Podcast 350: Should You Require Renters Insurance?

Podcast Host, Andrew Schultz, chats about renters insurance. Although it’s often not required, it may still be a good investment for those that are on the leary side of renting.

Contacting former landlords, is it legal and should you consider it when renting out your property to new tenants? Find out in this week’s cast.

Last, but not least, we’ve got a story about a couple that requested a refund of their application fee because they were denied tenancy.

Subscribe: Apple Podcasts | Android | Stitcher

Join our Facebook Group of over 10,000 landlords and property managers.

Can you do us a solid?

Our podcast has grown over the years because of listeners like yourself. One way you can help us grow further is by leaving us a review of our podcast. It will only take a minute and you can find detailed instructions by clicking here.

Resources Mentioned on this Episode:

Show Transcription:

Andrew Schultz: (00:00)
Hey everyone. Welcome back to another episode of the Rent Prep for Landlords podcast. This is episode number 350, and I’m your host, Andrew Schultz. On today’s episode, we’re going to be talking about renter’s insurance requirements, contacting former landlords for references, and tenants requesting an application fee refund. We’ll get to all that right after this.

Voice Over: (00:22)
Welcome to the Rent Prep for Landlords podcast. Now your host Andrew Schultz.

Andrew Schultz: (00:27)
Before we jump into today’s episode, don’t forget to check out the Rent Prep for Landlords Facebook group. It’s a great free resource for you to network with housing providers from around the country. And if you have a question or a situation that you’ve never dealt with with over 12,100 members, chances are someone in the group has been there before and can lend a helping hand if you haven’t checked it out yet, do it today. Over at facebook.com/groups/rent prep. Don’t forget to mention the podcast when you’re answering the questions. So we know how you found us

Voice Over: (00:55)
Water cooler wisdom, expert advice from real estate pros.

Andrew Schultz: (01:03)
We’re going to start off this week with our water cooler wisdom. This one comes to us via the rent prep for landlords Facebook group. And it’s a pretty straightforward question. What amount of liability coverage for renter’s insurance do you require from your tenants? So before we jump into the meat of the question here, I do want to mention that you should check your state laws to see if you’re able to mandate your tenants, to carry some form of renter’s insurance. Some states do allow it and some states don’t. So that’s definitely something you’re going to want to look into before you jump too deep into the water here. If you are able to mandate it, you might want to consider making that part of your lease. It’s generally under $200 a year for the tenant to carry some kind of a renter’s insurance policy. And it offers a ton of protection to both the tenant and to the property owner.

Andrew Schultz: (01:45)
So it’s really a well-designed program that can help both parties in the lease. Another aspect that’s worth paying attention to as the property owner is making sure that you’re named as an additional interest on the party. And what that means is that you’re going to get a letter from the insurance company every time there’s a change to that policy, whether it’s a cancellation, whether it’s a renewal, whether it’s a change to coverage limits, they’re going to keep you updated on the policy to make sure that you’re informed and that, you know, that there’s a policy in place or not in place in the case of a cancellation, which we have seen from time to time where a tenant might come on, get a renter’s insurance policy to meet the requirement, to move in and then try to cancel it three months after they move in.

Andrew Schultz: (02:26)
Something like that would be easily caught by having an additional interest on the policy. That’s going to give you the ability to pay attention to everything that’s happening with that policy. Essentially, you’re going to be get updates from the insurance company, whenever something changes. That’s a really good idea. You may want to talk to your insurance company and ask them if it makes sense for you to be listed as an additional insured on the tenants’ renter’s insurance policy. Um, there is some conflicting information out there about that as to whether it’s a good idea to have the landlord listed as an additional insured or just as an additional interest with regards to the claims process. So that’s probably a question that would be better answered by an insurance agent or an insurance broker. Uh, rather than me, who’s not a licensed insurance agent or insurance broker, so something to keep in mind, but definitely make sure that you have that additional interest listed at a minimum on that policy.

Andrew Schultz: (03:16)
So now let’s talk broad strokes about how these policies typically work. Generally speaking, there’s two main aspects of the policy. The first is going to cover the tenant’s personal property, um, which would cover basically the stuff that’s the tenant owns, whether it’s stolen, damaged, or destroyed by a covered peril. Uh, some examples of that would be fire smoke, damage, theft, vandalism, et cetera. There’s a whole list of different things that could or could not be covered by the policy. Different policies are likely to have different includes and excludes, but again, this is all on the tenant’s personal property. So this isn’t necessarily the most important aspect of the policy when it comes to the housing provider who is going to be looking for the liability coverage. So the liability coverage would cover if someone was hurt on the property if there was damage done to the property.

