3 Key Financial Risks Property Owners, Managers Face
In a prior article, I explained how rent default insurance helps residential property owners and property managers mitigate the significant and continual risk of tenants defaulting through non-payment of rent.
Here are three risks shouldered by property owners and managers that do not get the attention they warrant:
No. 1. Poor screening process
The downside of a poor screening process is almost never known until a tenant has already moved into a property.
Missing or late rent payments, property damage, noise and other complaints, and violating rental terms are all problems that can be avoided or minimized through a good tenant screening process. The process can help keep problematic tenants away from your property.
To properly screen a tenant, verify that:
- The tenant makes the income that they state they make (ideally no less than two-and-a-half times the rental price).
- The tenant has a good credit history.
- The tenant has a good rental history that can be confirmed by previous landlords.
No. 2. Shortcuts on repairs
Landlords and property owners take on legal responsibility for keeping a rental property in habitable condition. DIY (do-it-yourself) repairs also are common among landlords trying to save money.
The reality is that DIY repairs completed by nonprofessionals are frequently completed improperly, exposing landlords and property owners to further expense and risk down the line. Hiring a bonded and licensed professional contractor for repairs might seem costly at first, but it can save money and hassle over the longer term.
No. 3. Misunderstanding eviction
When can a landlord legally evict a tenant? If you’re a property owner or manager, it’s vital to know the four scenarios where you have a legal right to evict a tenant, depending on the state:
- Failure to pay rent. Landlords can evict a tenant for nonpayment of rent as well as for habitually late rent payments. This is true in most states. But know the rules in the state where the property is located. Additionally, leases should outline a late rent policy and any grace period allowed.
- Violation of lease. The landlord has the right to evict a tenant who has violated the lease. Examples are violating a no-pets policy, subletting the property to other occupants without permission, or failing to abide by homeowners association policies.
A tenant’s violation of lease can potentially have severe financial consequences for landlords. For example, a tenant who breaches a rental agreement by using the residential property to operate a business can cause the landlord’s insurance coverage (and the renter’s coverage) to be invalidated.
- Damage to the property. Dirty carpets and nail holes from picture frames might be considered normal wear and tear. But issues like water damage or big holes in the wall are another story and might violate the lease.
- Using property for illegal activities. The landlord may have grounds for immediate eviction of a tenant who uses a rental property for illegal activity (such as trafficking in illegal drugs or other contraband).
Aaron DiCaprio is co-founder and CEO of Rent Rescue, a rent default insurance product for real estate investors and property managers. A residential investor, attorney, and insurance executive, Aaron’s experience includes senior-level positions with privately and publicly held insurance organizations, including a Fortune 500 global brokerage. Contact: firstname.lastname@example.org, 619.332.2720.