Landlord Insurance 101: A Guide to Rental Property Insurance for Owners

More and more Americans are becoming landlords – either by necessity or choice – but do they know what it takes to insure their rental property?

Consider the trend: For more than a decade, homeownership rates have declined while rentals have increased. According to a recent report from Harvard University’s Joint Center for Housing Studies, the nation’s homeownership rate has fallen to just under 64 percent. Plus, the number of new rental households has increased by roughly 770,000 annually since 2004.home-insurance-300x110

Many homeowners who couldn’t sell their homes during the housing crisis decided to rent them out, says Bob Freitag, a North Carolina-based public adjuster.

“A lot of these new landlords didn’t know that they needed more than their existing homeowner policy to insure the property,” he says.

Now that the housing crisis has passed — and interest rates remain low — the idea of buying a second home as a rental property sounds lucrative to many who may be new to the real estate market.

Regardless of the situation that turned you into a landlord, it’s smart to talk to an insurance agent to make sure you have the proper coverage.

“Consider whether your needs or your circumstances have changed,” says Robert P. Hartwig, past president of the Insurance Information Institute. “And if they have — or if you don’t understand something — call your agent. A simple conversation can save you thousands of dollars in e future.”

Landlords and insurance: Getting the right policy

Rule No. 1: New landlords need to call their insurance agent as soon as they decide to rent their property.

“Some insurance companies don’t even want to insure rental properties because of the added risks,” Freitag says. “So you may need to find a new insurer all together. At the very least, you’re going to make significant changes to your existing policy.”

An average homeowners insurance policy doesn’t cover the property if the homeowner is not living there, according to Trent Zachmann, chief operating officer of Renters Warehouse. That’s because renters occupying a property carry a different set of risks and liabilities than homeowners do.

For instance, insurance companies know that homeowners generally take better care of a property than renters, which means they file fewer claims and are cheaper to insure. What’s more, once a house or condo is being rented, the insurance company considers this a commercial use of the property, which changes the insurance equation a bit.

Types of landlord or rental dwelling policies

What type of policy will you need?

“You’re going to need what’s called a landlord or rental dwelling policy,” Zachman says, “and there are some distinct differences between that and a traditional homeowner’s policy.”

But not all dwelling policies — sometimes called tenant occupied dwelling insurance — do the same things. Dwelling policies usually fall into three categories: DP-1, DP-2, and DP-3. Here’s how they break down:

  • DP-1 policy is the most basic and affordable dwelling policy you can buy, and it covers risks like vandalism and theft.
  • DP-2 policy expands coverage to risks like fire and windstorm damage.
  • DP-3 policy is the most comprehensive of all three, covering all perils unless they’re expressly excluded.

Freitag suggests landlords purchase a DP-3 policy. Not only does it cover the broadest range of risks, but it also pays out full replacement costs on a claim as opposed to just “actual cash value.” The difference is critical, he says.

For instance, let’s say a fire causes $10,000 in damage to your 20-year-old rental property. If your dwelling policy only pays out cash value the insurance company will consider the depreciated value of the home, which could cause 20 or 30 percent depreciation on the final claim payout.

However, if your policy pays out full replacement costs, the insurance company will reimburse you for the present-day cost of rebuilding or making repairs, regardless of the home’s age.

Freitag doesn’t favor a cash-value policies, because landlords often need out-of-pocket money to make repairs after filing a claim. “Make sure you tell your agent that you want a policy written for replacement costs,” he says.

Landlord policies may protect against loss of rental income

Landlord policies may also cover the loss of rental income, which is a critical consideration for landlords.

For instance, extensive fire or water damage may make your rental property uninhabitable for several months. If your dwelling policy covers loss of rent — sometimes called fair rental income protection — the insurance company will reimburse you for that unexpected financial hit.

“Make sure you ask your agent to include loss of rent in the policy,” Freitag says. “It only costs pennies on the dollar and it’s incredibly worth it if you need it.”

How much does a landlord insurance policy cost?

Many variables go into pricing a dwelling policy for landlords, but according to Melissa Neis, vice president of Chicago-based Parr Insurance Brokerage, it will probably cost between 20 percent and 30 percent more than a typical homeowner policy.

“That’s because the insurer is taking on more risk,” Neis says.

According to a 2016 study by the National Association of Insurance Commissioners, the average homeowners insurance premium across the United States in 2013 (the most recent data available) was $1,096. So a landlord policy will cost between $220 and $330 more per year than a traditional homeowners policy.

Important to note: No matter what type of dwelling policy you purchase, it will not cover the possessions of your renter (such as clothes, electronics or furniture.) Neis suggests landlords require tenants to carry renters insurance, which will protect you against a potential lawsuit if a tenant’s possessions are destroyed.

