When Does a Guest Become a Tenant?

If you are renting out residential property such as a house, apartment, or vacation cottage for the first time, you may expect that your homeowners’ insurance will cover all the costs in case of a natural disaster, accident, or any other damaging event. Such an assumption is a recipe for disaster. Luckily, there is a type of coverage for landlords that can protect you from all threats related to renting out a property. But what is landlord insurance, how does it work, and do you actually need it? Keep reading to find out. Why Do You Need Landlord Insurance? Landlord policies offer protection similar to homeowners’ coverage, such as dwelling insurance in the event of a fire or burglary. The main difference between the two types of insurance is that most homeowner policies only apply to owner-occupied properties. Should you start renting out your real estate to someone else, the coverage will no longer apply. Landlord policies are uniquely written to protect you against risks you may face as a rental property owner, such as injury liability or loss of income. Considering that tenants are rarely held liable for significant appliance malfunctions, burglaries, or forest fire damages, you could be left with serious consequences caused by such misfortunes. Therefore, getting landlord insurance makes a lot of sense. Still, given that these policies come in many different shapes, we advise that you take your time to figure out what you need to ensure that you get the right landlord insurance policy. Types of Coverage for Landlords Based on the length and frequency with which you rent out your property, there are three main types of insurance policies for landlords: Policies for long-term renters: Also called a rental dwelling policy, a long-term renter’s policy is designed for homeowners who rent out their house or apartment for a minimum of six months on end. Although similar to homeowners insurance, this type of insurance is designed to protect you against losses you may face as a result of hosting a tenant for an extended period. Policies for occasional short-term renters: Property owners who rent out their primary residence for short periods and only occasionally may not need to buy additional landlord home insurance, provided that they have an existing homeowners policy. They need to confirm that coverage with their insurance company, though, as some insurers require an additional rider when the home is rented out, even though the coverage type still falls under the homeowners’ insurance category. Coverage for frequent short-term renters: Homeowners who rent out their primary residence regularly for short-term periods (e.g., Airbnb hosts) are typically labeled as business owners by their insurance company. In these situations, property owners cannot count on traditional homeowners insurance policies. Instead, they need to find a good commercial policy for their rental property insurance needs. What Does Landlord Insurance Cover? Most landlord policies come with three core protections: Property damage: Much like dwelling coverage offered by home insurers, landlord insurance protects you in the event of damage to the structure or furnishings of your home due to perils such as a natural disaster (fire, wind, hail, snow, or earthquake), electric/gas malfunctions, vandalism, or irresponsible tenants. Here’s a piece of advice - try and get a policy that covers replacement costs instead of providing a predetermined lump sum of cash or the actual cash value (especially if your furnishings and appliances are old). Note that landlord insurance for a rental property typically doesn’t cover your tenants’ belongings. Liability protection: Your landlord policy's medical coverage or liability clause covers medical or legal costs associated with injury claims made on your property due to a property maintenance issue (such as an insect hive or an architectural collapse). Furthermore, this type of insurance can also come in handy if a landlord is found responsible for damage to the tenant's property. Loss of rental income: Also referred to as rental default insurance or rental reimbursement, this clause in your landlord policy protects you from losing income if your property is damaged and uninhabitable due to a fire, severe storm, rat infestation, or severe case of mold. While most policies for landlords offer this type of coverage, it’s better to be safe than sorry and ask your insurance agent if rent-loss insurance is included in your policy. If not, make sure to add it as an optional rider. Additional Coverage There are a few more common riders that help form comprehensive landlord insurance policies. Although not as important as the aforementioned provisions, these optional endorsements could come in handy and potentially save you a lot of money in the long run. Here’s a list of the most popular optional riders offered by most insurance companies: Guaranteed income