Every now and then we come across this question: “If I own my home and decide to relocate, can I rent my house instead of selling it?” Of course, the answer is yes. But there are several things to consider before making this move. A homeowner policy should be in place on your home while you are living there, but this type of policy will not protect you from a tenant’s personal injury claims or if a tenant damages your property. If you plan to rent the home for an extended period, you will need landlord insurance. Your homeowner’s insurance policy will likely have a clause that terminates coverage if you decide to turn your home into rental property. It is important to change your homeowner policy over to the correct coverage for a rental property before any new renters move in.
Homeowners insurance typically covers an owner-occupied, single-family residence. When your home does not meet that definition because it is being rented out regularly, it is no longer covered. For example, if you have a winter home you have decided to use as an income property and you are renting to different people every week, it is a much bigger risk for the insurance company. You also have an increased responsibility for injuries which may occur on the property, whether to your tenants or your tenants’ guests. Typically, more claims are filed on tenant-occupied properties because tenants often don’t care for or maintain properties as well as the owners would. They are less likely to identify or report maintenance needs.
If a tenant accidentally damages your property, your landlord insurance policy may help. Landlord insurance typically includes dwelling coverage, which helps protect against sudden and accidental damage to your rental property. Renting out your property may not always require you to notify your mortgage company. It depends on the rules established in your mortgage contract. So, it is generally a good idea to contact your lender, regardless of whether it is required.
There are several things to consider if you are looking to make the move from homeowner to landlord. Being a landlord is not always easy. You will need to research landlord and tenant laws as they vary from state to state. Gain an understanding of your obligations as a landlord regarding security deposits, lease agreements, tenant screening and service or emotional support animals. For example, landlords cannot ask tenants to pay any extra rent or deposits for having an emotional support animal, though it should be noted that they can require payment for any damage done by the animal.
You should also study the tax rules and be aware of what can and cannot be claimed on your taxes. Tax laws are not the same for investment properties so a consultation with your accountant would be wise. Being a landlord is not just about sitting back and collecting rent payments. Landlords find themselves in the roles of negotiator, repairman, bookkeeper, and unfortunately evictor when a lease does not work out.
If you do decide to put on the landlord hat, we have a great company through which to insure your rentals. We will be happy to walk you through the process and help explain the difference between a homeowner policy and landlord coverage. Just be sure to contact your insurance agent so that your investment is protected and insured properly.