Becoming a landlord: the risks you face and how to deal with them
Being a landlord can be personally and financially rewarding. But like any other business, managing a rental property comes with unique risks. It’s not the easy, passive path to wealth that some “financial gurus” make it out to be.
I discovered this quickly when I decided to invest in my first rental property more than eight years ago. I had real fears, including getting stuck with the stereotypical “bad” tenant (aka professional tenant). I was also anxious about becoming a project manager and fixing my property if there were damages—skills I didn’t have.
What motivated me to become a landlord though was to better my family and our financial future. What I found was a passion to help landlords and tenants in a daunting, highly-regulated industry.
As SingleKey’s Director of Customer Engagement & Experience and one of the co-founders and managing partners of the Alberta Landlord Community (ALC) on Facebook, I get a chance to pursue this passion every day. Through ALC, the largest online community dedicated to Alberta landlords, and my work with SingleKey, I help educate people so they can reduce their risks, overcome challenges, and foster positive relationships with their tenants.
I’ve learned a tremendous amount about the ins and outs of running a successful rental operation, sometimes the hard way. And when it comes to rental risks, it boils down to this: avoiding risks altogether as a landlord is impossible. But you can reduce your exposure to them with SingleKey’s Rent Guarantee.
How Rent Guarantee helps new landlords
The biggest takeaway for new landlords is that you don’t know what you don’t know. It’s like you’re seeing only the tip of the iceberg. Just recognizing this fact is a great challenge.
If you make a mistake in this business with a large and expensive asset (your rental property), the consequences can be severe. In another type of business, a minor mistake might only cost you a couple hundred dollars, maybe a couple thousand dollars. But in the rental industry, making the same error can cost you $10,000 or more. Any mistakes you make are amplified.
As a result, you must either find someone with the right experience to help you offset these risks or put safeguards in place to minimize them until you can be knowledgeable enough to handle them.
A lot of what it takes to be a part of this industry is where the Rent Guarantee shines—it takes away those hidden risks.
SingleKey’s Rent Guarantee Program covers you for lost rent up to 12 months (up to $60,000) if your tenant stops paying. It also offers lease break protection if your tenant unexpectedly vacates the property early. There’s also property damage protection and legal support if you have to go through the eviction process.
Rent Guarantee gives landlords with a few rental units the same protection as large property managers who may have dozens or hundreds of units. This makes it a great asset for new landlords because those with only a handful of properties suffer more when their tenants fail to pay rent or cause property damage. Larger firms can more easily manage and absorb these risks, given the sheer size of their business.
How Rent Guarantee can help experienced property owners
The Rent Guarantee is also a valuable tool for experienced landlords, as it can provide financial support during lengthy evictions.
Long wait times are common in certain jurisdictions; it can even take months before you present your case before a tribunal. As a landlord, you have no control over this. If you’re evicting a non-paying tenant, can you afford not to collect 8, 12, or even 18 months of unpaid rent?
If you can, then financially, you’re in great shape. But most people don’t have that kind of money sitting in reserve. That’s where the Rent Guarantee Program can help more experienced landlords. For a small price of your overall capital, you can protect yourself from long wait times during evictions, which can easily cost tens of thousands of dollars.
How Rent Guarantee helps landlords find more qualified tenants
Increase your chance of getting great tenants by broadening your search to include students and new Canadians with no credit history. The Rent Guarantee Program acts as a guarantor for tenants with little to no credit history, which reduces the risk for landlords and gives them peace of mind.
This increases the chance for students to land their first rental and helps them start their rental history, which is always a challenging endeavor. For new Canadians, the Rent Guarantee Program also allows them to get a fresh start faster without paying large sums of money upfront. Instead, they can use their savings to build a new life.
More tips to reduce the risk of managing a rental property
Screen tenants properly
Most of the risks that come with being a landlord can be avoided by finding a great tenant.
You might have the perfect rental property, perhaps within walking distance of a university in your city or close to sought-after amenities, such as public transit. But if you sign a lease with someone who doesn’t pay rent, that property will cost you money every month.
All the effort is done upfront by putting the right tenant in place. Of course, screening tenants takes a lot of time and effort. It’s also easy to miss red flags and other crucial details if you don’t have access to reliable information.
SingleKey’s Tenant Report can help you accomplish this task. It’s a comprehensive report covering an applicant’s credit standing and background, allowing you to assess confidently whether they’d be a good fit for your rental. Basically, it arms you with the same information a bank or car dealership would have to review before deciding to lend money to a customer.
Get the right home insurance coverage
Most home insurance policies are geared towards your primary residence or another property you use exclusively, such as a vacation home. In other words, it protects you as the owner.
However, with a rental property, you’ll have tenants who are the primary users of the property, not you. And there are a lot of different risks that come with this type of scenario that wouldn’t apply if you were the primary resident. As a result, you’ll need a specific kind of insurance policy tailored for this type of arrangement.
Pay attention to your coverage around vacancies. Having multiple months of vacancy as a rental property owner is quite common. For example, you may be unable to find a replacement tenant because your current one departs two weeks before Christmas (a time when few people are looking to move to a new place). Or you may need to renovate or repair damages after your tenant leaves to ensure your property stays competitive in the rental market.
With my insurance provider, it doesn’t matter if I do weekly inspections or anything else to keep an eye on the property: my contract will be voided after 30 days of vacancy.
Insurance is worth paying attention to in the rental business. Ensure you get a policy that protects you from the unique risks you face as a landlord.
Ensure your tenants have renters insurance
Another recommendation I always make for new landlords is to require their tenants to have renters insurance. While it mainly benefits the tenant, it also protects the landlord from an insurance claim, which could increase their premium.
Let’s say that your tenant is barbecuing in the backyard. Unfortunately, the barbecue grill is located too close to your house, and a fire erupts, causing considerable damage to your property. If your tenant has renters insurance, more often than not, your insurance provider will push the claim and all the costs onto their policy. As a result, you’ll avoid an increase in your premium, and the incident won’t appear on your insurance history.
A tenant with renters insurance will also provide peace of mind for you and your tenant.
I have a good working relationship with all of my tenants. I’d hate to see them move out or scramble for new accommodations because there’s been a flood in the basement. If something like that occurs, the property will become uninhabitable, maybe for the next two months, while repairs are completed. It would be tough for my tenants to find a new place, especially during a high-demand rental season. But with renters insurance, everyone can rest easy at night.
Our final thoughts
Understanding the risks unique to the rental industry is essential to being a successful landlord. Once you know the issues you may encounter, you can take the necessary steps to reduce your exposure to them as much as possible. If you’re brand new to the industry, you may not know there’s trouble ahead until it’s too late. And even if you’re a seasoned pro, an unforeseen disaster can still take you by surprise, such as a year-long eviction that wipes out your bank account.
Because it’s impossible to predict and deal with every issue when managing a rental unit, the Rent Guarantee Program is a valuable asset for all landlords. Explore how Rent Guarantee can help protect your rental income.