insurance: Unlike rent-loss insurance, this type of endorsement covers the landlord if a tenant doesn't pay the rent for one month or comes up short on the payment. Even if you take the time to perform a credit check and background screening for your tenants, you can never be completely sure that they’ll always make rent on time. Flood insurance: Keep in mind that some landlord rental insurance policies don’t include flood damage related to municipal plumbing or natural disasters, so opting for this rider can prove invaluable for properties in a flood-prone zone. Additional construction expenses: Also referred to as building code coverage, this type of protection will cover the expenses of bringing your building up to current codes after it has been damaged. Emergency coverage: This protection type comes in handy if a tenant asks you to do minor repairs or gets accidentally locked out of the property. You can use the emergency protection rider on your rental home insurance to cover some or all of the costs of getting to the property and resolving the issue. Non-occupied dwelling endorsement: If your property is uninhabited for more than a month, note that your insurer may deny you coverage for any claims that arise while the home is empty. Adding the non-occupied dwelling rider will extend your coverage to cover periods of vacancy. Creating a Real Estate LLC A real estate LLC deals with buying, selling, or renting residential and commercial properties. Creating an LLC for a rental dwelling is a smart choice for any property owner, as it can also work as a type of landlord’s insurance for the rental property. Not only does a limited liability company structure separate your business and personal assets, it reduces the owner’s liability and comes with the benefit of pass-through taxation. Another great thing about turning your rental into an LLC is that it’ll give you more credibility when approaching new partners or clients - no matter if you work as a real estate professional or just have a single property you want to rent out. How Much Does Landlord Insurance Cost? Now that we’ve answered the question “what is landlord insurance,” it’s time to talk about the cost of this coverage type.  According to a report by the National Association of Insurance Commissioners (NAIC), the average cost of homeowners insurance was $1,211/year in 2019, although the prices varied widely from state to state. However, given that rental properties are more prone to accidents and damage, you shouldn't be surprised if insurers ask 15% to 25% more for landlord coverage than they would for homeowners insurance of the same property. Here’s a tip for shopping around for landlord coverage: Remember to ask your home insurance provider for bundle options. If you sign up for homeowners’ and landlords’ insurance through the same company, you may be eligible for a discount.

If you’re facing potential property foreclosure, one of your many worries is probably what happens to the tenants currently renting it. Will they be evicted? Can they sue you? You’re not alone - with one in 12,448 properties in the US getting foreclosed, this scenario is far from uncommon. That’s why it’s always advisable, not just for the tenants but for the landlords as well, to get acquainted with the topic and learn what happens to tenants when a property is foreclosed, their rights and obligations in such cases.  What Is a Foreclosure and How Can You Avoid It? No one wants to see their property foreclosed. There are various ways in which you can attempt to avoid it. The good news is that house foreclosures typically don’t happen overnight. Instead, the process can take up to a year or even longer, allowing landlords enough time to find a more palatable solution by, for example, resorting to debt consolidation. Like any foreclosure, foreclosure on a rental property typically happens when the homeowner has violated the terms of a mortgage loan, either by failing to make timely payments or by defaulting. It is, in essence, the repossession by a mortgage company of a property that is being leased to a third party.  What happens in foreclosure is that the homeowner receives the legal foreclosure notice, after which the property is seized and sold at a public auction. The mortgage companies can start the process as early as 60 days upon a missed payment, which is why it’s vital to stay on top of your mortgage payments.  Foreclosure can be avoided provided that the landlord takes action as soon as possible. This is, altogether, the least painful option not just for the homeowner but for tenants facing eviction from a foreclosed home as well. One of the first things you can do is contact the mortgage company and try to reach an agreement to avoid foreclosure. You may also not be aware that the Coronavirus Aid, Relief, and Economic Security Act, passed by Congress to help people get through the COVID-19 pandemic, allows homeowners to claim forbearance and freeze their monthly mortgage payments for up to 12 months.   