Damage Insurance Instead Of Security Deposits: An Option Landlords Are Now Using
Renting out homes and apartments is a great type of business to be in, but there are also risks involved. One risk is that a tenant will damage the unit he or she rented from you. To compensate for this, most landlords require a security deposit up front. This deposit is designed to cover damage done by a tenant, but it is not always enough to pay for all the repairs needed. This is why many landlords are now offering damage insurance to tenants in lieu of security deposits. If you have never heard of this, here are several things you should know.
What is it?
Damage insurance is an insurance policy a tenant can buy instead of paying a security deposit. In most cases, it will be significantly cheaper than the amount of a security deposit, but it is also non-refundable. It is designed to offer a cheaper alternative for the tenant, but it is also designed to offer more protection for the landlord.
When a tenant moves out and leaves damage, the insurance policy will cover the costs of the damage up to a certain amount. This amount could be several thousand dollars or more, depending on the situation.
What are the benefits of this?
As a landlord, the benefit you have is that you will not have to pay as much money out of your pocket if there is damage. There may be a deductible you have to pay, but the policy is likely to cover all the costs needed to repair the unit. This type of policy is especially helpful when tenants leave a lot of damage in a unit.
Are there drawbacks to consider?
The only downside to consider is that this type of policy leaves no incentive for the tenant to care for his or her property. When a person pays a security deposit, he or she may try really hard to keep the property in good condition so he or she can receive the security deposit back at the end of the lease.
The good news is that if you are selective with the tenants you choose, you are likely to find people who do not have this type of attitude. In other words, most people will not damage a unit simply because the costs are covered.
As you look for more rental properties to purchase, you may want to consider offering this option as well as the option of paying a security deposit.
For more information, contact a professional in your area or visit a website like http://www.ritasoldmyhome.com.