My firm has always encouraged tenants to have renters insurance. However, we've just changed our policy and are now requiring renters to obtain renter's insurance.
Why?
We represent owners and our job is to protect our owners and their properties as much as possible. In talking to my insurance agent regarding one of my own rental properties, she mentioned that most renter's policies come with a small amount of personal liability coverage. This means that if my tenant's dog nips somebody and that person decides to get litigious about it, the tenant's liability insurance is first in line for any claims. (Not to say a landlord is automatically liable for the behavior of a tenant's dog... but it is feasible that the injured party would go after the property owner...) I don't know any property owner who wouldn't like to have an extra little buffer between a lawsuit and their assests!
Also, it really is beneficial to our tenants. If the property is damaged in any way or burglarized, the landlord's policy wouldn't cover their belongings. The renter's policy usually covers their stuff no matter where it is-- so if their laptop is stolen at the cafe, their policy would probably cover it.
Luckily, on the leases we use there is a checkbox for whether or not renter's insurance is required, so it's not really that big of a deal for us to make this policy change. I don't know how or if we would ever enforce this requirement, but I'm proud of my firm for wanting to do more to protect our owners and tenants.
ps- Renter's insurance is CHEAP! It's usually less than $100 or can even be free when you factor in the multi-policy discount more insurers will give a policyholder with another policy such as auto.
This is the third in a series of blogs pertaining to the special considerations of renting new construction units.
Is there a code that requires me to install window coverings for a tenant?
In many urban areas, this is included in Landlord/Tenant code, but not in Seattle. However, you have to ask yourself if you'd rather be the one to put holes in the walls or trim or would you rather the tenant perform his own handywork? Also, if you plan on putting the house- or any adjacent units- on the market before the end of the tenancy, do you want to be in control of the exterior appearance? It's absolutely possible someone will want to use a Union Jack flag as a curtain. (Obviously, if there is a requirement for neutral window coverings already written into a community's CC&Rs then you're covered... but all of the SFHs and townhouses I've seen lately in Seattle don't have HOAs.)
Do I have to install a washer/dryer?
Nope. However, your place will rent much faster with a washer and dryer already installed. And again, do you really want a tenant doing a bad washer install and ending up with water soaking through the sub-floor? Here's a good idea: Get your property manager to find some decent units on craigslist for a couple hundred dollars and have them installed by someone you trust to do it right! Write up an addendum to the lease that says that the w/d are provided for convenience only and tenant use is at their own "risk"- as in, "We'll remove it if you want us to, but if it breaks during your tenancy, we're not fixing or replacing it."
Who does the landscaping?
The leases we use state that it is the tenant's responsibility to maintain the yard in "good" condition. It goes on to say that the landlord can, at the tenant's expense, hire a service if the tenant fails to do so. However, a tenant's idea of "good" and an owner's could vary greatly. We recommend that with new construction, properties that will be marketed for sale during tenancy and properties with specialty landscaping, the owners provide a service as part of the rent. Most property management firms have great relationships with vendors such as landscapers and can obtain services at a very reasonable rate.
I was just thinking about my new contruction rentals blog series and realized I didn't start at the beginning... which is a very good place to start!
I've been working with a lot of builders and builder's agents lately to deal with some of the inventory that is getting a bit stale. A lot of builders are finding themselves in the Accidental Landlord position and it's certainly not at all the worst place for a builder to be... and not just because the rental market is a better place than the courthouse steps! I think right now seeing a builder who puts their inventory on the rental market shows that they solvent enough to weather negative cash flow for a bit (cash flow being operative words here- some cash flow is better than no cash flow!). It also shows that the builder either has a solid relationship with their bank to convince them to convert their construction loans into something more permanent or waive restrictions in the existing loans on leasing properties. Even better yet, I am in negotiations with a builder to manage a portion of his townhouse community that have been on 30-year fixed loans from the beginning! Holy foresight, Batman!
