Tenants Damage, who pays? Insurance, Security Deposit or Landlord?
I was just asked by one of my Investor Clients about this issue. Here is the short of it:
Security Deposits are designed to pay for things the Tenant has broken during their stay and normal wear and tear. You conduct a Move-In and Move-Out and note the discrepancies. These discrepancies are to be fixed and paid out of the Security Deposit. Set the expectations with the Tenant upfront that your intention is to give 100% of the Security Deposit back upon completion. Remember, you want to make a friend of your Tenant. Always attempt to keep the relationship cordial.
The Lease itself is designed to have financial penalties for certain behaviors (p.s. My Lease is 24 pages long just for this). Just ask and I will send you a copy.
Insurance is designed to pay for accidental items. Like a kitchen fire, like the hot water heater burst, etc.
Insurance loves to exclude things, right? What would be considered excluded from your Policy if a Tenant damages the unit? The answer is INTENTIONAL Tenant damage and normal wear and tear. A carpet will naturally get a rut in it over time, that’s wear and tear. If your Tenant pours cement down your drains, that’s INTENTIONAL and NOT COVERED!
A Court Judgment will be expensive to pursue and you are basically attempting to squeeze blood out of a turnup. It’s just not going to happen. A Judgement is a piece of paper and is generally worthless if the Defendant doesn’t have any money. One Strategy could be to get the judgment and re-affirm it every 5 years. In AZ where I live, it will grow at 10% per year. Then in 20 years down the line, you hope these people have a career, a car, a boat or some asset that the Court can take for you to pay off your re-affirmed judgment. It’s a long-term play that may never pay off.
Insurance Products that can help: Renters insurance for contents, with you as an additional insured. Rent Replacement Insurance, should damage take a long time to repair or in the event of a disaster. Tenant Protection Plan for Tenant caused losses and skipping last months rent coverage. Ask your Insurance Agent about all the Tenant related products. If you need a referral, give me a call. See us at www.5kflatfeelisting.com for more information. Look forward to working with you.
Buyers get: Sellers get:
FREE Home Inspection 5k Flat Fee Listing
FREE Termite Inspection FREE Home Inspection
FREE Home Warranty FREE Termite Inspection
Best,
Geoff Nowlin, Phoenix Realtor
480-466-3737
nowlin.geoff@gmail.com
