The ONE Critical Mistake To Avoid As An Investment Property Owner
Ryan Jamison • March 14, 2024
Any property owner with a pulse knows that they have to keep their property insured. That said, many investment property owners fail to realize that they need a specific type of insurance policy for their rental property. As an investment property owner, you MUST get a Landlord insurance policy, rather than a normal Owner-Occupant insurance policy.
Understanding the distinction between a Landlord policy and an Owner-Occupied policy is critical to ensuring that, in the event of a claim, the investment property owner is adequately insured. In fact, any claim for property damage to an investment property made under an owner-occupant insurance policy will surely be denied. Insurance companies LOVE denying otherwise legitimate claims on policy coverage basis, and making sure that you have the right type of insurance policy in place is critical!
Briefly discussed below are the two primary situations in which an investment property owner finds themselves improperly insured:
- Primary Residence conversion to Rental: This situation most often occurs when an Owner Occupant purchases a new home to live in and, rather than sell their previous home, the owner converts their old primary residence into an investment property. Undoubtedly, this form of “house hacking” is an excellent way to build a real estate portfolio (purchasing a primary residence offers advantages as to down payment amounts, optimized interest rates, etc.), but the owner MUST notify their insurance carrier about the change of status of the original home from owner-occupied to investment property, or future claims will be denied on that basis. Often, this critical step gets lost in the chaos of the new home purchase and move!
- Primary Residence as an occasional Short Term Rental: Understandably, many owner occupants are interested in generating ancillary revenue from their homes. To that end, homeowners may list their homes on various vacation rental websites, particularly during major music festivals and/or sporting events in their area, in order to take advantage of the influx of tourists. This can be a major problem in the event of an insurance claim, in that most owner-occupant insurance policies have specific coverage exclusions for short term rentals and vacation rentals. Insurance claims on properties that are used as vacation rentals, even if the claim is unrelated to the vacation rental (i.e. hail damage), can be denied on the policy coverage basis.
So what’s the takeaway here? The TYPE of insurance policy required is dictated by the USE of the property. Make sure you are clearly communicating with your insurance agent about the use of your property, to make sure that future claims are covered!
Thanks for reading, hope this was helpful. Talk soon!
In the world of property management, tenant satisfaction is of great importance. Happy tenants not only lead to longer lease agreements but also contribute to a positive reputation for property management firms. Here are three essential routes to ensure tenant happiness: Enhance Accessibility: Property management can improve tenant satisfaction by ensuring easy access to essential services and resources. Implementing user-friendly tenant portals or mobile apps allows tenants to conveniently submit maintenance requests, track rental payments, and access important documents anytime, anywhere. By providing seamless access to information and support, property management fosters a positive tenant experience and demonstrates a commitment to meeting tenant needs efficiently. Prompt and Responsive Maintenance: A key aspect of tenant satisfaction is the timely resolution of maintenance issues. Establishing a streamlined process for reporting and addressing maintenance requests can significantly impact tenant happiness. Implementing a responsive system where tenants can easily report issues and receive timely updates on the status of repairs fosters a sense of care and consideration. Clear and Open Communication: Effective communication is fundamental to maintaining a positive management-tenant relationship. Keeping tenants informed about any changes, updates, or upcoming events related to their living space demonstrates transparency and builds trust. Whether it's through regular email updates, or notices, ensuring that tenants are well-informed contributes to a pleasant living environment. In conclusion, enhanced accessibility, prompt maintenance, and clear communication are essential routes to ensuring happier tenants. By focusing on these aspects, property managers can cultivate a positive living experience for their tenants, leading to increased retention rates and a thriving rental community.