However, if foreclosure is imminent, it’s important to know the exact tenant rights when the landlord is in foreclosure and what role they have in the process. After all, these tenants have most likely been carefully selected through thorough tenant screening procedures and have been regularly paying their rent. One could argue that their indignation at the prospect of being evicted is entirely justified. That’s why in the next section, we’ll go into detail about the legislation protecting tenants’ rights, possible sanctions awaiting landlords, and what you can do to avoid them. Heads-up: Being open and honest in your communication is the best way to handle the situation. The Protecting Tenants at Foreclosure Act of 2009 From 2009 until 2014, the PTFA regulated these situations, with the principal premise being that the lease comes first. Under this act, regardless of what happened with the property, including foreclosures, the lease terms were to be followed in full. Even month-to-month tenants and renters without a lease were covered, as the new buyer had to provide them with a 90-day notice before asking them to move out. There was a slight exception for people looking to live in the property they bought at a foreclosure sale that was already occupied by a tenant. Namely, what happens to tenants when such property is sold is that the new buyer, although they are obliged under the PTFA to issue them the same 90-day notice (the notice length is even longer in some states), doesn’t have to wait for the lease to expire.  There is also the “cash for keys” option that new owners might offer renters. Within this deal, renters would get paid to vacate the property early. Note that, in some states, the new owner must initiate an eviction proceeding against the renter - and it takes a judge’s warrant to start the eviction process. No one would be able to hold this eviction process against the renter for renting a foreclosed home, which is important to note if one is worried about having an eviction on their public record. In fact, in some states, such as New York and Illinois, the records are sealed so that no one can use the fact against the renter, and it won’t come up even in the best background checks. Using the information against the tenant in the future is also prohibited by the law. The Abolishment and Reintroduction of the PTFA When the PTFA was done away with in December 2014, many were left wondering or even panicking about being a tenant in foreclosure, as the rules depended mainly on the state the renter lived in. The main understanding was that if the original landlord sold the property regularly, the new owner must respect the lease, but that the lease would end in case the property was foreclosed. Luckily, the Economic Growth, Regulatory Relief, and Consumer Protection Act, which was signed into law on May 24, 2018, brought back the PTFA permanently. Many misconceptions circling the internet and outdated information caused some panic, but in reality, the PTFA still protects tenants’ rights in  foreclosure.  What Are Tenants’ Obligations During a Foreclosure? As mentioned before, foreclosures typically don’t affect tenants until eviction notice goes into effect. In this light, tenants are still obliged to pay rent on the property, and the landlord, in return, is still obliged to make repairs and maintain the property in a habitable condition.   However, in particular circumstances, a receiver might be appointed to handle the tenant-landlord agreement while the foreclosure is in progress. In those situations, the receiver takes on the landlord’s duties, including collecting rent after foreclosure, managing repairs, and other tasks usually handled by the landlord or property management company. Occasionally, the new owner of a foreclosed home doesn’t even establish any kind of communication with the tenant, which can pose a problem, especially with maintenance. Under these circumstances, the new landlord still has the right to collect the rent and any repair receipts. This way, the tenant can negotiate the costs of repairs against the rent due with the new owner.   Further Reading When Does a Guest Become a Tenant? What Is a Sublet, and Should You Be Subletting Your Place? “How Long Can a Tenant Stay After the Lease Expires?” and Other Questions About Holdover Tenants Communication is Key Since what happens in foreclosures is not pleasant for either the landlord or their tenants, good communication between the two parties is essential.  One of the tenants’ legal rights is to sue the old landlord in small court for any expenses they may have to pay to relocate, such as moving costs or the difference between the rents for the remaining months of the lease. You might be able to avoid this if you inform your tenants of foreclosure as soon as possible and try to communicate a solution even before the official process.

