Hiring a Real Estate Agent to Manage Your Properties
Even though an agent may be perfectly qualified to sell you a home, they certainly do not specialize in property management. Many agents are unaware of the specific legal policies that could cost you thousands of dollars when a problem arises. Many agents do not have the systems, infrastructure or the team in place to successfully manage your property.
Hiring Companies That Only do Leasing and Not Management
Companies who only do leasing have no incentive to lease to the best candidate. The incentive is for them to lease to the first person that walks through the door. Without managing the property, there is no recourse if the tenant they leased to is not behaving appropriately. The bad tenant becomes your problem.
WHAT WILL MY PROPERTY RENT FOR?
Not Having the Proper Insurance
Considering the cost of insurance, many investors purchase the minimum amount to save a few bucks. The truth is, proper insurance can save hundreds even thousands of dollars. This is a classic case of penny-wise, pound-foolish. It is crucial that you understand the different options available to you to mitigate coverage holes. Investment insurance is much more complex than your typical home owner insurance. It is imperative you discuss your insurance options with a Texas licensed insurance professional that understands property investment. Empire has partnered with Benchmark Insurance to provide very competitive property and liability insurance for properties under our management. Please contact Jivar Foty at (832) 640-2478 or firstname.lastname@example.org to obtain information and request a quote.
List of Essential Coverage
- Property Manager listed as Additional Insured
Did you know that the TEXAS ASSOCIATION OF REALTORS® management agreement requires you to list your property manager as an additional insured? If you do not have this protection, you are violating the contractual agreement between you and your property management company. This protection is provided for FREE with many reputable insurance carriers.
- 100% Replacement Cost
Minimum coverage of $70-$85 per square foot in Texas is recommended in order to ensure your property is completely rebuilt in the event of total loss.
- Landlord Liability Protection (AKA General Liability)</strong
Many basic policies only cover up to $100,000 of liability per property. This may barely cover legal fees, let alone actual damage. Coverage of at least $300,000 is recommended.
- Accidental and Sudden Discharge of Water or Steam
Coverage for pipe bursts and other common plumbing issues are typically not covered by your basic policy. The most common issue is the toilet supply line bursts and no one is home for a couple of days. This causes massive amounts of damage and is not covered on a normal policy.
- Dwelling VS. Homeowners Policy
If you have a homeowner’s policy on your investment property you need to switch it to dwelling policy. Your current policy has a provision that excludes coverage if you are not occupying the home.
- Vacancy Clause
Most dwelling policies exclude coverage for any property left vacant for 30 days or longer. If there is a claim on the home and the insurance company finds out it was vacant for 30 days, they will not pay out on the claim unless this clause is in the policy.
- Vandalism and Mischievous Misfit (VMM)
Most dwelling policies exclude this coverage. If the property is vandalized by your resident, this clause will pay out.
- Loss of Rents
If your property is significantly damaged due to a covered claim, your tenant will move out and not pay rent. This clause pays you rent while the home is being repaired.
Not Updating Your Mailing Address With the Home Owners Association
A common, but costly mistake that investors make is failing to update their mailing address with the Home Owners Association (HOA).
If your investment property is in a HOA you MUST contact them to ensure they have your current mailing address and phone number. HOA’s can charge large fines if HOA fees are not paid, are late, or if HOA violations go unanswered. There have been instances where HOA’s have foreclosed on properties where the owner did not pay dues or cure a violation of their property simply because the HOA was uninformed of the owner’s current mailing address.
Being Friends With Your Residents (on Facebook)
Do be courteous to your residents. Do not become friends with your residents. Landlords who become friends with their residents tend to give them preferential treatment. Rent is late and late fees aren’t charged, or the eviction isn’t filed when it is supposed to. This is a potential lawsuit. If other residents find out you are not treating them the same you will be looking at a fair housing lawsuit.
Not Charging Fair Rents
Vacancy is your biggest cost. By trying to charge above market rents you end up losing out in the long run. A property may be vacant an extra month or two.
Taking the “Principal” Road During a Dispute
It is almost always better to settle a dispute with a tenant then to fight it in court. The landlord-tenant laws are usually extremely unfair to landlords. In addition, tenants often have access to “legal aid” lawyers who will fight you with tax-and-charity dollars almost indefinitely with all the laws on their side. You may be right and you may win the case, but it will cost you thousands of dollars in legal fees that you may never re-coup. It will definitely cost you time and energy and most importantly, it will cause you undue stress in your life.
It is almost always better to make a deal, even if you are right and are giving in to the resident, for a few hundred dollars than the cost of stress, time and money it will cost to win the “principal” battle.
Not Treating Your Investment Like a Business
Whether you own 1 property or 20 properties make no mistake you own a business. If you do not create and more importantly follow processes and procedures and have a business plan you are planning to fail.