Owning rental property is a good way to generate income, but being a landlord isn’t always a walk in the park. Smart property owners know how to turn their rental units into profitable investments, but the cost of doing business as a property investor can be steep.
In addition to paying the mortgage, property taxes, and covering the cost of repairs, property owners also need to carry an extensive amount of insurance.
What insurance policies are landlords required to carry?
Landlords should carry insurance for anything they can be held liable for, legally or otherwise. For example: property damage, gas leaks, injuries from poorly constructed walkways, faulty wiring, and structural problems. All landlords should carry insurance policies that cover property damage and personal liability, but Florida landlords need a little more.
For Florida landlords, the risk of severe storm damage is a real threat. Storm damage to a home is expensive to repair and isn’t something landlords can ignore. Florida law gives tenants the right to demand repairs and withhold rent if those repairs aren’t made. Of course, to legally withhold rent for lack of repairs, tenants must request the repairs in a timely manner and wait a reasonable amount of time before withholding the rent.
To offset the cost of making repairs after storm damage, landlords generally carry several insurance policies. Since Florida is prone to hurricanes, basic homeowners insurance won’t cover damage caused by severe storms. To protect their properties, homeowners usually carry additional flood and windstorm insurance among other miscellaneous policies. These policies usually have flat-rate deductibles or take a percentage of a claim’s payout.
In Florida, however, insurance companies can charge special deductibles for hurricane damage under certain circumstances. The determining factor is listed in each policy, but as an example, a special hurricane deductible might kick in when a storm is named.
Potential for damage makes being a landlord expensive
At some point, if a homeowner takes out every possible insurance policy, the cost of the insurance policies would outweigh the cost of repairs. It’s not feasible for every landlord to have every insurance policy available. Landlords need to be selective once they’ve covered the basics.
Storms present a major damage potential, but tenants can do severe damage as well. For instance, landlords can incur unexpected costs that can be a huge headache. For example, a tenant might accidentally put a hole in the wall, break an appliance, or the roof might start leaking. Sometimes the damage isn’t the tenant’s fault, but that doesn’t make it any cheaper to fix. Unfortunately, some repairs get more expensive as time goes on, and in that case, the rising costs can be attributed to the tenant’s failure to report the issue.
Some repairs aren’t a big deal when they go unreported for a short period of time. For example, a hole in the wall isn’t going to get worse unless more physical damage is done. A leaky roof, however, can cause severe structural damage when left in disrepair for a period of time. If a tenant ignores a leaky roof, the damage can triple.
Landlords are at the mercy of their tenants to report water damage as fast as possible, but that doesn’t always happen. Fixing a leaky roof right away can cost significantly less than fixing a leaky roof that has been leaking for a month or more.
Being a landlord means trusting tenants to report damage
Landlords who don’t live in their units don’t always get a heads up about damage. Sometimes, by the time the tenant calls in the repair, the damage is severe and costly to repair. Unfortunately, there is no insurance policy that covers a homeowner when repairs are more expensive because their tenant waited to tell them about the damage in a timely manner. The landlord’s only recourse is to reprimand the tenant for waiting too long to report the issue.
Being a landlord is risky – is it worthwhile?
Being a landlord in Florida is risky, but for tens of thousands of property investors, the benefits outweigh the risks. As with any investment, risks are part of the game. Having the right insurance policies mitigates those risks. Being a landlord is worth the time, effort, and expense as long as you hold the insurance policies appropriate for your property’s location.