intentional damage caused by tenants, DEFENSE?

Question

HI dear all,

I just close my first SFH rental deal in C+ neighborhood. While working to set insurance, I've noticed the insurance company DOES NOT cover intentional damage caused by tenants. They said that maybe some company can cover it for a very expensive fee (above 120$ per month).

- As a beginner in RE, I am wondering, how do you PROTECT yourself from such a scenario?

I understand that a good screening process can make a huge difference.

1. How involved can I be in the screening process? and what should I must verify in it?

2. I've heard about "keys for cash" concept, which basically means reward the tenant with 500$-1000$ (I should get 900$ rent), if he didn't ruin the house, when the lease ends. What do you think about that? Does anyone do it?

Thank you very very much for your help!!!

James Wise · Answer

As a landlord the only time you should every really consider filing a claim is with a total loss on a fire policy. You will get dropped or at the very least have your rates jacked up so high if you are filing $10,000 claims here & there. As a rule of thumb think fire = claim. Everything else = I pay.

Julie Prewitt · Answer

Just a few additional thoughts - Run a background check that includes credit history and criminal background. In order to do this, you’ll need your application to include a statement authorizing you to pull a potential tenant’s credit reports and conduct any inquiries necessary to verify the accuracy of the information they submitted. When pulling the credit score, check that the addresses listed match those on the application. And if there are multiple addresses within the last 5 years, this could be a red flag. When considering an applicant’s income, they should bring home at least three times (preferably four times) more than their monthly rent.

Nancy P. · Answer

Screening matters,  as you have said before.  Verify employment and income.  See if they've been evicted before, that's a no-go for us.  I don't call old landlords because they will lie to get rid of a bad tenant.

Extra security deposit if they are iffy on credit or income.  Use a good service like Cozy.

Cash for keys is to get out a tenant who otherwise could be evicted,  to save you time and court costs and HOPEFULLY prevent intentional damage.  I have never offered more than 1/3 months rent plus all deposit back.  And they have never been given more than ten days to move out.    In one case dog had destroyed the carpet but it was Fannie Mae rehab crap anyway,  we just ate the cost of a new carpet.  (Fannie Mae didn't even put PADDING underneath the cheap carpet.  It was awful.)  In other cases I ate $100-$300 in damages.  The reward for normal tenants not trashing the place is they get their deposit back.

ALL tenants,  no matter how they paid me,  get the deposit back as a check.  They MUST give me the forwarding address,  and I call and make sure they still work at the same place.  (Lease also says they must inform me of employment changes.).  That way,  if I DO need to pursue to sue them,  I have an address and workplace to start from.  But have never done it in nine years of REI.

Com M. · Answer

@James Wise saved me the time of typing it up  =)    You can claim this but it will cost you the same amount out of pocket this and next year in premiums if not worse.

Steve K. · Answer

@Idan Narotzki Careful screening, strong lease (and strong enforcement of it), diligent move-in/move out checklist (so they know you’re paying attention), large security deposit (I ask for double 1 month rent amount which in my area means $3-5k), avoid Class C-/D, find a good collections agency that will work on contingency basis, make your units as tenant-proof as possible with inexpensive yet durable materials, hold plenty in reserve funds, set proper expectations, communicate well but firmly and treat tenants fairly and professionally, and be willing to clean up a mess and fix things occasionally rather than pay a company thousands to do it for you. I haven’t actually found that tenants cause a lot of damage intentionally though. Even with a few gnarly evictions of crazy inherited tenants under my belt the worst I’ve had was old furniture left, dog turds and cigarette butts on the carpet and human turds un-flushed in the toilet (no upper-deckers yet thankfully). Usually I can clean and fix everything in a day or two and would have replaced any of the broken stuff anyway so I’m happy to take it out of the security deposit instead since they broke it for me. It does say in my lease that I will take tenants to collections, garnish their wages, and file criminal vandalism charges if they cause intentional damage, but I know in reality law enforcement is unlikely to actually do anything and garnishing their wages would require a judgement. They may not know I’m mostly bluffing. I have successfully collected on ex-tenants using a collection agency that works on a contingency basis and keeps 20% but that was for a host of lease violation and late fees I had racked up on them which they refused to pay, not physical damage they had caused to the unit. Also being a reasonable person and treating tenants fairly is the best deterrent, but that said there are some crazies out there and sometimes you have a good tenant who comes on hard times and turns crazy on you, falls off the wagon or their ex gets out of jail and moves in, or they are inherited tenants to begin with etc. so it is somewhat par for the course to have some damage, just not as much in bad faith as you might fear at least in my experience. I’ve never personally heard of concrete bags down the sewer line or chocolate sauce in the air vents level sabotage before but I’m sure it’s happened. Good luck!

Nancy P. · Answer

We do self manage but two years ago moved to Germany for W-2 job.  Son manages with lots of input from me.  For tax reasons we want to be "active" investors.

James Wise · Answer

Another factor to consider is that you actually get a discount on your property insurance when you use a licensed property management company.

Bob B. · Answer

On top of normal credit screening, I usually only rent to tenants where I feel I could collect a judgment if needed to.  The few times I've had a problem I've been successful.

Idan Narotzki · Answer

@Com M.

What do you mean by premious?

Idan Narotzki · Answer

@Nancy P.

Thank you very much. Did everything you said apply when using PM, is it possible to do those checks?

(From your comment, it sounds that you manage the houses)

intentional damage caused by tenants, DEFENSE?

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