Renting to a tenant with insurance claim

General Landlording & Rental Properties
5yFollow

Renting to a tenant with insurance claim

Peggy Lindsay
Truckee, CA · Member since 2017 · 5 posts · 2 votes

Hello BP Community,

I am new to being a landlord and would like your feedback on a prospective tenant.

This person lost their home and wife in a tragic single home house fire in June 2020. His insurance company is placing him in housing for 15 months and will cover all his housing costs. This person is living off SS and does not have 3x income to cover the rent. He had a clean credit and background check, although he didn't actually have much credit, but his score was 700+. The insurance company will do a 6 month lease and then month to month up to 15 months total. The tenant said if his new home was not ready he would move out.  Haha, that's the clincher, right? I will say he is a very nice person, had an engineering job for 30 years and presented clean and responsible.

Question - has anyone ever rented to a person in crisis like this where the insurance company pays the housing expenses? Is it reasonable to plan  at about 10 months time if his home is not ready that we give 30 days notice with the worst case scenario that we will have to evict him (but rent will be covered for 15 months regardless if he is there) 

Yes, complicated. The insurance company is legit, Aegis Insurance. All monies paid up front -1st, last, security deposit and $400/mo for utilities.

What are the pitfalls? 

Thank you in advance,

Peggy

0Reply
33 views

4 Replies

Jump to latestLatest
  • Kyle J.
    Rental Property Investor · Northern, CA · Member since 2012 · 5k+ posts · 5k+ votes
    5y

    @Peggy Lindsay  I actually had this come up on one of my last vacancies.  An insurance company called me in response to my ad and asked if I'd consider renting short term to a client of theirs who also had their home damaged in a fire.  They actually offered me significantly more monthly rent than I had it advertised for (I guess as an incentive because they were thinking they'd only need to live there for about 3 months). 

    I declined because I'm only looking for tenants who will stay long-term.  Vacancy and turnover are the cash-flow killers in the rental business.  I do a one year lease initially, but honestly if I don't think there's a chance they'll stay at least 3 years, I'm not super interested in renting to them (on average my tenants end up staying 5-7 years). 

    As for potential pitfalls, I guess the big one would be that this guy would end up refusing to leave and the insurance company would stop paying at some point.  You already said he wouldn't qualify to rent the place if the insurance company wasn't paying, so then you'd have someone staying there that couldn't pay and you'd be forced to do a long drawn out eviction (assuming evictions have resumed by then and no additional moratoriums had been put in effect). 

    Who knows if that would actually happen, but to me I don't know why you'd even bother taking the risk for a possible 6-15 month lease unless the insurance company is offering you substantially over market rent like they did with me.  Otherwise, like I said, I'd look for a longer term tenant because vacancy and turnover are the cash-flow killers in this business.

    0Reply
  • Brit F.
    Rental Property Investor · DFW · Member since 2017 · 143 posts · 120 votes
    5y

    @Peggy Lindsay, Yes, we just had tenants move out whose home was destroyed by the tornadoes in DFW exactly one year ago.  Tenants' house had to be completely rebuilt.  From our perspective, it worked out great. Insurance offered an initial 6-mo lease.  Similar to the post above, we were able to get above-market rent.  We were fairly certain it would take 9-12 mo's to rebuild their house, and that's exactly how it played out.

    From the tenants' perspective, it turned sour b/c insurance stopped paying after 11 mo's even though their new house wasn't ready.  The tenants would have happily paid to extend the lease, but the insurance company stopped paying for furniture rental too.  Tenants moved to a hotel.  We checked in later with them, and the insurance company ended up paying for the hotel until the new house was ready a few weeks later.

    We would definitely do business w/insurance co again.

    0Reply
  • JD MartinBusiness Member
    Moderator
    Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 16k+ votes
    5y

    Personally, I am not a big fan of third party payers (Section 8, insurance companies, etc) but it is a niche plenty of people occupy successfully. I want (hopefully) long-term tenants with their own skin in the game. I would be unlikely to rent to someone on a 1 year lease who told me up front they were leaving at the end of the lease unless I was getting a market premium or was desperate to close a vacancy. 

    Podcast Guest on Show #243
    Skyline Properties
    View Page
    0Reply
  • Peggy Lindsay
    OP
    Truckee, CA · Member since 2017 · 5 posts · 2 votes
    5y

    Thank you, Kyle J, Brit F and JD Martin for your insights. I really appreciate you sharing your expertise and thoughts. I posted an update on my original post. 

    0Reply
Join the conversationCreate a free account to reply, vote on answers and follow this thread.
Log InJoin for Free