either distracted by other activities in another room or fell asleep. Some reports also detail tenants being unable to put out a grease fire which then becomes uncontrollable.
- Wear-and-Tear: A normal amount of wear-and-tear is to be expected from the ordinary course of living, so you should be fully prepared for a carpet cleaning or fresh paint between renters. The cost of small repairs is usually taken care of through the security deposit or simply as a cost of doing business. “Wear-and-Tear” is typically an industry-wide exclusion in property policies.
- Damage During Eviction: Not only do we see wear-and-tear type of damage with evictions, but when a tenant is “forced out” of their home, they may do extreme physical damage to the property such as punching holes in walls or destroying sinks or the toilet. We’ve also seen items of value taken out of the house such as large appliances, fixtures and even the water heater and furnace! Intentional damage done by tenants is often not covered in property policies.
How to Place the Best Possible Tenants in 2020
Placing your best tenant will take some legwork. Every contact with a potential renter can tell you something about their character and how they may treat your property. Always do your due diligence with background and credit checks, making sure to verify any information your applicant submits. Or, if you have a property manager performing this task, be sure you have a detailed grasp of their tenant selection process.
Common Loss #5 – Trees
Trees are beautiful additions to your property’s landscape that can improve its value and curb appeal. However, if you don’t take steps to maintain your trees, they can do some serious damage to your investment. Losses from trees cost real estate investors tens of thousands of dollars each year, some of them reaching $30,000 to $70,000 – or beyond. It also goes without saying that large heavy objects falling on people can cause serious injuries.
Preventable Tenant Damage We See Often
Tree damage isn’t necessarily reserved to one time of the year, but we do see an increase in losses related to trees during storms. Winter storms can cause branches to break under the weight of ice and snow and spring and summer storms can blow trees over if the ground becomes over-saturated. Live trees aren’t immune to being damaged in a storm, but if you fail to prune dead branches or cut down a dying or dead tree, you increase your likelihood of a tree loss exponentially.
How to Keep a Tree from Crushing Your Investment Goals in 2020
- Make sure you or your property manager are checking your trees on a regular basis.
- If you discover any visual signs of damage including dead or falling branches, deep cracks or missing bark, damage to the trunk, mushrooms or other fungus growing on the tree, or the tree is beginning to lean, have your trees looked at immediately by a licensed and insured professional so the appropriate steps can be taken to prevent property damage or an injury.
Common Loss #6 – Liability
Liability losses can include a variety of types of property damage and injuries. Fortunately, you can reduce your risk of damaging someone else’s property or the negligence that precludes an injury to almost zero through mindful maintenance and a swift response to correct safety issues brought to you or your property manager.
Preventable Liability Losses We See Often
The most common type of liability loss we see reported are slip-and-fall accidents. Some of these reports follow a pattern of eviction-followed-by-lawsuit. However, many legitimate injuries have been reported and range from broken bones, to paralysis, even death. Slip-and-falls have been caused by steps in need of repair or absent handrails. Water-damaged ceilings have lead to head injuries, and one investor had a tree fall on, and kill, an unfortunate passer-by.
How to Avoid a Lawsuit in 2020
- Implement a scheduled maintenance plan for every property, or if you have hired a property manager, be sure they verify each inspection and document the details of the items inspected during their visit. Having photos of the inspected/safe property may help your case if you are sued.
- If any hazards are discovered during an inspection, be sure they are fixed as soon as possible. Advise your tenant how to be safe until the repair is made (put up a sign, block off the unsafe area, etc.).
- Respond promptly to any tenant communications about unsafe conditions.
- Utilize the Seasonal Maintenance Checklists in our Seasonal & Weather Tips section to help you stay on track in mitigating the most common risks of each season.
Won’t Insurance Cover These Losses?
The quick answer is…maybe. While insurance is an important part of your risk mitigation plan, it typically doesn’t cover every type of loss, and each policy is different. Fire is typically covered in most standard policies. However, both Water and Theft are perils that are typically only covered under the Special Form policy format, so it is wise to check with your agent if you are unsure if you have either of these coverages. Tenant damage that is unintentional may be covered while damage done intentionally is typically excluded, for example. Even if your insurance does help you cover the losses we’ve discussed, you may prefer to avoid the following expenses or hardships by taking the proactive steps above. You can avoid:
- Stress and loss of sleep
- Having to pay a deductible
- Having to pay additional interest to a lender
- Lost profits due to an extended renovation schedule
- An injury to a tenant, their family or a guest at your property
- A lawsuit
- The loss of your investment
As we’ve discussed, some of the most common losses and damage we see to investment properties are also the most preventable. With a little planning and effort on your part 2020 may just be your best yet!