How Can I Guarantee My Rent?

January 22, 2019 - Aaron DiCaprio

Question: What do Santa Claus, the Easter Bunny and the Perfect Tenant all have in common?  Answer: They’re all figments of your imagination!

While we all like to think that we have the perfect tenant, the harsh reality is that they just don’t exist.  You can screen them, check their credit score, get their pay stub, talk to references and lo and behold you eventually find yourself up the proverbial creek without a paddle.  Another default.  More lost rent.  More headaches.  And then you ask yourself if having an investment property is even worth the hassle.

Jean-Marie’s Story:  

Like the rest of our tenants, Evelyn came with great references and checked off all the boxes.  She had two children and seemed happy to be in a home instead of an apartment.

Everything was good at first.  Evelyn got along very well with the elderly neighbor.  She paid the rent on time. There were no issues. Until that first phone call.

One day we received a call that Evelyn was selling drugs out of the house and was a prostitute.  We had no evidence of that and advised the caller to notify the police and deal with it that way.  

The caller didn’t. Instead, she kept calling us, over and over and over.  We repeatedly asked her to call the police if that was the case.

The rent money over time turned from a money order to sweaty $20 bills.  We started to question what was going on. 

When we went to inspect the property, we learned Evelyn’s mentally ill son was living in the basement.  The basement, by the way, isn’t habitable and was meant for storage and washing machines only.

We told Evelyn that was unacceptable, but she didn’t listen to us.  We also heard a dog when we were there and reminded her of our “no pet policy”.

We received reports of people coming and going constantly – this wasn’t a good situation.  Then we went over to do a repair in the kitchen and saw cockroaches EVERYWHERE. We immediately called in an exterminator.  It was disgusting!

I told Evelyn to get out right then and there. We served her with a 30 day notice, but still had to go to court to get the property back.  Once we did, it was a mess.

The dog “she didn’t have” had destroyed the back stairway. It smelled of urine and feces and had to be gutted.  

The kitchen was missing cabinet drawers and the doors had to be scraped for grease.  The carpets were destroyed and had to be replaced.

There were holes in the wall from someone putting their fists into them.  The screen door in the front was just gone. Our garage door no longer closed.  

Mold engulfed both bathrooms. The shower stall had to be pulled and replaced because it couldn’t be cleaned.

Worst of all, Evelyn’s son refused to leave. Turns out he had been burglarizing the neighborhood.  We had evicted her while he was in jail.

When he got out, Evelyn apparently didn’t tell him she was gone.  We went over there one day to find him in the basement (he broke the lock to get in).  We had to call the police to get him out.

Another time, I went over alone.  I went into the garage and he was there – just sitting there – with a knife.  I slowly backed away telling him I forgot something in my car. I ran as fast as I could while calling the police.

By the time the police got there, Evelyn’s son was gone.  Haven’t seen him since. We have a new tenant in there, but I’m always worried he’ll come back.

To make matters worse, Evelyn left a HEAP of trash and belongings at the curb.  I called her to tell her to get her stuff out of there, and she claimed she called the City for a pick up, so it wouldn’t be a problem.  It was.

Evelyn never made that call and we were fined $400 for an extra pick up.  We were unable to recover that cost, or the last month’s rent, or the cost (thousands of dollars!) of the multiple repairs we had to do.  

We lost approximately $4,500 in unpaid rent and vacancy while we made repairs.  All in all, Evelyn was the WORST TENANT EVER!

Wow!  Anyone care to try and top that?!

How can landlords protect their rental income when a situation like Jean-Marie’s arises?

One way to prevent your wallet from taking a hit is to buy rent default insurance.  Rent default insurance has been widely available abroad in the United Kingdom and Australia for decades though it’s never really caught on here in the United States until now.  Prior to insuring this exposure, rent default had gone largely ignored by the insurance industry.  Instead, landlords relied on a combination of security deposits and tenant screening to protect their income. Now, landlords here in the US finally have a solution to this headache.

Depending on the situation, a typical rent default insurance policy will reimburse a landlord anywhere from 3 – 6 months of lost rental income when a tenant defaults on their lease.  

Abandonment and eviction are almost always covered.  And some policies will cover a landlord’s reasonable legal expenses – and we all know how those costs can add up when trying to evict a tenant.

Surprisingly, the coverage is affordable with monthly premium around $25 per unit which can often be passed along to the tenant or taken as a tax deduction (consult your accountant or tax attorney before going down this road).

The most important benefit rent default insurance provides: PEACE OF MIND!  

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