It's funny; I've yet to meet a builder who wants to be a landlord. Even the builders I work with who are just finishing up rental projects don't want to run the day-to-day operations of being a landlord. All builders want to do is build! Hmmm...
So, this blog series is my attempt to get some pertinent information out to people who want (need?) to think about the considerations that go along with new contruction rentals!
Thoughts?? Leave a comment... sheesh.
BusinessWeek just came out this article about falling apartment rental rates and particularly poor performance amongst luxury units. My recent post on February's Rental Market Trends didn't address "apartment" units in terms of the large apartment communities we see in urban areas because my firm tends to manage SFHs, condos and buildings with 9 units or less. Safe to say that the condo rental market will follow along with the apartment market. But the BusinessWeek article does bolster what I'm seeing across the board in terms of luxury rentals. It also lists Seattle amongst the top 25 metro areas with the biggest rental rate drops... we're number 5, to be exact.
I'm continuing to have daily meetings with SFH owners who feel like the price opinions I'm giving them are a little on the low side. I'm always willing to start a house on the high side, but if I'm hearing crickets or getting negative price feedback from potential tenants within 7-10 days, that's a clear indication we're too high. I still think the SFH rental market in Seattle has the potential to jump back up in the summer as it usually does... although in this market, predictions are dicey at best. We have to stay on top of this thing on a week-by-week basis.
What are you seeing???
What should we be thinking about with new construction on the rental market? Of course, it all depends on the end game. My brother and his wife are looking to gobble up some new construction SFHs at about $100k a piece that are wilting on the sales market in suburban Houston. (Sigh, the Seattle construction cost index cannot conceive of building even a small garden shed for $100k...) They want to buy and hold, so their considerations are far different than the builder who wants to wait out "today's market challenges" (my go-to euphemism) for a year or two and then sell.
For the purposes of this first blog in my New Construction Rentals series, I'll focus on actual questions I've fielded from builders recently, in no particular order:
Should I really rent this out? I won't be able to sell it as "new" next year!
To be honest, I am thinking that the townhouses completed in 2008 and 2009 will still be the "new" townhouses in 2010 and 2011. Why? Well, I'm just not seeing a lot of ground-breaking out there for new developments... as in, there won't be too many vintage 2010 units with which to compete!
I always ask builders (and Accidental Landlords), "Would you rather hemorrhage or bleed slowly?" It was a question I had to ask myself last summer when I was trying to sell a house I'd just finished remodeling. Did I want to immediately lose at least $60k or did I want to rent it out and lose about $500 a month? The choice was clear... it would take about 10 years of losing $500 a month to equal out the immediate $60k loss- which is to say nothing about the tax implications of carrying a rental during that same time frame!
How can I keep it looking new?
Across the board, there's no better defense than CAREFUL TENANT SCREENING. Of course, you have to stay within Fair Housing Act guidelines, but performing thorough tenant screening is paramount. The better the tenant, the better condition they will leave the unit!
Aside from that, you'll want to work with a property manager or other professional to anticipate where the most wear and tear occurs. Number one on this list is carpet and flooring, of course. For one builder, I found some inexpensive but handsome padded benches to put near the main entrance and emphasized with potential tenants that the owner would appreciate that shoes not be worn in the house. Although there's no way to monitor it, this idea is among several tricks and incentives you can use to get tenants to comply. (For my money, there is no worse flooring solution for a rental than carpet... but more on that later.)
Walls and appliances are next on the "Most Likely to Sustain Wear and Tear" list. Walls are easily patched and painted. However, today's stainless trend brings challenges to rentals because few renters know how to properly clean stainless. In my own kitchen, my dishwasher has swirl scratches in the stainless veneer where my well-meaning housekeeper tried to give it a good scrub. I now have a "Care and Feeding of Your Stainless Appliances" handout that I give to tenants along with a bottle of the best cleaning fluid available.
Tomorrow, we'll tackle a few other new construction questions.
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