Source: huffingtonpost.com

10 Rental Property Tax Deductions Landlords Love: Did You Take Them All?

Whether you rent out a place or room to a tenant full time or just for a few weeks while you’re away on vacation, you already know it’s a great way to make money. But did you know it can also save you cash at tax time? That’s right, being even a part-time landlord For-Rent-Landlord-Tenant-Investment-300x300comes with tons of rental property tax deductions you’ll want to take advantage of. Pass them up, and you’re essentially throwing wads of moolah out the window.

“You could be losing hundreds, if not thousands, of dollars in deductions,” says St. Petersburg, FL, Realtor® Lisa Cahill, a CPA and former tax manager.

One caveat, though: If you rent out part or all of your primary residence to others for fewer than 15 days out of the year, you can’t deduct any expenses. But on the other hand, you don’t have to report the money as rental income (meaning it’s tax-free).

However, if you rented out all or part of your home for 15 days or more in 2016, make sure you claim these tax deductions from Uncle Sam when you file before the deadline this year.

1. Rental service fees

If you found a tenant using a rental or home-sharing service like Airbnb, VRBO, or HomeAway, you paid the company a fee. Airbnb, for example, takes a 3% cut of whatever guests pay. But guess what? You can deduct that (annoying) fee as a business expense.

“Any fees that you paid directly as the host are tax-deductible,” says Lisa Greene-Lewis, CPA and tax expert at TurboTax. This is true even if it came off the top and never hit your bank account. In addition to this fee, you can deduct value-added tax, which may have been taken off the top, too.

2. Advertising fees

If you had trouble finding a renter, you may have paid for advertising outside of what was offered by the rental service. If so, that money is tax-deductible. Roommate-matching websites like Roommates.com, for instance, charge hosts a fee in order to read messages received from other members. (A 30-day membership is $20.)

3. Utilities

Yes, your electric, heating, and water bills are also deductible, even if you live with your tenant. In the latter case, you’d just deduct a portion.

“How much you can deduct is based on the square footage of the space you rent out,” explains Greene-Lewis. So if a tenant is renting 1,500 square feet of the total 4,500 square feet, including living quarters and common areas, you’re allowed to deduct for one-third (1,500/4,500) of the utilities that you paid.

Tax deductions for vacation homes, meanwhile, are based on how many days the house is rented out compared with how many days you used it personally. For example, if the house is rented out for 90 days and used personally for 30 days a year for a total of 120 days, then you would be able to deduct 75% (90/120) of the utility costs.

4. Cleaning, gardening, and maintenance

“Whether you clean the house yourself or pay a professional cleaning service, the money is tax-deductible,” says Greene-Lewis. This includes cleaning supplies, which can add up, as well as gardening, lawn mowing, and other maintenance fees.

5. Repairs and painting

“If you have a handyman come to repair a window or repaint a room, those costs are deductible,” says Cahill. If you rent out a room in a home you live in and pay for whole-house maintenance, such as a furnace tuneup or a roof replacement, a part of that cost will be deductible as well, depending on the square footage devoted to your rental.

6. Property taxes

Property taxes work the same way: You can write off the portion of your property taxes equal to the portion of your home being rented out. These can be deducted either as personal expenses on Schedule A or deducted as rental expenses, says Cahill. (Here’s help on how to calculate your property taxes.)

7. Property insurance

If you need to pay more insurance on your home because you have renters present, you can deduct the extra cost. And even if your property insurance fees haven’t increased, you can still write off a portion of the expense as a business expense.

8. Furniture, linens, and food

If you buy new furniture for the space being rented out or provide renters with household items such as linens, curtains, and shower supplies, you can claim a tax deduction for those costs. Ditto for any food or drinks that you provide guests.

9. Municipality services

Some expenses paid to the local government, such as fees for trash and snow removal, are also tax-deductible.

10. Structural improvements

You can deduct the cost—or the interest paid on a loan, if you don’t pay cash—of structural improvements (like new roofing) made to the property if they apply to the rented area. (Depending on the project, you may also be able to snag a home improvement deduction.) However, these costs will need to be depreciated over time—meaning you won’t get all of the money back upfront, but will have to divvy it up over the life of the loan.

 

Source: realtor.com

Name one thing property managers wish tenants knew.

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Q: Name one thing property managers wish tenants knew.

