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How Renters Insurance Benefits Residents and Properties

Jan 07 2015

But just how many renters kept their policies intact throughout the duration of their rent cycle is an unknown. The numbers don’t take account into how many residents drop their policy shortly after presenting it to comply with a landlord’s mandate to have one in order to rent the home.

“The resident may say they have another source for insurance and purchase from an unknown third party,” says Jay Stoltz of LeasingDesk Insurance. “They bring back a declaration page, showing they are compliant, then two weeks later the resident cancels, believing they have beat the system.”

It’s more than worth it for homeowners to make renter’s insurance a priority

Compliance issues are not that uncommon, Stoltz said. Unlike an automobile liability policy that some states require for the privilege of driving, renter’s insurance is purely optional for the resident unless mandated as a condition for rent. But there is no universal compliance tracking.

Industry data shows that property owners who require renter’s insurance spend about 45 percent less on repair and recovery expenditures than properties that don’t mandate the coverage. Those who do not, risk about $22 per unit per year for every unit that isn’t covered by renter’s insurance.

“First and foremost is it’s a way of cutting cost,” Stoltz said. “Renter’s insurance is very benign for a property management company. There is no cost for a PMC, yet they receive full benefits. Zero capital outlay. Secondly, they have the potential to lower their commercial insurance by incorporating a mandate that residents have renter’s insurance. There’s not cash outlay and they can save money.”

The key is overcoming a mindset that renter’s insurance is costly

Not surprisingly, the Insurance Information Institute poll showed the vast difference between homeowners who have insurance (95 percent) versus renters. Of course, financed homes are generally required to have insurance, but it’s very unlikely that a homeowner will drop coverage after the note burning party. There is an investment to be protected.

While a renter doesn’t have a big investment at risk, there is still much for he or she to lose. Potentially at risk is tens of thousands of dollars in property damage, as well as personal belongings.

Convincing the resident that spending $12-$15 per month for renter’s insurance is a tough sell, Stoltz said. It’s overcoming a mindset much like the industry has fought over the years when properties feared the additional cost for coverage would hinder lease-ups.

“Then everyone came to the realization that both parties have an interest,” Stoltz said. “It’s protection for the asset and it’s coverage for the resident for that thing that nobody expects will happen does happen.”

Just having a place to go for the insured renter is reason enough. So, too, for the property management company.

“In the event there is a displacement that requires an additional living expense, you’re going to have these long lines of residents asking where they are going to be put up,” Stoltz said. “As a (property manager), that’s the worst conversation that you can have, if with a resident who isn’t covered. With renter’s insurance, you just say that you have a claims adjuster that is going to take care of you.”

And until the day that renter’s insurance is mandatory – if and when that ever happens – property owners must encourage residents to spend a little extra each month for coverage, and at the same time manage compliance, Stoltz says. It’s well worth it.

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If you’ve ever considered investing in a few rental properties in Philadelphia or Bucks County, PA now might be a good time. Prices are still low in Philadelphia, but have been on the upswing. According to the National Association of Realtors, the median price of an existing home in a US metropolitan area grew 13.7% between July 2012 and July 2013, the latest in a 17-month streak of year-over-year price increases. 

New landlords can choose from properties that are likely to appreciate and a large pool of potential renters.Licensed realtor Pat Mueller cites a few reasons for this trend: “Many families have lost their homes to foreclosure and are entering the rentals market for the first time in years. Mortgages are also harder to get now, so fewer people are qualifying for a new one.”The more skills you bring to the table to get into Houses for Rent in Philadelphia Philadelphia or Bucks County, PA and the more time you have to devote to your properties, the faster you can make a return on your investment. 

But investing in rentals can also be disastrous (or too stressful to be worthwhile) without expertise. Here are three professionals you may consult about your new rental properties, and what you can do to mitigate how much they cost you:Handyman:  You may need to hire a specialist for some work on your rental. If you need new outlets or new pipes, for example, hire an electrician, plumber or licensed contractor. Handymen usually tackle smaller, more manageable tasks, like:

  • Painting and paint removal
  • Drywall repair
  • Minor appliance repairs (fixing a leaky toilet or faucet, among others)
  • Installing tiling or flooring, moldings, windows, doors
  • Refinishing decks, cabinets and other wood items

When You Could Skip It: You could do any (or all) of these projects yourself if you have the time and interest in learning. Of course, this only works if you live relatively close to your rentals and are flexible enough to service them on short notice. And if you’re willing to respond to the occasional 5 AM basement flooding.

Average Savings: Any base rates or costs-per-hour vary from location to location in Philadelphia or Bucks County, PA , but nationally, you can expect to spend an average of $60 to $85 per hour for repair costs. It general costs less to hire an individual handyman than a handyman employed by a company. Expect an additional charge if your job requires a trip to the store for materials.

Resident Property Manager As the owner of a handful of rental properties, you may be able to manage them yourself, but if you want help, a single resident manager would probably be more cost efficient than a property management company. Resident managers may:

  • Serve as a handyman
  • Advertise vacancies in your units
  • Show apartments to prospective tenants
  • Review rental applications
  • Collect rents

When You Could Skip It: Again, the closer you live to your properties and the more spare time you have, the less likely you are to need a manager. The obligations of being a boss will also cut into the time you save on maintenance.

Average Savings: The national median wage for residential managers is just over $25 per hour. Research the wages in your community and adjust according to how much responsibility your manager will take on. 

Real Estate Agent: Once you’ve gotten your financials in order and done your own research on the neighborhood(s) you’re considering, you might contact a realtor to show you potential properties. You can also arrange for a realtor in Philadelphia or Bucks County, PA to show rentals once they’re ready to rent.

When You Could Skip It: It depends. Even if you’re a local, or have thoroughly researched the neighborhood(s) you’re considering, a realtor is a great resource for a first-time rental buyer. Realtors have access to data and statistics not necessarily available to the general public and first-time buyers may not know all the right questions to ask. Using a realtor to fill your Houses for Rent vacancies is less of a no-brainer, depending on your other time commitments or whether you plan to hire a resident manager who could do the same thing.

Average Savings: As a buyer of rental properties, as when buying your own home, sellers typically pay most, if not all, of the buyer’s realtor fees. In this case, Mueller points out there’s little reason not to work with a realtor. For help in filling your units in Philadelphia or Bucks County, PA, the services of a realtor would set you back between 10-20% of the unit’s rent per month.  Mueller recommends interviewing with several brokers before making your final decision to invest into Houses for Rent .

The Bottom Line: As a new landlord, you can’t necessarily control the flexibility of your schedule or the amount (and cost) of unexpected repairs to your properties. Rentals are a long-term investment. However, to maximize profits from your Houses for Rent, new rentals, you can buy close to home and start small. It is best to begin with just one or two properties. This will allow you to maximize the time you spend on your properties’ needs, and minimize the amount you’ll have to pay anyone else.

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