Andrew Schultz: (04:03)
Um, for instance, if the tenant was to accidentally burn the property down, that should be something that would be covered under the tenant’s liability coverage. Um, somebody slips and falls and requires medical care, you know, a guest or something like that. Um, or if somebody was to Sue the tenant, they would be covered under that liability. They’re the absolute bare minimum for a liability policy should be at least $100,000. And honestly, the higher, the better, because a hundred thousand dollars really doesn’t stretch that far when you start talking about medical injuries and attorney’s fees and things like that. So I would say at a very, very bare minimum, it should be a hundred thousand, but the higher, the liability that the tenant is carrying the better off you are a third aspect of these policies that’s not often considered is the loss of use. And this is important to the tenant because if there is some sort of event at the properties such as a fire or a flood or something like that, having a loss of use coverage on their renter’s insurance policy is what’s going to cover them to go to a hotel and stay, um, if they’re places unlivable for some period of time.

Andrew Schultz: (05:04)
So that would be my recommendation would be make sure that the tenant is carrying some sort of a renter’s insurance coverage. If you’re allowed to mandate that in your state, um, make sure you’re listed as a, an additional interest at a minimum and, and possibly even as an additional insured, talk to your agent about that, to see if that’s something that you should be pursuing. And then obviously just understanding that the higher, the liability coverage, the better the coverage for the property owner at that point. So as I’d mentioned, a hundred thousand is kind of the bare minimum, the higher, the better that’s how I would handle it. Um, one thing that you might want to do is when you’re talking to your tenant about picking up renter’s insurance coverage, ask them if they have any other policies such as auto or a life insurance policy or something like that, have them contact that insurance company because they might be able to get some sort of a multi-policy discount, uh, and save themselves a little bit of money in the long run. But again, at generally under 200 bucks a year for a renter’s insurance policy, even if they’re not carrying coverage somewhere else, it’s a very, very affordable way to protect both the tenant and the property owner in the event that there’s something that happens there at the property

Voice Over: (06:12)
Forum quorum, where we scour the internet for ridiculous posts from landlords and tenants.

Andrew Schultz: (06:20)
This week’s forum quorum also comes to us via the Rent Prep for Landlords Facebook group. This one has to do with screening of an applicant. Let’s go ahead and jump in here. I’m putting my rental house back on the rental market up for rent. I’m wondering if it’s okay and legal for me to call the current landlord of an applicant that is at the top of my list to accept and ask if they’re current on their rent, or if there are any eviction proceedings started. So generally speaking, landlord references are illegal in most States, but you’re going to want to check your state laws. I know I say that a lot to make sure that they are still allowed in your area. Um, the other thing that you want to make note of is that your tenant needs to sign some kind of release, authorizing you to contact people, to ask those questions.

Andrew Schultz: (07:01)
We actually have a built right into our rental application and actually, most rental applications probably have that built-in already, but you do need to make sure that you have a release signed by the tenants, specifically authorizing you to contact other people. Um, with questions about that tenant. I know that our rental application also includes the proper language to ensure that you can do a credit and background check, um, as authorized by the tenant with their signature. So that’s also important. I’m pretty sure that there’s a free application over at rentprep.com that you can download, which would have all of the stuff in it as well. And that would likely save you quite a bit of time and trying to put together an application from scratch. So that might be the recommended option here is get a good copy of an application that’s already put together. Chances are that’s going to have your lease already built into it.

Andrew Schultz: (07:46)
So now jumping into the actual references themselves, some landlords are going to require you to send them a copy of that release before you’ll, they’ll even speak to you. Some landlords will be truthful with their responses. Some landlords are gonna lie to you just to get rid of a bad tenant. And some are just going to be outright fake references. When we’re talking about fake references, there’s a couple of things that you can do to kind of try to spot those off the bat. The first thing I do is look at the tax record for the property versus the name that’s been listed on the rental application as the landlord and see if they match. And if they don’t match, that’s automatically a red flag for me. Yes. There are reasons that those things would not match. Maybe someone owns the property under an LLC.

Andrew Schultz: (08:28)
Maybe someone is managing their property versus owning it. But that is one of those things that, um, it certainly, you know, acts as a call out for us to dig a little bit deeper there, right off the bat. Um, two easy ways to spot a fake landlord reference is call the landlord and ask them, you know, as the first question, Hey, do you have any apartments available for rent? That’s one of those questions that if you are a landlord and you have apartments, that’s pretty common question to get when somebody calls in, if you’re not landlord and you don’t have apartments, you’re going to be very confused when you get that question. So that might be one way to spot a fake landlord. Reference. Another possible question that you could ask. I would typically ask this as the last question asks who the property is titled to.

