Rentals can be a great source of income, but if they aren’t managed well, tenants can significantly damage the physical asset or someone could be injured. Thankfully, through prudent planning and follow-through, your investor clients can mitigate their risk.  

Analyzing Risks and Taking Action

The first step in any risk mitigation plan is for the investor to become familiar with the potential losses that could occur at the property. Once the investor better understands their risks, they can create a mitigation plan based on their specific needs. The list below is a fairly comprehensive representation of typical losses we see at tenant-occupied properties and a few ways your investor clients can remedy these risks.  

Issue #1: Fires 

The costliest property damage we see results from fires. A small fire can quickly escalate, engulfing the entire structure, and leading to a total loss. Some of the most common causes of fires include:  

1. Unattended Cooking – The National Fire Protection Association (NFPA) reports, “cooking equipment is the leading cause of home structure fires and home fire injuries.” These fires most often occur when the cook gets distracted and leaves the kitchen to attend to something in another room. In one instance, a tenant left the home completely to visit a neighbor several doors down. When they returned, the property was engulfed in flames. Thankfully, no one was injured, but this event could have been prevented had the cook just stayed in the kitchen. 
2. Heating Fires – Heating equipment is the “second most common cause of home fire fatalities,” says the NFPA. Space heaters can be very useful, but if they are old or not used appropriately, they can easily start a fire. The peak months for home heating fires are December, January, and February, but may still be a threat in other months outside of that timespan for climates that experience long winters. Space heaters should always be plugged directly into an outlet, should be at least 3 feet from anything that can burn, and should turn off automatically when tipped over. 
3. Cigarettes – Smoking is the “leading cause of home fire deaths,” reports the NFPA. Most often, these accidents occur when someone is smoking inside the house; many incidents involve a person falling asleep on the couch or in bed, cigarette in hand. If you have investor clients who haven’t considered banning smoking in their rentals, this may be a good time for them to make a change to their lease agreement. 

Important Equipment: Smoke Alarms, Carbon Monoxide Detectors, and Fire Extinguishers 

The importance of having these items unexpired, and in constant working order cannot be overstated. According to the NFPA, working smoke alarms cut home fire deaths in half. Carbon monoxide (CO) detectors are also key because of the nature of CO’s properties; it is often known as the “silent killer” because it is colorless, odorless, and tasteless. Installing interconnected alarms is recommended by the NFPA because when one alarm sounds, they all sound, alerting the occupants no matter where they are in the home. 

Alarms and detectors should be tested monthly and standard batteries should be changed at least twice a year – Daylight Saving Time is a good reminder for investors to do this. Some newer alarms also come with 10-year batteries, but they still need to be tested regularly. The detectors themselves will also need to be changed out periodically – the typical life of a detector is 10 years, but investors should check the manufacturer’s instructions. Smoke alarms and CO detectors are often required by city code and many insurance carriers require them to be installed for coverage to be available when a fire loss occurs. 

Fire extinguishers can help put out small fires before they become uncontrollable, so it’s always best for investors to provide them in their rentals and educate tenants about use prior to move-in. There are five classes of extinguishers, but ABC or BC are multi-purpose and can put out a variety of fires. StoveTop FireStop is another inexpensive fire suppression device that can help put out a stove top fire before the cook has time to grab a lid or standard extinguisher. 

Issue #2: Water Damage 

The most frequent losses reported in our insurance program involve water. These can include: 

1. Burst Pipes – During the winter and spring thaws, we often see an increase in reports of water damage from burst pipes. Weather can be punishing on both the exterior and interior of a property. Heating the house properly, keeping faucets at a slow drip during cold snaps, and having tenants alert the investor or their property manager prior to leaving town can help minimize the probability of this type of loss occurring. 
2. Slow Leaks/Mold – Slow leaks can cause some of the most invasive damage including wood rot and mold. This kind of damage is incurred over time, and coverage isn’t typically available because slow leaks aren’t “sudden or accidental.” Mold and fungus are also typically excluded from property coverage forms across the industry, and mold remediation can be costly. In warmer temps, mold can grow rapidly, so it is imperative that tenants know to report leaks and mold damage immediately. Clean-up should begin as soon as possible to minimize damage to sheetrock, framing, and flooring. For mold mitigation tips, read “Reduce Risk of Mold After a Flood.” 
3. Toilet Back-Up – When the kiddos decide that it’s a fine day for Quacky the stuffed duck to go swimming in his “pond”, you may end up with a big mess in the bathroom. Investors must emphasize to tenants that repeated calls of this nature will come with a maintenance fee tacked onto their monthly rent. 

