In the sharing
economy of today, many companies have cropped up and a few have been immensely
successful in terms of their business strategy and business model. Some of
these companies, like Airbnb, GoFundMe and Uber, have changed the way most
people get in touch with the services they need. The home rental market is no
different in this respect.
In the past, it was common for people to
rent out their secondary house. However, now circumstances have changed
significantly and many people have joined the bandwagon of renting out their
primary house, or a room in their primary house for the purpose of earning some
extra cash. This trend is common, especially during holiday seasons or during
local events when there is a spur in demand for short-term rentals.
If you are considering renting out all or
part of your house for a short period, keep in mind the potential risks before
you take the leap.
The risks associated with renting your
house can be costly at times, and if you are unlucky, they can even be
disastrous and catastrophic. This is especially true if you are not suitably
prepared as a landlord. Just consider some of the most common exposures and you
will get a good idea of what I am trying to convey:
- Suppose that your renter or one
of their guests unfortunately fall down a long flight of stairs while
vacationing at your house and end up getting seriously injured, what will
happen in this situation? These renter
injuries
can haunt you for a long time.
- Imagine a situation in which
your renter inadvertently starts a fire or leaves the water running long enough
to flood your home. Alternatively, it can get even worse if they make an
irresponsible decision of throwing a wild party at your residence and your
house gets trashed or vandalized. This can lead to severe losses in the form of property damage, which can dent your
plans of making quick bucks.
- How would the events unfold if someone
drowns to their death in your swimming pool or becomes a victim of a lethal
accident while drunk driving after attending a booze-laden party at your home? This
can result in serious liabilities
for
you.
- Now, consider the consequences
if your house is seriously damaged and is rendered inhabitable and you cannot
rent it out either because it is getting fixed. How would you react to this income instability?
The insurance consequences of the
aforementioned grave scenarios can vary considerably, depending on the various
terms and conditions of your insurance policy. Homeowners’ insurance policies
usually fall into these 2 broad categories:
Numerous homeowners’ insurance policies do
not cover you in the case of rental exposures. This means that in case you do
not have special insurance coverage, you will be responsible for paying the
bills in the startling and shocking scenarios that are listed above. As a rule,
the liability rests with the owner of the property in case of injuries, theft
and damages. If you are entangled in a liability lawsuit, it can linger on for
months, or even years, and the legal fees could severely damage you
financially.
Many homeowners’ insurance policies will
cover your residential and personal liability if you inform the insurance broker
about your intention to rent out your house. A few of these policies
will not cover your personal possessions while your home is being rented and may
not cover the belongings of your tenants.
The takeaway is that you should thoroughly
and carefully go through the specific language of your insurance policy before
deciding to rent out whole or part of your house. In addition, it is also
advisable to discuss with your property management company and agent if they
can augment your homeowner policy with a short-term vacation rental insurance
policy.
Even if you have covered yourself with an
appropriate insurance policy, things can still go south. You can lower your
risk exposure by taking a couple of precautions like:
- Carefully and comprehensively screening
potential tenants
- Creating and prominently
displaying a list of house rules and regulations
- Mandating a security deposit
- Giving your tenants enough
space for their belongings by removing your personal items
- Locking up your computers,
sensitive correspondence and valuables or removing them from your home during
the period of tenancy
Renting your house is a huge
responsibility, and it can turn out to be a costly liability in case you are
not adequately prepared and protected. Ensure that you have taken the requisite
precautions to make it a profitable venture.
