Landlords Make Sure You C.Y.A.

You don’t have to be a landlord to know what C.Y.A. stands for. “Cover Your A --” is the acronym’s long form and you can be sure that politicians, lawyers and bankers everywhere know what it means, landlords must, too. If you are an experienced real estate investor, you already know this. If you are a beginner, or someone who has become an “accidental” landlord because you’re renting what used to be your primary residence, then it’s best to learn how to CYA by reading about it, rather than from experience.

Last month this issue became paramount for us. My first home, a small 2 bedroom townhome in Manayunk, which has been a rental for 5 years, caught fire. Thankfully nobody was hurt. However, the house suffered not only from the fire & smoke damage, but the water damage, the breaking of windows and doors have all taken a toll. Thankfully we took the time to make sure we had the right insurance coverage so we could C.Y.A ourselves in this situation. It’s an issue I discuss with all investors especially the “accidental” landlords.

Not all insurance is the same and it is important to review your needs with an insurance agent who understands rental properties. Sure there’s the cost of rehabbing the house, but what about the loss of income over the months the house sits vacant? Thankfully there is coverage for that.

Another factor of C.Y.A. is knowing when to ask for help. I know a lot about investment properties, love running the numbers, and figuring out the potential R.O.I. What I don’t know anything about is how insurance companies handle claims. Thankfully there are Public Adjusters who deal with this on a daily basis. If you don’t know what you’re doing find someone who does. We met with a Public Adjuster to see what they could do for us and I’m glad we did. They explained that fire & smoke causes more damage than you see. It’s not just about cleaning up, but making sure there’s no hidden damage that can rear its ugly head after you have settled your claim. One example they gave was that the walls can be washed with chemicals and then be ready to paint, but another concern is whether the insulation been effected by the smoke. They told me a story about a house that had been cleaned up after a fire, but months later when the owners turned on the heat the house wreaked of smoke. After the owners had already settled their claim and spent all of the money to rehab the house they found out they missed a crucial issue and the only way to fix it was to tear down the walls and insulation, then start over. What a nightmare! I’m glad there are companies out there that specialize in this so they can take the weight off our shoulders.

Another C.Y.A. technique which covers more than insurance claims is how your lease is written. Make sure you know who is responsible for what and that it is spelled out in your lease. In Philadelphia they give out fines if your trash cans are left out too long, or if there’s too much debris on the sidewalk. It would be a shame to lose money each month because your tenants aren’t adhering to the rules. Make sure you spell it out in the lease. Who’s responsible for mowing the lawn, shoveling the sidewalk, pests, minor repairs etc. Make sure you think it through so you know what you are agreeing to. This comes back to the fire issue again with who is responsible for the tenant’s possessions. I don’t want to guess how much coverage they need so make sure it’s written in the lease that they are responsible for their items and must have renter’s insurance.

There’s a lot to think about when becoming a landlord and you must protect yourself. It’s an issue I could go on and on about, but have run out of room. If you have questions about protecting yourself through LLC’s, or anything regarding rental properties don’t hesitate to ask.