So You Thought Your Insurance Was Going to Cover Vandalism?
When I was in high school, the thought of breaking into a neighbor’s house and spray painting the walls, punching holes in the sheetrock, busting a water line, etc. never really entered my mind. Granted, I was just as mischievous as the next kid, but had enough sense about me to avoid conduct that could potentially land a felony on my criminal record. Nowadays, it’s not uncommon to see vandalism of rental properties on par with what I just described.
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Granted, most of the time, vandalism of real estate typically takes the form of stolen copper, appliances, HVAC, electrical wiring, etc. – basically anything that has value and can be scrapped for money. However, I’ve found that in about a quarter of the cases I’ve experienced, it’s been neighborhood kids just looking for trouble. And I can tell you from experience that nothing is more frustrating than $5,000 worth of damages incurred as a result of a few neighborhood kids getting out their pubescent frustrations on your property.
Doesn’t Insurance Cover Vanalism?
Actually, I can think of something even more frustrating than that – finding out your insurance doesn’t cover the damages caused by the vandalism. In almost all cases, vandalism occurs when the house is vacant. Most miscreants know better than to vandalize a property when there are tenants occupying the residence. The question most investors don’t know to ask their insurance provider is how their insurance coverage changes once the house has been vacant for a certain period of time.
In most cases, landlord policies do not cover investors for certain perils (including vandalism) once the property has been vacant for over 30 days (sometimes 60 days). As most investors know, it’s not uncommon for a property to sit unoccupied for 30 days or more … especially if a tenant recently moved out and the property needed to be prepped and put back on the market. Even if you are able to get a new lease signed quickly, the chances of the new occupant moving into the property within that 30 day window are probably thin. Most investors have no idea the potential exposure they may have when that policy goes outside the allowable vacancy window.
I can tell you from a recent experience that having a better handle on the vacancy window is now one of my top priorities. Not that we have a lot of problems with vandalism, but it only takes one bad experience to keep you honest. Luckily for us, the vandalism occurred just inside the allowable vacancy period, but it was very close. Fortunately, my insurance company just cut a fairly sizeable check to cover the damages, but I was only a few days away from eating a very large loss.
How To Ensure You Are Covered
So what’s the solution to this potential gap in your insurance? I think the two best options are to shop for a landlord policy that has a larger vacancy period (perhaps 60 days) or put a vacancy policy in place as soon as you are outside your allowable window. Yes, they are expensive, but hopefully you will not have to have the coverage for very long. Luckily, most all insurance companies will let you pay monthly or quarterly AND will refund any unused premium.
That said, every investment is different and every investor has a different risk threshold. Maybe you feel good about an area and don’t sense a need to spend a few extra dollars on a vacancy policy. However, it does make sense to at least ask the questions and understand what your insurance policy does and does not cover. The last thing an investor wants to hear from an insurance adjuster is a denial of coverage for something you thought you were protected against.