“What if a tenant damages my property?!”
It’s a question we’ve been asked thousands of times, and for good reason. It’s one of the most common worries for rental property owners and it’s perhaps the number one reason why people avoid purchasing a rental property as an investment.
Although uncommon, tenant damage is a risk that every owner needs to understand. Regardless of how well you vet your tenants, there is always a chance that they will damage some part of your property. If you’re currently a rental property owner or you’re interested in getting into the industry, you need to be prepared to deal with this.
Luckily, there’s no need to reinvent the wheel here. This is a problem that property owners have been dealing with for as long as it’s been possible to own and rent property. There are many well known safeguards you can put in place to minimize the chance of tenant damage occurring in the first place, as well as limit your liability if something does occur.
In this post, we’ll take a look at how we set our owners up for success and protect them from tenant damage. Doing your homework on this stuff before you get a tenant in your property will help you easily deal with any damages that may crop
Safeguarding yourself from the beginning
The best thing you can do to limit your liability is to set up a few safeguards right at the beginning of your relationship with a new tenant.
One of the best safeguards you can implement is an apartment condition statement. This is a simple form filled out and signed by the tenant when they move in that indicates any damage in the property that occurred prior to their move-in date. For example, if there is already a cracked floor tile in the property when they move in, they would not be held liable for this as long as it was clearly stated on the apartment condition statement.
This form helps protect tenants by ensuring they don’t have to pay for damage they didn’t cause. But it also helps owners by clarifying the exact condition of the apartment before the tenant moved in. To use another example, if you were to find a hole in the wall that was never mentioned on the apartment condition statement, you could reasonably assume that the current tenant caused the damage and hold them liable. From there, you could withhold part of their security deposit (which is a topic for another blog post), send them a bill for the damages, or take legal action if necessary.
An apartment condition statement can be incredibly helpful to clarify whether damage was caused by a current tenant or not. We implement it in every property we manage and it has saved us thousands of dollars. However, it’s only useful if your lease actually holds the tenant responsible for the damages they cause.
In order to make an apartment condition statement work for you, you’ll want to make sure your lease clarifies that tenants are legally responsible for any damages they cause to the property. This is fairly standard, but it’s worth discussing with your lawyer to make sure that your lease clearly states this and that your apartment condition statement can be used to legally verify any damage they may cause while living in your property.
Making use of the right insurance
Insurance is the most obvious way to protect yourself from tenants damaging your rental properties, but there are a few things you need to get right to make sure your insurance is going to work for you.
Ultimately it comes down to two things: having a homeowner’s policy that covers tenants and making sure your tenants have a renter’s insurance policy with enough coverage.
Not all homeowner’s policies are equal, and you’ll want to be sure to inform your insurance provider that you will be having tenants in your property. This will add additional charges, but it can be well worth it as damage from tenants would not be covered on most traditional homeowner policies. If you are renting your property through third-party services like Airbnb or VRBO, they may have additional insurance you can utilize—but don’t count on this entirely, it’s still well worth it to have your own full-fledged homeowner’s policy.
A renter’s policy will also further protect you and your tenants. These policies are inexpensive and have become a common requirement for many property owners, so it’s not as significant of a barrier to entry as you may think. In fact, renter’s insurance stands to benefit the tenant more than you (although it still does benefit you).
Each policy is different, but most will protect a tenant’s possessions, cover accidental damage to the property, and reimburse them for additional living expenses if the property is uninhabitable for any period of time.
This is important for owners because it can avoid many disputes down the road. It means you will not be held liable for theft or damage to their possessions, and because any accidental damage from the tenant will be covered by their insurance policy, you won’t have to hound them for payments if something does happen.
Confused? Not sure if you have the right policy? We conduct an insurance audit for all of our clients when we take over their properties. If you have questions or concerns about your current insurance, feel free to get in touch and we’ll be happy to take a look.
Understanding the risks
It’s important to remember that, like any investment, there are always inherent risks in real estate. That being said, real estate is unique in that you can control a large portion of the risk yourself. By putting the right safeguards in place, vetting your tenants properly, and doing your homework you can significantly minimize the risks involved in renting your property.
We try to help owners understand that, at the end of the day, they may need to pay a few hundred dollars every now and then for tenant damage. It’s unrealistic to think that you can rent a property out year after year without paying for any damages whatsoever. Even with an apartment condition statement, a thorough lease and insurance, there may be situations where something happens outside of your control. Plus, there’s often value in keeping your tenants happy—even if that means paying for some damages they may be “technically” responsible for.
We always encourage owners to set aside a small amount of money each month to account for damages and repairs. If no tenant damage occurs, great! You’ve saved up some money that you can either put back in your pocket, put towards routine maintenance, or use to upgrade your property in other ways. But if tenant damage does occur and you need to pay for some of it, you won’t be left in the lurch.
Looking for some help managing your property? Need advice on how to deal with a tenant issue? Request a free proposal to find out what Mergo can do for you.