When faced with home improvement projects, one of the biggest dilemmas homeowners encounter is whether to opt for a renovation or a repair. Both options can address issues within your home, but they differ significantly in scope, cost, and time investment. To help you make an informed decision, here are three essential factors to consider: 1. Assess the extent of the issue Before making any decisions, it's crucial to assess the extent of the problem. Is it a minor issue that can be fixed with a simple repair, or does it require a more extensive overhaul? Take the time to thoroughly evaluate the condition of the area in question and consider factors such as structural integrity, safety concerns, and overall functionality. This initial assessment will help you determine whether a repair will suffice or if a renovation is necessary to address the underlying issues effectively. 2. Consider long-term goals Another important consideration when deciding between a renovation and a repair is your long-term goals for the property. Are you looking to improve the aesthetics of your home, increase its value, or enhance its functionality? If your goal is to modernize and upgrade your space, a renovation may be the better option, as it allows for more significant changes and improvements. On the other hand, if your primary concern is to fix a specific issue without making major alterations, a repair may be the more practical choice. 3. Evaluate cost and ROI Cost is often a significant factor in deciding between a renovation and a repair. While repairs tend to be more budget-friendly up front, renovations can offer a higher return on investment (ROI) in the long run by adding value to your home. Consider your budget constraints, as well as the potential ROI of each option, before making a decision. Additionally, research local market trends and consult with professionals to get a better understanding of the costs and potential returns associated with both repairs and renovations. Deciding between a renovation and a repair requires careful consideration of various factors, including the extent of the issue, long-term goals, and cost considerations. By taking the time to assess these factors and weigh your options carefully, you can make an informed decision that best suits your needs and objectives for your home. Thanks for reading, hope this was helpful. Talk soon!
Thinking about becoming a landlord for the first time? You're not alone. Post COVID-era has a lot of landlords embarking on the journey of property ownership. We have a saying at GNPM - Everyone wants to own real estate, but nobody wants to deal with headaches. To help you avoid those headaches, we've compiled three essential tips for first-time landlords. 1. Screen your prospective tenants, THOROUGHLY. One of the most important steps in successful property management is selecting the right tenants. A thorough screening process can help you identify trustworthy individuals who will treat your property like it's theirs and pay rent reliably and on time. Here are 3 components of an effective tenant screening process: Rental Application: Require prospective tenants to complete a detailed rental application that includes information such as employment history, income verification, rental history, and references. Credit and Background Checks: Conduct credit checks to assess the applicant's financial responsibility and background checks to evaluate any past rental-related issues or criminal history. Income Verification: Ensure that potential tenants have a steady source of income that is sufficient to cover the rent. A 3x income to rent ratio is a healthy threshold to aim for. By investing time and effort into screening your tenants thoroughly, you can minimize the risk of rental income loss and property damage caused by irresponsible renters. 2. Get your lease right, the first time. Landlords often don't realize how important an effective lease agreement is until it's too late. In the case that something goes south at your rental property, the lease is what everyone will refer to. If the lease doesn't contain comprehensive & reliable stipulations, you leave yourself and your tenant liable. Avoid trouble down the line by getting your lease right the first time. 3 items to consider: Do you have a TREC lease in place? A lot of landlords try to use online templates for leases which are NOT promulgated by the Texas Real Estate Commission. What does that mean for you? Using a non-TREC approved lease, once again, leaves you open to potential liability issues. TREC leases can only be drafted by licensed real estate agents. Find a property management company that can help you. Have you filled in the lease with the correct stipulations? Move-in policies, move-out policies, late rent stipulations, security deposit agreement etc. These are all commonly disputed items and having them in the lease from Day 1 makes everything clear to everyone. Are you getting the lease signed using a professional software? For ex: DocuSign has a page at the end of contract that timestamps exactly who signed the lease at what day/time. Using software like DocuSign helps you look professional to your tenants & also is yet another step to a more secure lease. It's also essential to comply with local landlord-tenant laws and regulations when drafting your lease agreement to ensure its enforceability. A well-crafted lease agreement is the source of truth of a successful landlord-tenant relationship. Get it right, the first time. 3. Communicate professionally & promptly. Two words to remember: positive & professional. These are healthy pillars to follow when communicating with your tenants. Regardless of the situation, leaning on staying positive & maintaining professionalism no matter how bad the situation is incredibly important. We have seen too many landlords engage in heated discussions with tenants without actually constructively solving the matter at hand. It's not personal and so don't make it personal. Additionally, try to have everything in writing. Focus on being concise & purposeful in your writing at all times. If you need to have a phone call, that's great and yet, follow-up the phone call with a text message summarizing everything you spoke about. This allows for maximum transparency & protects you in the case of a dispute. Lastly, be quick in your communication. When you need something from your tenant, you're going to expect it to be delivered promptly. The same applies to you. If you tenant requests something, even if it will take you a while to solve it, receipt their message. Simply receipting their request goes a long way in establishing a healthy relationship. Thanks for reading, hope this was helpful. Talk soon!