Issue #3: Wear-and-Tear

Addressing wear-and-tear is important because it is inevitable and an industry-wide exclusion. Your investor clients will either need to add a line item for repairs into their business model, recoup the cost of repairs from the security deposit, or recover any excessive damages from the tenant through a civil lawsuit. Wear-and-tear includes, but is not limited to the following: 

• Stained or ripped carpet 
• Torn or missing window blinds 
• Broken windows 
• Smudges on or nail holes in walls 
• Broken door hinges or holes in doors 
• Broken appliances 
• Pet odors 
• Pest infestations 
• Presence of trash on the premises 

To be clear, the above type of damage is typically not considered vandalism as it is generally deemed either accidental in nature or a part of ordinary use. In addition, some insurers may limit coverage for damage done shortly after a tenant vacates the property. Discuss the specific policy details with your investor clients to ensure they know what is and is not covered. 

Issue #4: Liability Concerns

When it comes to injuries at rental properties, the most common include: 

1. Slip-and-Falls – Many would expect slip-and-fall injuries to increase in frequency when the pavement is wet or covered in ice, but these types of injuries can occur in any season if walkways aren’t properly maintained. To prevent injuries of this nature, investors must repair uneven or damaged pavement, and make sure handrails are well-secured and decks are in good condition. 
2. Dog Bites – Even a friendly dog can bite if they feel threatened or confused. Though the owner of the dog is truly the responsible party, many investors find themselves involved in lawsuits for simply allowing dogs on the property. If your clients choose to welcome dogs at their properties, they should be familiar with the animal before move-in. Many investors will do a pet visit, so they can be introduced to the animal in person and observe what the dog’s behavior is like. A cute picture of the pet is not an indicator of behavior.
3. Injuries at Pools and on Play Equipment – A pool is a great amenity, but it can also be very dangerous to have this “attractive nuisance” on your property. Slip-and-fall incidents can occur or even drowning. To prevent injuries, investors must follow all municipal guidelines including proper fencing, locking gates, depth markings, and life-saving equipment required to be on the premises. If investors allow renters to set up their own play equipment in the backyard, they may also consider increasing their liability coverage for any injuries that occur on the premises. 

Note: It is critically important that renters feel comfortable contacting the investor or the property manager if they notice an unsafe condition. When they do report damage, the appropriate party should respond as promptly as possible to remedy the issue. Timely repairs can prevent serious injuries and potentially keep investors from being swept into a lawsuit. 

Issue #5: Leaving Prior to the End of the Lease Period & Evictions

Unfortunately, we see this scenario all too often: the tenant gets behind on rent and vacates the property without notice, leaving behind a wreck of a former home, including trash or even their own belongings. If they don’t skip out on the investor, it may be necessary to evict someone for non-payment of rent or breaking other parts of the lease. Cash-for-Keys is a method that may save a property from being damaged in both cases. 

With Cash-for-Keys, the tenant simply agrees to leave the property within an agreed-upon time frame, giving the keys to the owner or property manager in exchange for a small sum of money. The investor will want to make sure the tenant agrees (in writing) to leave the property in “broom-clean” condition, and never give the tenant money until they are completely out and have turned over all keys. After they have vacated the property, investors should change all locks, secure all doors and windows, and monitor the property in the few weeks following. We have seen occurrences where tenants move out only to break in and cause damage a week or so later because their belongings are now out. 

General Rules of Thumb for Investors to Minimize Risk with Rentals

1. Establish a thorough screening process. 
2. Give tenants a brief education on safety around the home prior to moving in and during their tenancy. 
3. Continue building the relationship throughout their stay on the property. 
4. Institute regularly scheduled inspections. 
5. Check-in with neighbors to see how tenants are keeping the property and interacting with others in the neighborhood. 
6. Give incentives to encourage loyalty. 
7. Dissolve the relationship if necessary but try to do it amicably. 
8. Learn more about what types of tenant damage are, and aren’t, covered. 
9. Add a provision to the lease requiring tenants to purchase renters insurance – and enforce it. 
10. Consider purchasing REInsruePro’s Tenant Protector Plan. 

The items above should give your investor clients a good foundation for mitigating risk at their rental properties. Every situation is unique, so pass along these principles to help your clients build a risk mitigation plan that is tailored to their specific needs!