Rentals can be a great source of income, but if they aren’t managed well, tenants can significantly damage the physical asset or someone could be injured. Thankfully, through prudent planning and follow-through, you can mitigate your risk. How do you solve the most common rental issues?
Knowing Your Risk and Taking Action
The first step to making any risk mitigation plan is to become familiar with your risk. Then, once you know your risk, you can take action to minimize it. The goal today is to start the wheels turning so that you can then create a mitigation plan that works best for your specific portfolio and business model. For example, some of you may manage your own rentals while others employ property managers to do many of the tasks we will discuss. The list below is a fairly comprehensive representation of typical losses we see at rental properties and a few suggested remedies. Let’s jump in.
Issue #1: Fires
The costliest property damage we see results from fires. A small fire can quickly escalate, engulfing the entire structure, leading to a total loss. What are some of the most common causes of fires in investment properties?
- Unattended Cooking – The National Fire Protection Association (NFPA) reports, “cooking equipment is the leading cause of home structure fires and home fire injuries.” These fires most often occur when the cook gets distracted and leaves the kitchen to attend to something in another room. In one instance, a tenant left the home completely to visit a neighbor several doors down. When they returned, the property was engulfed in flames. Thankfully, no one was injured, but this event could have been prevented had the cook just stayed in the kitchen.
- Heating Fires – Heating equipment is the “second most common cause of home fire fatalities,” says the NFPA. Space heaters can be very useful, but if they are older or not used appropriately, they can easily start a fire. The peak months for home heating fires are December, January and February, but may still be a threat in other months outside of that timespan for climates that experience longer winters. Space heaters should always be plugged directly into an outlet, should be at least 3 feet from anything that can burn, and should turn off automatically when tipped over.
- Cigarettes – Smoking is the “leading cause of home fire deaths,” reports the NFPA. Most often, these accidents occur when someone is smoking inside the house; many incidents involve a person falling asleep on the couch or in bed, cigarette in hand. If you haven’t considered banning smoking in your rentals, this may be a good time for a policy change.
Important Equipment: Smoke Alarms, Carbon Monoxide Detectors and Fire Extinguishers
The importance of having these items in constant working order cannot be overstated. Working smoke alarms cut home fire deaths in half. (NFPA) Carbon monoxide (CO) detectors are also key because of the nature of CO’s properties; it is often known as the “silent killer” because it is colorless, odorless and tasteless. Installing interconnected alarms is recommended by the NFPA because when one alarm sounds, they all sound, alerting the occupants no matter where they are in the house.
Alarms and detectors should be tested monthly and standard batteries should be changed at least twice a year – Daylight Savings is a good time to do this. Some newer alarms also come with 10-year batteries, but they still need to be tested regularly. The detectors themselves will also need to be changed out periodically – the typical life of a detector is 10 years but check the manufacturer’s instructions. Smoke alarms and CO detectors are often required by city code and many insurance policies require them to be installed for coverage to be available when a fire occurs.
Fire extinguishers can help put out small fires before they become uncontrollable, so providing them in your rentals is a must. Educate tenants about their use prior to move-in. There are five classes of extinguishers, but ABC or BC are multi-purpose and can put out a variety of fires. StoveTop FireStop is another inexpensive fire suppression device that can help put out a stove top fire before the cook has time to grab a lid or standard extinguisher. Learn more about StoveTop FireStop products HERE.
Issue #2: Water Damage
The most frequent losses reported in our insurance Program involve water. These can include:
- Burst Pipes – During the winter and spring thaws, we often see an increase in reports of water damage from burst pipes. Weather can be punishing on both the exterior and interior of your property. Heating the house properly, keeping faucets at a slow drip during cold snaps and having tenants alert you or your property manager prior to leaving town can help minimize the probability of this type of loss from occurring. Read more about coverage for burst pipes here.
- Slow Leaks/Mold – Slow leaks can cause some of the most invasive damage including wood rot and mold. This kind of damage creeps up on you over time, and coverage isn’t typically available because slow leaks aren’t “sudden or accidental.” Mold and fungus are also typically excluded from property coverage forms across the industry, and mold remediation can be costly. In warmer temps, mold can grow rapidly, so it is imperative that your tenants know to report leaks and mold damage immediately. Clean-up should begin as soon as possible to minimize damage to your sheetrock, framing and flooring. Read more to reduce your risk of mold.
