Real estate investing can be a great way to create passive income, especially in areas where supply is tight and demand is high.
However, it is not a risk free business. As a homeowner, one of the most important risks you run is a zany tenant who does not do what's right for you or your property.
Terrible tenants are everywhere and no landlord is ever spared.
You might meet one of these tenants who forgets – or does not want – to pay their rent on time and you have to chase them constantly every month to get what they owe.
You could have a tenant sneaking into the animals against your will. You can also hit the jackpot with tenants who are partying – not only do they make a racket that elicits complaints from neighbors, but your property can be left in an alien clutter as the smoke dissipates.
These are just some of the tenants at risk of the rental pool. That's why it's important to rigorously screen potential tenants and take steps to enforce strict risk protection policies on your property, for example by having full leases and regular inspections.
"The insurance policy allowed Jin and his real estate administrator to claim for months the rent lost and the loss of rent when the property was elusive"
Even in this case, the verification process will probably not be 100% bullet-proof, as a shallow tenant will always be able to do his best before settling.
Nightmares Can Become Reality
Carolyn Parrella, Executive Director at Terri Scheer Insurance, has witnessed many cases of poor rental conditions in her day, including an incident that cost a customer more than $ 14,000 in repair and damage costs.
"This owner, Jin, owns an investment property located at Edmondson Park in Sydney. The house was new, without previous tenant. His first tenants were a young couple in their thirties and the weekly rent was $ 600, "says Parella. "Renters often missed payments and did their best to avoid being evicted when they were confronted for not paying."
The loss of rental profit put the client in a precarious financial situation because she still had to pay the mortgage and the utility bills.
Terrible tenants are everywhere and no landlord is ever spared on the possibility of getting one
Finally, the client's property manager initiated the process of forced eviction in NSW's civil and administrative court.
After four months of deliberation, the court granted the termination of the lease. However, the tenants did not leave without fighting.
"When the tenants were evicted, the property manager found that they had also deliberately and deliberately damaged parts of the property. Some objects have also been stolen, "explains Parrella.
In total, the costs of eviction, damage, unpaid rent and repairs totaled US $ 14,435.36 in total.
Fortunately, the client had a comprehensive property and casualty insurance policy that provided financial protection as it covered expenses, including damages (accidental, willful and malicious), theft, lock replacement and legal costs.
"The insurance policy also allowed Jin and his property manager to claim for several months the rent lost and the loss of rent when the property was inaccessible while the repairs were completed, which took about four weeks "says Parrella.
"It included claims for multiple insurable events, none of which could have been expected when its tenants entered the property."
This shows just how important a solid insurance policy can be for an investor, even if you already have a good property manager and trust. An effective property manager can certainly help you prevent many incidents, but also to deal with problems, but he can do very little, while insurance can help you recover losses.
A standard homeowner's insurance policy may cover loss of rental income and damage or theft of the contents of the home, although what is covered may vary. Typical claims include losses due to rent arrears, water damage, and malicious / accidental damage from a tenant.
Policies may also differ depending on whether you manage your rental property personally or by a third party, and coverage may vary depending on whether the house is rented as a short-term lease (such as via Airbnb) or a lease on the lease. rental.
Determine what you need and find the best possible insurance provider that offers a premium tailored to your needs. Insurance premiums vary by state and territory – for example, in a hurricane region, such as northern Queensland, the costs are higher to cover the damage caused by the storm.
Homeowners' insurance is a valuable lifeline for investors, but that does not mean that homeowners can not afford to be lax by making sure they do not sign bad tenants. These nightmares can often be bypassed by thoroughly checking the background of potential tenants.
You (or your real estate administrator) should aim to speak not only to the most recent owner, but also to the previous owners, to determine any behavior that may be a problem in the long run. It also helps to ensure that the current owner of the potential tenant is not just looking for a nightmare tenant. Whenever possible, encourage them to detail the type of renter that the person was.
Bad tenants can make your life miserable for a while, but do not need to be allowed to destroy it. You can avoid this by putting in place the appropriate protective measures.
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