The importance of landlord insurance
Hindsight is a wonderful thing, weve all experienced it.
That time in work when a marketing decision you were considering is used by a competitor 6 months later than you thought and they nail it, that witty time on the way home from a social event when you come up with the greatest comeback to the annoying drunk guys comments, and bragging about the benefits of landlord insurance AFTER having the most terrible experience with a tenant. Try to avoid the last one.
So what is landlord insurance and why is it important? Like any form of insurance, it is a safety net. A contingency plan for when unexpected things happen. There is leak from the shower which causes damage to the interior wall, home insurance. Someone crashes into your car, car insurance. There is a delay in your flight making you miss your connecting, travel insurance you see where Im going with this. Although there is no set percentage, well go with in most cases your tenants will respect your investment property, and ensure the rent is paid on time every time. Im sure youve realised now that the real estate industry is not always a fairy tale. If you havent experienced any issues, its just pure darn luck. It is always good to have a plan in place for the rare occasion when things do not go according to plan. The most common features of landlord insurance is to cover intentional damage to your property caused by the tenants or their visitors, cover the rent in events where the tenant does not pay, covering any theft, and also any applicable legal fees which you could incur if either you or your occupiers decide to take legal action over damage to the house. An example of this cost would be such as representation of your Property Manager attending to court, which can be an added expense above the normal management fee. Various policies will cover different eventualities, so it is wise to double check what is included in your cover for your own peace of mind.
I could go on all day about these importances however it would be better to outline some examples. A landlord has been extremely fortunate in having stable tenants for four years. No damage from any inspections, rent always paid in advance. He didnt need landlord insurance or so they thought. Unfortunately due to the fall in the resources industry the tenant lost their job. Also due to an extremely specialized skillset they were unable to secure another job quickly. The rent was $1,000 a week and after three weeks the tenants was unable to continue the rental payments. Following the legal procedures set within the lease, the PM followed the appropriate steps, issued a breach, and then issued a termination after this. During this time the tenant became annoyed with the Agent and caused malicious damage to the carpet. Approximately 25 days from the last payment the PM issued a court order in order to terminate the lease and claim rent from the tenant. Approximately 40 days from the initial breach the matter is taken to court in which the lease is terminated and the tenant is ordered to pay rent towards the owner(around 7 weeks would amount to $7,000). Hooray all sorted, not exactly. Throughout the court negotiations the court agreed that the tenant would only pay $4,000 and over a payment plan schedule. In this instance $3,000 of rent was lost, the owner had to cover mortgage costs whilst the property was vacant, had to pay for a new carpet, AND also had to cover costs of the PM representing them in court. IF the landlord has insurance then these cost would have been covered (depending on the policy) and the stress would have been reduced. For a few hundred dollars a year it is well worth it!
It should also be noted that some landlord insurances go beyond the main issues and also cover acts of nature such as Storm damage(including damage from lightning strike), Fire, Flood, and possible civil unrest and rioting. Good luck trying to have this repair covered by the tenant!
For more information on landlord policies call Rentwest Solutions on 9314 9888.