Property management is an excellent business niche for more than one reason. The requirements for starting and succeeding in this industry are not high, and one doesn’t need a sizable up-front investment or years of experience in the field. However, as is the case with any business endeavor, there are several things one should consider and do to ensure success. So, if you are wondering how to start a property management company properly, let’s get right on it. Below, we’ll cover everything you need to know about starting such a business - from what property management is to how to draft a business plan - so that you can confidently make this your career path. What is Property Management? Property management involves managing and overseeing one or more properties. It could be any kind of housing: residential, student, commercial, or community association. Most of the time, the duties coincide with those of the landlord or the property owner. However, not everyone has the time, experience, or will to handle the tasks themselves. Some of the responsibilities property management companies can take off landlords’ plates are marketing rental units, hosting an open house, or simply showing the property to prospective tenants and collecting their applications. Screening new tenants and getting the paperwork set up for the selected ones is another service these companies can provide. Once a tenant moves in, the property manager is the one responsible for collecting rent, handling maintenance, and inspections. If you are up for it, let’s talk about how to start a property management company in more detail. Here is a step-by-step guide you should follow to ensure your business gets off the ground. Step 1: Legal Structure  The first step is establishing the legal structure of your business. Typically, these firms are founded as limited liability companies (LLC). Occasionally, they can also be registered as incorporated businesses (Inc.). You can accomplish this task online yourself or hire a respectable LLC service company to handle it for you. If you can fit it into your budget, going with a service provider is the better choice because it will save you a lot of time.  Step 2: Business Plan This is probably the most daunting task you’ll encounter on your way to a successful property management business. However, drafting a business plan early on will help reach your company’s goals as it will keep you focused and make you take a systematic approach to what needs to be done to get everything up and running.  You’ll want to ask yourself some critical questions as you embark on this journey. For instance, what kind of services will you provide to your clients? Should you focus on a specific type of property? How should you handle maintenance? Once you get these answered, you’ll have a clearer picture of what you need to do to have a successful property management company.  If you are worried about what should be included in a formal business plan, Small Business Administration (SBA) lists the following sections as must-haves: Executive summary Company description Market analysis Organization and management Service or product outline Marketing and sales Funding request Financial projections Appendix  You should consider reading up on all the SBA’s business plan guidelines if you are writing such a document for the first time. Alternatively, you can hire someone to write it for you.  Step 3: Employees When starting a property management company, you’ll likely be your only employee until you begin getting paid for your services. Once the business starts bringing in money, you’ll be able to hire someone to help you out with the workload. As you might not be able to afford a big team, at least not at first, you should think about what fields of expertise your company would benefit the most from. Also, it could be cost-effective to have external service providers handle certain operations for you. Hiring an accountant or subscribing to a good accounting and bookkeeping online service is something every “How to start a property management company” guide should advise you to do. A good accountant is a must for every business, regardless of how small it may be. You’ll also need legal services as you’ll want to make sure your company’s operations comply with the law. That’s why having a real estate lawyer in your ranks or signing up for online legal services should be another priority. Once you have the essential services pinned down, you should go back to your business plan and determine whether you need more employees and whether you need them to work full-time, part-time, or per contract. Don’t worry; by the time you have a big enough budget to start hiring people for your property management firm, you’ll know which aspects of the job require a full-time commitment and which need attention only once in a while. Once your business starts expanding, you can hire additional property managers, payroll and accounts payable clerks, showing, move-out, and service coordinators, and leasing agents. If you plan to advertise your services online, you should consider finding reliable marketing experts and IT professionals.  Step 4: Technology Speaking of IT, you should keep in mind that there are plenty of programs - some of them even free - that could handle certain tasks for you. Therefore, it would be wise to dedicate some time to exploring property management software solutions, as these could take a lot off your plate and help you provide better property management services. The best ones will allow you to manage your business with just a couple of clicks. Many other solutions will prove invaluable when you can’t yet afford an entire team. If you don’t have a lot of paperwork to handle, you can take advantage of free accounting software, for example. Once you start hiring people, you should consider payroll software, too.  Finally, it would be best if you also went for one of the marketing tools available online. Putting up your business’ website yourself with the help of a good website builder can save you a lot of money, which can then be used for paying for the services you can’t handle on your own. Step 5: Pricing Structure Determining the prices of services your property management company will provide can take some time, as you need to work many details into the calculation. You need to earn enough money to keep your business not just afloat but growing further. First, you should consider your competition’s pricing plans and use them as a point of reference. When you’re just starting, your prices need to be competitive. On the other hand, you need to earn enough to cover the expenses of running your business.  