Andrew Schultz: (09:09)
You’ve already done the research. You already know who the property is actually puddled to. If someone owns the property or is managing the property, chances are they’re going to know who the property is titled to and be able to answer that question pretty quickly, if they are not the property owner, or if it’s a fake reference, that might be something that trips them up. So those are a couple of different questions that you can ask a possible landlord reference. If you think it might be a fake reference. And you’re trying to verify another thing that we’ve done is we’ll give them an incorrect piece of information as we’re verifying. So we’ll say, you know, let’s say the rent is $900. We’ll say that the tenant said that their rent was $1,300 and see if the landlord corrects us. That’s another way that you could trip up a fake landlord reference.

Andrew Schultz: (09:50)
Um, but realistically speaking, we’re not talking about fake landlord references here. We’re talking about landlord references in general. So some of the questions that we ask on our landlord verification, and I’m just going to run through a series of a bunch of questions here. You might want to go back and relisten to this a couple of times if you want to pull these questions for your own questionnaire. Um, the first question we ask is when did they rent the property from and to, and are they still living in the property? Um, was the applicant’s name on the lease for the property? Are you related to anyone living in the property? What was their monthly rent? And again, this is one of those questions that rather than asking what was, you might say, they said their rent monthly rent was X. Can you confirm and see if they offer a different value?

Andrew Schultz: (10:33)
Uh, was the rent on time? How often were they late? Did they ever bounce a payment, three really good questions to give you an idea as to the tenant’s ability to pay on a regular basis? Why did they move? And did they give proper notice? Was the unit kept clean? Was the unit in reasonable condition at the time they moved out? Was there any damage and did they receive their deposit back? Did they have any pets? If so, what kinds? Um, were there any complaints from neighbors? Did you ever have to serve any eviction or other legal notice? Did the tenant pay their own utilities? Do you own the property or are you the property manager? Would you rent to them again and any additional comments? Uh, and then obviously we take down the name, phone number, and either Mark them down as the property owner, or if they’re the manager, we try to mark down their, their job position and the name of the company.

Andrew Schultz: (11:22)
So that’s quite a few questions and I understand that you can probably stand to trim that down a little bit, just depending on what it is that you’re trying to accomplish, but that’s a pretty generic series of questions that you can ask. Most landlords are going to be very, very, um, familiar with most of those questions and it shouldn’t be too hard for them to answer those with relative ease, something that I am starting to see more and more in the industry is people moving away from landlord references altogether. The reason that I think that’s happening is because we’re starting to see more and more landlords providing less than truthful landlord references, just to get rid of a bad tenant that they don’t want anymore. They’ll say whatever it takes to get that tenant out of their building. The problem is that devalues the entire industry when we can’t trust each other, as landlords, as housing providers, as property owners, whatever term you want to use, when we can’t trust one another, um, to give accurate information, it kind of devalues the entire industry and it devalues the entire process of trying to get some sort of a tenant verification.

Andrew Schultz: (12:22)
You know, I understand that a lot of the questions that we ask are somewhat subjective versus, you know, factual objective. That’s another reason that we’re starting to see people move away from the landlord references because they want objective factual information. So what I’m starting to see some other property managers do, and we’re actually considering it here in our office as well, is moving to a requirement of proof of on-time rent payments. Instead show me your last 12 months of rent payments, canceled checks, money order stubs, whatever the case may be. You know, show me that you made 12 on-time rent payments, as opposed to us calling your landlord and trying to get information out of them. It puts a little bit more burden on the tenant when you’re doing a tenant screening, but again, most tenants I think would probably have access to that information if they are making those payments on a timely manner and things like that.

Andrew Schultz: (13:12)
The one area where I see where it could be kind of confusing is if you have a tenant that’s making cash payments to a landlord, and I don’t really have a good solution to that. If I’m being honest with you, it’s something that we’re still kind of discussing here in our office. One of the things that we had talked about is, well, if you’re making a cash payment to a landlord, would that almost be considered the same as receiving cash off the books from a job or something along those lines, which we don’t count because we can’t verify it. Um, so that’s actually a question that we have out to our attorney. I may actually update in a future episode. Um, once I’ve had a little bit more information come in from our attorney to say, Hey, this is what’s being recommended to us or whatever the case may be. Um, but that might be something that you want to consider in the future is moving away from subjective questions to objective questions, factual based information. So that there’s no question as to a fair housing violation or anything along those lines,

Voice Over: (14:08)
Feet on the street, real stories from real property managers.

Andrew Schultz: (14:16)
This week’s being on the street also comes to us via the Rent Prep for Landlords Facebook group. We’re going to go ahead and jump right in here at this one is all about tenants that don’t pay attention. When applying for apartments, some days you have to laugh just to keep from crying, a couple viewed and loved an apartment that we had. They completed the application and paid the application fee. One was a self-employed hairdresser working from home. And the other had been on unemployment since July of 2019. Their credit scores were way below our minimum. And after I contacted them, they visited my office and one of their application fees back since they didn’t pass.