A: We don’t make the rules, we’re simply paid to enforce them. Every property manager has encountered that tenant who is disappointed, because the property manager refuses to disobey the terms of the lease to benefit a tenant’s situation. Property managers wish tenants understood that each state has Landlord-Tenant Laws designed to protect the rights of both parties in the lease: the landlord and the tenant. When tenants sign a lease, the terms of the lease are not merely made-up by the property manager, but rather established and enforced by the state’s Landlord-Tenant Laws. The state governs when rent is due, when late fees are assessed and what amount to charge, how much notice to give before moving, a landlord’s and tenant’s responsibilities, among others. The lease constitutes a contract. Good tenants and good landlords respect contracts, and good property managers enforce them.

The Value of Having a Good Relationship with Your Landlord.

1#Tenants know the value of having a good relationship with their #landlord. A good relationship may give you a little clemency, but a bad relationship can make your living situation stressful. One way to nurture a positive relationship with your landlord is to be upfront and honest from the moment you sign the lease. One of the easiest ways to form a negative relationship with your landlord is to lie or hide things, like breaking the pet policy by hiding a pet. Hiding a pet from your landlord or #propertymanager is a breach of the lease and can seriously cost you in several ways.

Ask The Attorney: No Need to Prorate the Rent

ask-the-attorneyThe Landlord Protection Agency®presents John Reno, Esq.,a highly experienced Landlord – Tenant attorney based on Long Island, NY.

Q:  Dear Mr. Reno:

I am very new to the whole landlord game and recently chose not to renew a lease for a problematic tenant. I informed them well over 30 days in advance that I would not renew their lease and they actually moved out a couple of weeks afterwards. I went through the house after they left and it was absolutely filthy. I documented EVERYTHING with photos in addition to descriptive notes. After I tallied up all the damages (using the LPA settlement guide), I withheld their deposit and sent them a bill for the damages. They got the bill, refused to pay and said they would see me in court. I had originally prorated the rent for the month since they vacated so quickly, but now that I will be taking them to court, can I actually charge them for the full months rent even though on the original security deposit statement I prorated it? I still have not been able to get the house rented due to the amount of damages there were (I’m still working on the house). Please advise! Thank you for your time!
Regards,
Jess Stone

A: Yes, charge the whole month. You have no obligation to prorate. Now it is true, some small claims judge don’t follow the law & prorate anyway, but that’s another story- don’t get me started!

Legal Disclaimer
The Landlord Protection Agency’s “Ask the Attorney” column is for informational purposes only. The questions answered by Mr. Reno on this site do not constitute an attorney – client relationship and are not to be considered legal advice. Not all questions will be answered and some may appear in the LPA Q&A Forum.
The Landlord Protection Agency recommends that you seek legal advice before using any of the material offered on this web site, and makes no guarantee on the effectiveness, compliance with local laws or success of any of the material offered on this web site. The Landlord Protection Agency is not engaged in rendering legal advice.

Renters Vs. Landlords: Who Wins In 2017?

1The answer to the question of who is coming out ahead in the apartment market – renters or landlords – has been fairly clear for a while now. Renters have rarely caught a break since many major markets began to recover from the Great Recession in 2010.

That may change in 2017.

The recovery years of 2010-2016 saw rent growth rise 150 basis points (bps) above the long-term average, and renters only began to see relief from continual price hikes toward the end of last year. This year promises to show further declines in some markets where rents have risen the most.

Occupancy and Rent Growth since 1998

U.S. Occupancy and Rent Growth since 1998.

Though apartment renting is not a zero sum game, slower rent growth in 2017 is expected to benefit renters more than landlords. Nationally, during the last six years, the average annual rent increase was about $516. It’s expected to lower to about $347 in 2017, reflecting about $168 in savings annually.

Ranking the Markets

The table below shows the top 10 metros with the largest expected savings in apartment rent during 2017 compared to the last six years. The projected savings for each market was calculated by subtracting the annual change for 2017 from the average annual change in rent from 2010-2016. Out of the 54 major U.S. metros analyzed, some 36 showed annual savings ranging from $8 to $2,647, with average decreases of about $360 from the average 2010-2016 price.

Top 10 Savings

Also included in the analysis was a calculation of change in elasticity, which is a measure of how sensitive consumers are to price changes. In this case, greater or lesser degrees of elasticity reflect how renters react to changes in rent. Generally, housing is an inelastic product, which means that the change in price doesn’t substantially affect the quantity demanded.

However, whether a rent increase is considered a hardship or a rent decrease is considered a win for renters depends on the perspective of residents in each market. Where renters are less sensitive to change, the savings or increase may be a minor factor in their housing decisions.

For this analysis, the long-term average for elasticity was calculated and compared with 2017’s figure. If the elasticity value in 2017 is less than the historical average, it is said that renters are getting less sensitive to changes in rent and vice versa.