So, to determine the pricing structure when setting up a property management company, your first step should be to go undercover and give the competition in the neighborhood a call to get informed about their price ranges. Once you estimate the standard prices in your area, you will get a better idea of how much you should charge for your services. Keep in mind that whatever you calculate in, you must not forget that you should never compromise the quality of your services. Your good reputation is your main selling point, as this business is all about trust and relationships. So, even if you have to charge a bit more to provide a better service, don’t hesitate to do it, as this is the key to professional property management. To help you format the pricing structure, we’ve laid out some of the most common fees property management businesses charge their clients. Setup Fee   This is a typical fee most service providers include, and this niche is no different. You would apply the setup fee when you sign up a new client, and the amount usually goes up to $300.  Leasing Fee Another one-time payment, a leasing fee is something you should charge for getting a vacant property leased. Most companies charge the equivalent of one month’s rent or at least half of it, and the amount should be clearly stated in the property management agreement. This fee covers numerous services provided, starting from listing a vacant property to you using one of the tenant screening services to find the right person to move in. Lease Renewal Fee  You should consider adding this optional fee to your pricing structure, as it covers renewing the lease with an existing tenant. It is typically up to $200. Eviction Fee  Another optional but strongly recommended fee you should consider adding to the list is the eviction fee since you can be called on as an official representative if an eviction process involving the property owner is set in motion. Ongoing Management Fee  This fee is the one that will keep your business in property management growing. It’s essential to include it in your pricing plan as it will cover all the daily operations, from collecting rent and conducting inspections to handling repair or maintenance requests. A set percentage of the monthly rental income is used to calculate this fee, going anywhere between 3% and 10% - the actual rate typically depends on the local market.  Step 6: Marketing Strategy Once you get the basics down, you need clients. Figuring out your marketing strategy is not going to be easy, but it is one of your business’ aspects not to be disregarded.  For example, as we’ve mentioned before, you’ll need to set up an online presence and start advertising. After all, if someone is looking for property management firms, they will most likely do it online. Also, your website will be where your commercials and marketing efforts will lead to, and having a good one will add immensely to your credibility. If you’re on a tight budget, you should think about making it yourself. There are many great website builders available online. You might need to roll up your sleeves a bit, but considering how expensive some companies providing these services are, it is certainly worth the effort. Still, if you want to ensure your website is done professionally and you have enough funds, hiring someone to create one that will be not only pretty but also useful is a good path, which many entrepreneurs in the property management industry take. Of course, your site’s primary purpose will be attracting new customers and allowing them to get in touch with you quickly.  You’ll also want to have someone create and implement an online marketing strategy, manage social media campaigns, and use all other available promotional tools to increase your online visibility and reach as many landlords and owners as possible.  Step 7: Networking While online marketing is a must, don’t forget that networking is the easiest way to gain new clients and sign them up for your services. If you are running a commercial property management business, you should pay a visit to your local business organizations. Establishing good relationships in such places will undoubtedly lead to your services getting heard of and recommended to a number of prospective clients. Also,  It would help if you got in touch with local real estate clubs and contractors. With every new customer, your business will prosper. That is why it is fundamental never to stop networking, thus finding new clients and properties, but also ways to provide better service and keep your old clients satisfied. Further Reading “How Long Can A Tenant Stay After The Lease Expires?” And Other Questions About Holdover Tenants When Does a Guest Become a Tenant? What Happens to Tenants When a Property Is Foreclosed? What Is a Sublet, and Should You Be Subletting Your Place? The Costs of Starting a Property Management Company Starting a business in this field is not an expensive endeavor, as it usually takes between $2,000 and $10,000. While it might sound like a nuisance, it is crucial to keep track of every expense you make from day one. By doing so, you will be able to set financial goals and stay out of trouble.  The most common expenses you will incur as you build your company are administrative ones, including salaries and benefits (along with payroll taxes), office supplies, and various services such as advertising or legal counsel. The price of any software you might use to help you get started is not to be forgotten either. Getting a Property Management License In the US, whether you need such a license usually varies from state to state. Most of them won’t require you to get a license or any other advanced degree. However, getting a real estate or property management certification will undoubtedly prove useful on your way to success.  Many US programs offer courses for licensed agents to get property management certification. Although these are by no means mandatory, completing some of them is also bound to help you learn the ropes of the business.