Andrew Schultz: (14:52)
I got to tell you when I read this one, I felt it on a deep, deep, deep level, we present our tenants with the selection criteria multiple times before they apply it’s in every single ad that we post. It’s also the second image. We actually created an image. It’s the second image on all of our listings at an includes all of our criteria, as well as our pet policy and things of that nature. Um, it’s also on the page that they have to sign off on before they’re presented with the rental application. It’s also posted on the walls in our vacant apartments, and yet people still don’t read it or choose to ignore it. And then they go on to apply for an apartment that they will never qualify for. The one thing that I can give you, the one piece of advice that I have for you here is make sure that your application fee is nonrefundable.

Andrew Schultz: (15:40)
It’s a fee, not a deposit deposits by their very nature are a fundable. Make sure it’s specified in your rental application as a non-refundable fee. You’re spending time and probably spending money screening these applications, regardless of whether or not the application is approved or not approved, you need to be compensated for the time that you’re spending as well as for the money that you’re possibly spending on the credit. And the background checks, check your state laws. I know that in the state of New York, they’ve limited the amount that you can charge to $20 for background checks. And actually, if it’s less than $20 that you spend, you can only charge up to what you spent in the state of New York. So check your laws for your state and make sure that you’re able to charge some sort of a fee and make sure that that fee is non-refundable again, if allowable in your area, but that’s how I would handle this.

Andrew Schultz: (16:28)
This is one of those situations where, you know, you can give somebody the information as many times as possible at the end of the day, it’s still up to them to actually read through that information and understand what it is that they’re applying for. If they choose not to read through that information and choose to apply for an apartment that they are not qualified for. There’s no reason why you shouldn’t keep that application fee. You gave every effort. They did not give every effort you tried. Um, I would keep the application fee and I would just move on with life. One thing that you could do is kind of a last ditch effort to try to pre-screen out people that you know, are not going to qualify for the apartment would be half a set of pre-screening questions that you ask every person before you schedule a showing with them.

Andrew Schultz: (17:11)
Typically, we would ask the same questions over and over and over again, the questions would be what is your monthly income or, or rather what is the monthly income, the combined monthly income for all the adults living in the household, we would ask how many people are living in the home or will be living in the home, not how many adults and children, because that can create a fair housing issue, but how many people and let them answer. However, they choose to answer. We ask how many animals would be living in the home. We asked that in an attempt to catch service animals on the front end so that we can explain how service animals work with us, um, as opposed to pets. So rather than asking how many pets we ask, how many animals to try to catch service animals and explain, you know, what the screening criteria is for service animals and things of that nature we ask when they’re looking to move, we ask, uh, what their rough idea of what their credit score is.

Andrew Schultz: (18:01)
Simple questions that you can use to try to screen people out from even coming out, to take a look at the apartment a and wasting both their time and your time in, in that screening process. So there are some ideas there so that you can try to save yourself a little bit of time and a little bit of headache, but ultimately, if somebody is going to go through that entire process, they could just as easily lie on your pre-screening questions just to get in the door, to see the place, whatever the case may be. You do have some options there to try to prevent it. But ultimately that rental application is your last line of defense. Before putting a tenant into an apartment, that’s going to be the thing that you’re going to want to rely the heaviest on. So make sure that you’re getting your information and make sure that you’re running that application thoroughly and completely to make sure that you understand who it is that you’re renting to rent prep has recently released its landlord tax guide just in time for this year’s tax season, find out what rental income is taxable the deductions.

Andrew Schultz: (18:52)
You can claim your tax rate and more. You can check that out today over at rentprep.com slash blog. So that pretty much wraps things up for this week’s episode of the Rent Prep for Landlords podcast. Thank you all so much for listening. We truly do appreciate it. Our goal with the podcast is to help as many people as possible make educated decisions when it comes to real estate, and you can help us to reach our goal. If you heard anything in this week’s episode or any other episode that will help someone, you know, do us a favor and share it with them. If you’re looking to get in contact with me, I can be reached over at what’s drew up to.com from there, you’ll find links to everything going on with me over at owned Buffalo, as well as other projects that we’re working on. In addition to the Rent Prep for Landlords podcast, I also host a weekly show called ask a property manager.

Andrew Schultz: (19:38)
You’ll find a link to our YouTube page, right at the top of whatsdrewupto.com. And from there you can access the growing catalog of 60 plus episodes. Take a look and don’t forget to subscribe. If you’re looking for top tier tenant screening services, head on over to rentprep.com, there are multiple products to choose from including a tenant paid option. And if you’re over 50 doors, ask about enterprise-level programs and pricing. I’ve been an enterprise user of Rent Prep for years now, and it’s definitely changed the way that we screen our tenants. Check that out today, over at rentprep.com. Again, thank you all so much for listening. We’ll be back in two weeks with an all-new episode that you won’t want to miss until then. I’m Andrew Schultz with ownedbuffalo.com for rentprep.com. And we’ll talk to you soon.