- Toilet Back-Up – When the kiddos decide that it’s a fine day for Quacky the stuffed duck to go swimming in his “pond”, you may end up with a big mess in the bathroom. Emphasize to tenants that repeated calls of this nature will come with a maintenance fee tacked onto their monthly rent.
Issue #3: Wear-and-Tear
Addressing Wear-and-Tear is important because it is inevitable and an industry-wide exclusion. You will either need to add a line item for repairs into your business model, recoup the cost of repairs from the security deposit or recover any excessive damages from your tenant through a civil lawsuit. Wear-and-Tear includes, but is not limited to the following:
- Stained or ripped carpet
- Torn or missing window blinds
- Broken windows
- Smudges on or nail holes in walls
- Broken door hinges or holes in doors
- Broken appliances
- Pet odors
- Pest infestations
- Presence of trash on the premises
To be clear, the above type of damage is typically not considered Vandalism as it is generally deemed either accidental in nature or a part of ordinary use. In addition, some insurers may limit coverage for damage done shortly after a tenant vacates the property. Check your policy details for specifics.
Issue #4: Liability Concerns
When it comes to injuries at rental properties, these are the most common:
- Slip-and-Falls – You would expect slip-and-fall injuries to increase in frequency when the pavement is wet or covered in ice, but these types of injuries can occur in any season if walkways aren’t properly maintained. To prevent injuries of this nature, repair uneven or damaged pavement, make sure handrails are well-secured and decks are in good condition.
- Dog Bites – Even a friendly dog can bite if they feel threatened or confused. Though the owner of the dog is truly the responsible party, many investors find themselves involved in lawsuits for simply allowing dogs on the property. If you choose to welcome dogs at your properties, be sure you are familiar with the animal before move-in. Many investors will do a pet visit, so they can be introduced to the animal in person and observe what the dog’s behavior is like. A cute picture of the pet is not an indicator of behavior.
- Injuries at Pools and on Play Equipment – A pool is a great amenity, but it can also be very dangerous to have this “attractive nuisance” on your property. Slip-and-fall incidents can occur or even drowning. To prevent injuries, follow all municipal guidelines including proper fencing, locking gates, depth markings and life-saving equipment required to be on the premises. If you allow your renters to set up their own play equipment in the backyard, you could also increase your liability risk for any injuries that occur on the premises. Read more about coverage for pools and play equipment here.
Note: It is critically important that renters feel comfortable contacting you or your property manager if they notice an unsafe condition. When they do report damage, respond as promptly as possible to remedy the issue. Timely repairs can prevent serious injuries and potentially keep you from being swept into a lawsuit.
Issue #5: Leaving Prior to the End of the Lease Period & Evictions
Unfortunately, we see this scenario all too often: the tenant gets behind on rent and vacates the property without notice, leaving behind a wreck of a former home, including trash or even their own belongings. If they don’t skip out on you, it may be necessary to evict someone for non-payment of rent or breaking other parts of the lease. Cash-for-Keys is a method that may save your property from being damaged in both cases.
With Cash-for-Keys, the tenant simply agrees to leave the property within an agreed-upon time frame, giving the keys to the owner or property manager in exchange for a small sum of money. Make sure they agree (in writing!) to leave the property in “broom-clean” condition, and never give the tenant money until they are completely out and have turned over all keys. After they have vacated the property, change all locks, secure all doors and windows and monitor the property in the few weeks following. We have seen occurrences where tenants move out only to break in and cause damage a week or so later because their belongings are now out.
General Rules of Thumb for Minimizing Your Risk with Rentals
- Establish a thorough screening process.
- Give your tenants a brief education on safety around the home prior to moving in and during their tenancy.
- Continue building the relationship throughout their stay in your property.
- Institute regularly-scheduled inspections.
- Check in with neighbors to see how your tenants are keeping the property and interacting with others in the neighborhood.
- Give incentives to encourage loyalty.
- Dissolve the relationship if necessary but try to do it amicably.
- Learn more about what types of tenant damage are, and aren’t, covered.
- Add a provision to your lease requiring tenants to purchase renters insurance – and enforce it.
The items we’ve discussed today should give you a good foundation for mitigating risk at your rental properties. As I mentioned, your situation will be unique to you, so take these principles and build a risk mitigation plan that is tailored to your specific needs – then act!
About the Author
BreAnn Stephenson is the Loss Prevention Director for National Real Estate Insurance Group. BreAnn brings over 15 years of insurance and client/customer service experience to the team.