Trends by Market

Bay Area: San Francisco, San Jose and Oakland, lead the pack for most savings in 2017. San Jose renters stand to pay $2,647 less a year compared to the 2010-2016 average rent, and annual savings will be $2,638 and $1,647 in San Francisco and Oakland, respectively, this year. These markets saw a substantial increase in rent during the last six years, often producing double-digit rent growth that was not sustainable over the long term. The positive change in elasticity value in 2017, compared to the long-term history, points to renters in these markets getting more sensitive to increases in price. The impact of new supply, combined with moderating job growth compared to the last six years, will lead to softer rent growth throughout 2017.

New York: Though New York renters stand to see substantially smaller savings than their counterparts on the opposite coast — about $630 a year — the positive elasticity value for the market indicates that they are more than ready for the decrease. Decelerating job growth and an increase in new supply in 2017 is expected to keep rent growth low this year.

Houston: Houston saw a larger impact on job growth from the drop in oil and gas prices, and continued weak employment numbers may be one reason that Houston renters show the highest sensitivity to price on this list. Houston residents will save about $509 this year, about half a month’s rent relative to the average effective rent in 2016. Though job growth is expected to pick up this year, it will most likely remain well below the metro’s capacity, keeping rent levels lower.

Denver: The Denver market’s performance slowed significantly last year, as rent growth returned to more sustainable levels after being in double digits for most of 2015. That should yield a savings of about $502 a year for Denver renters in 2017. New supply coming to market ramped up in 2012 and still has not slowed, with 3.6% inventory growth expected this year. Weaker job growth this year will mean that the new supply is absorbed at a slower pace, which will continue to keep rent growth at lower levels.

Boston: As with many markets on this list, increased new supply and slowing job growth will equate to lower levels of rent growth in Boston in 2017. Rent growth in the market has been varied since the start of the recovery, but slowed in 2016. Renters should see an annual savings on rent of $441 this year, as compared to annual average rent increases over the past six years.

Seattle: Though Seattle has not achieved the rent growth highs of the Bay Area markets, it also has not seen the same lows in the past year. While rent growth has recently dipped into the negative in Oakland, San Jose and San Francisco, the Seattle market’s performance in 2016 was still strong. Though renters in Seattle will see smaller savings than in other West Coast markets, about $407 a year, they will still get some relief from the rent hikes of recent times.

Portland: The combination of slowing job growth and increased new supply has also caused rent growth to decelerate in Portland, returning to more sustainable levels than the double-digit gains experienced in 2015 and early 2016. Portland renters will see about $356 in savings this year, though the lack of change in elasticity value in the market indicates less sensitivity to rent increases, as renters here may be getting used to paying higher rents than the long-term average.

Austin: Austin was among the markets experiencing the strongest job growth on this list, though that metric dropped in 2016 and will continue to moderate this year. With rent growth responding to the drop in demand caused by moderating job growth, Austin renters will see a break of about $323 in apartment rents. However, the negative change in elasticity value shows that renters in this market are much less sensitive to price changes than their counterparts in other markets. This may reflect the savings that Austin transplants are already seeing over their previous homes in more expensive coastal markets.

No matter how sensitive renters are to the change in price, there’s no disputing that having extra money in their pockets after rents are due will be a welcome change from the boom recovery years.

Source: forbes.com

Ask the Attorney: Tenant Not Paying Utilities

ask-the-attorneyThe Landlord Protection Agency®presents John Reno, Esq.,a highly experienced Landlord – Tenant attorney based on Long Island, NY.

Q:  Dear Mr. Reno:

I have some one renting my house on a 30day lease and they are responsible for the electric bill but did not pay it. The utility co said they were going to cut it off. What do I do ?

I live in Indiana. Thank you

Chris J., IN

A:  So let’em cut it off. What’s the problem? (Most times, the tenants will get the money & pay it, rather than have no electricity- No TV? No Internet? God forbid! They’ll stop paying rent before they let the U-tube go off.) Of course, if you face the possibility of pipes freezing and serious damage to the home due to cold conditions, then you might have to take matters into your own hands and pay the bill yourself. The problem with that, is you may never get the tenant to pay and the tenant will stay warm and comfortable throughout your entire eviction process!!! Good luck! P.S.: If you do pay the bill, and it’s in the tenant’s name, at least keep it in the tenant’s name!

 

Legal Disclaimer
The Landlord Protection Agency’s “Ask the Attorney” column is for informational purposes only. The questions answered by Mr. Reno on this site do not constitute an attorney – client relationship and are not to be considered legal advice. Not all questions will be answered and some may appear in the LPA Q&A Forum.
The Landlord Protection Agency recommends that you seek legal advice before using any of the material offered on this web site, and makes no guarantee on the effectiveness, compliance with local laws or success of any of the material offered on this web site. The Landlord Protection Agency is not engaged in rendering legal advice.