THINKING ABOUT BECOMING A LANDLORD?
THINGS THAT HELP
Being a landlord is not exactly "Passive Income". You'll be shouldering the costs of:
How HANDY are you?
If the answer is NOT AT ALL, refer back to the last heading 'MONEY.'
Minor plumbing, electrical, yard maintenance etc is a certainty so if you're able to fix things or know someone willing to fix things for low cost, that will help.
Also using a reputable home inspector helps you dodge homes that are littered with future issues. Don't skimp on that.
There's the house-hunting itself.
The meetings with lawyers, bankers and insurance brokers.
The initial furnishing/renovating if needed.
Posting and interviewing tenants and/or property managers.
The checking in on the property and stick-handling of tenant wants/needs.
Oh and there's that other house you live at.
Did you plan to keep up on that one too?
Figure out what you want your lifestyle to look like and how much time you'll really have to dedicate to this venture. It can be a challenging part-time gig.
AN INSURANCE PERSPECTIVE
When insurance companies consider 'Rental Properties' they often label these types of risks as "RESIDENTIAL REALTY".
Realty is a big part of Atlantic Canada's economy but from a profitability perspective, it's not been a great performing category of insurance. Increased claim costs from things like water damage, and slip and falls have insurers shying away from these types of risks, and wanting A LOT more premium for the ones that they have.
MINIMIZING RISK & COSTS
Consider starting small
Companies are more likely to take you on if you can attach your new rental property to your Homeowner's Insurance policy. If you only have one you're more likely to pay closer attention to it, and it's still a PERSONAL INSURANCE risk. This will give you a feel for life as a Landlord as well and help you figure out true costs and lifestyle trade offs. If you like it, then maybe start that corporation/holding company.
Live close by
Some insurers have rules around how far you can live from a secondary property for them to take it on. That may be a distance of 50-100kms, while others may charge more as the distance increases or not take it at all.
Clients who own rentals in other provinces are some of the more challenging ones to place since so much of the investment rides on the tenant or a designated Property Management Company. Coverage offered can be quite limited, so don't assume anything on these...have a broker review the wording.
Require tenant insurance
If the building and my stuff is covered under my own policy, why should I care about their coverage?
Answer: It provides you and often your insurance company the ability to collect from someone.
There's plenty of reasons to require this, but I'll give you two that I think are most important with today's state of insurance.
1) The tenant policy may pay costs that the tenant is liable for, that ARE NOT covered under your building policy.
You have a $10,000 water damage deductible and a tenant overflowed a sink causing $8,000 in damages. Your building policy will not respond to the incident since the loss is UNDER YOUR DEDUCTIBLE...thus YOUR problem, not theirs.
Good luck getting a tenant to pay out of pocket for that...BUT since you did your homework and CONFIRMED they had insurance (which should be on file with your broker) you may have access to some help!
2.) It keeps your account looking good...specifically having "professional operations" and "reasonable loss ratio".
In today's market insurers need convincing your rental properties are a good idea to cover at all. Having tenants who actually have in-force insurance means you're doing a good job of rental management which reflects positively on your risk profile.
Is the difference between the premiums you pay and what an insurer pays out in claims. Example: You pay $5,000 in premiums in a year, and the insurer paid $20,000 in claims. Your LOSS RATIO (400%) is awful and at renewal you'll be either a big increase in premiums or a cancellation.
Having a loss that YOUR INSURER can "subrogate" or "collect" from the TENANT'S INSURER helps reduce that ratio. This is especially helpful on large losses.
BE ACTIVE IN MANAGEMENT
If you're renting multiple properties you should be in the game of transferring risk and a good broker can help you with this.
We can proactively identify areas of potential friction BEFORE they happen like improving lease agreements...providing snow/ice removal best practices etc.
Owners need to understand the value in this activity and take an active role in risk prevention to get the benefits.
Seldom is anyone interested in Risk Management until AFTER they have a problem and in this business that is often too late.
We're talking about vehicle damage claims here, NOT auto accidents that involve serious injuries.
Think of it as a HOW TO on navigating the aftermath of an auto collision and what info is important to collect.
The more you know the more likely it'll go smoothly.
1. IF POSSIBLE....PULL OVER. (no, its a cardigan but thanks for noticing)
If nobody is hurt, move your cars out of the road. Use your smart phone to take a couple photos of the position of the vehicles and pull them out of the middle of the road. It's super dangerous to make others avoid you, and that'll be the first thing the police suggest.
2. KEEP IT TOGETHER.
Even if you're FURIOUS at the other driver...escalating things with someone you don't know is a terrible idea. There is no circumstance where this will help you, and MANY circumstances where it makes things MUCH worse.
Both of you are inconvenienced and you're now in it together...so don't play the blame game. Just get what the info you need and get out of there.
3. USE YOUR PHONE.
Snap a few photos instead of handwriting everything on an old Wendy's bag from your car floor. You'd be surprised how often people write down the wrong policy number/details when they're in this situation. Preserve the data with actual photos of the originals...PLUS it's much quicker.
The below will give you everything you need:
4. CAN YOU GET A WITNESS?
90% of the time this 'witness' will not be required...but in that 10% of the time when you need them, WOW can they be a difference maker.
A couple points on how Physical Damage claims work:
1. Adjusters determine who is 'at fault' in an accident, usually by taking 'statements' from each driver. (Basically asking them both what happened.)
2. If both drivers have 'conflicting statements' this can lead to a dispute about who is really at fault.
3. Passengers inside vehicles involved DO NOT COUNT AS WITNESSES, so having a stranger who saw it all happen can be a tie-breaker.
Often the 'at fault' party feels bad and willingly provides the factual details of what happened....but NOT ALWAYS.
Allow me to paint a picture.
Driver 1 is sitting in his car inside a parking stall at the local grocery store sending text messages because people do that.
Driver 2 is navigating the parking lot in search of a parking spot so they can go inside and buy a truckload of Chicago Mix Popcorn because it's delicious.
Driver 1 is done sending their texts and is ready to finally leave. They cut the wheel and back out of their spot and bump right into the front of Driver 2's vehicle.
Damage Overview: Driver 1's back bumper and Driver 2's front bumper.
Driver 2's LOSES THEIR MIND on Driver 1 because they've not read this blog post about 'KEEPING IT TOGETHER' and the inevitable delay on the Chicago Mix is setting in.
Driver 1 has gone from feeling bad, to wanting to do it again. After they exchange information and leave, they decide their recollection of the events was that they pulled out, and started driving away when Driver 2 RAN INTO HIM.
The damages support both versions of events and without an independent witness, or video proof....it could end up with both drivers being held 50% at fault.
Fictional story, but totally possible.
MORAL OF THE STORY?
FIND A WITNESS IF YOU'RE IN AN ACCIDENT.
OFFER TO BE A WITNESS IF YOU SEE AN ACCIDENT.
What if Driver 2 were alert enough to find someone else who saw it all happen?
Grab their info, and go get that Chicago Mix so the trip wasn't a total waste.
Property Claims are on the rise.