Owning rental property is an opportunity to generate consistent income from rental payments. Whether your property is residential or commercial, the business is dependent upon tenants.
Unfortunately, not all tenants are perfect, and accidents can happen. Sometimes, these scenarios lead to property damage. This can be a frustrating situation to deal with, especially since it is up to you to get the damage fixed, and there could be a lot of money involved.
Let’s take a look at what you can do as a rental property owner to protect yourself from the consequences of tenant damage.
How to Prevent Tenant Damage to Rental Property
There is little that you can do as a property owner to completely prevent damage from happening. Even with a thorough tenant screening process, it is hard to know how responsible your tenants are going to be with your rental unit.
Even if you have very organized and careful tenants, accidents can happen. What you can do is minimize the impact that tenant negligence will have on your bottom line with regular inspections, including a walkthrough before they move in and a move-out inspection. Additionally, a property insurance policy and security deposits are the most effective methods for protecting your property from tenant-caused damage.
Property Insurance
Insurance is designed to help you pay for unpredictable situations. If a tenant causes property damage, you can file an insurance claim to avoid paying out of pocket to cover repair costs. Even if the cost of the repairs exceeds what your policy covers, it will greatly mitigate the loss.
Insurance does not cover normal wear and tear as it is not considered damage. Fixing it is part of regular property maintenance, and landlords should not charge tenants for it. Examples of ordinary wear and tear include minor scuffs, worn-out floors in high-traffic areas, cracked wallpapers, peeling paint, and similar routine maintenance issues.
Tenant’s Security Deposit
The tenant usually pays a security deposit. The deposit can be used to cover the property damage cost as part of the rental agreement. Texas does not enforce a maximum limit for the security deposit amount you can charge, and landlords are allowed to collect these deposits upfront or as an additional monthly fee.
A security deposit only covers damage caused by negligence or intentional acts. However, a tenant’s security deposit can also cover other scenarios, such as a breach in the lease contract or unpaid utilities or rent. The deposit is paid to the landlord or the property management company.
Types of Tenant Damage
If a tenant damages your property, and the security deposit isn’t enough to cover it, you may need to file an insurance claim to cover the costs of the rental property damage. However, policies may differ between providers, so it is important to understand the cause of the damage, the intent behind it, and whether or not your policy covers it. There are three types of property damage as it relates to insurance claims.
Accidental
Accidental property damage is pretty straightforward. If the damage is caused by unforeseen circumstances, it would fall under this category. A few examples of accidental damage would include a spillage that leaves a stain on the carpet, a burn mark on a countertop from a hot pan, or a crack in the flooring from an object being dropped.
Some insurance policies may not protect against accidental damage to rental properties, requiring you to pay extra for this coverage. It is usually the tenant’s responsibility to cover the repair or replacement costs.
Malicious
The next two are often confused with each other. Malicious damage occurs when the tenant destroys property out of spite or anger. Perhaps they punch a hole in the wall, break a door, scratch up a surface with something sharp, or break an appliance on purpose. If the intent is to cause damage to the property, it is considered malicious.
If a tenant wilfully damages your property, you must pursue criminal charges and report the incident to the police. Most insurance companies will require an official police report to approve a claim for malicious tenant damages.
Intentional
Intentional is not the same thing as malicious. This type of damage, though it is done on purpose, is not maliciously done. The tenant may put holes in the wall to hang up paintings or picture frames. Perhaps they wanted to change the space by doing a DIY project. If they repainted a wall without permission or removed carpeting, this would be categorized as intentional damage but not malicious.
It is important to understand what your property insurance covers, as some may include coverage for all three of these categories while others may not. Make sure you understand the terms of your policy so you don’t have your claim rejected. Often, policies will cover one or two of these categories with their standard package, but you may have to pay extra if you want all three types of damage covered.
What to Do When a Tenant Destroys Property
To have the best chance of having costs covered or retaining the security deposit, it is important to follow the proper steps after a tenant damages property that you own.
Otherwise, you may not have the legal right to keep the security deposit or your insurance may reject your claim. It is also important to consult the lease agreement to ensure you are acting according to the terms of the contract at all times.
Document the Damage
This is often the most important step in the process. You need to document the damage so that you can either provide it to your insurance or use it in small claims court if your tenant behaves unjustly afterward. Take as many pictures of the damage as you can and record any other pertinent information.
Assess Damage Value
Next, you should calculate the cost of repairs. If the rental property is damaged enough to require professional contractors, you will need to price out their services. Include the cost of materials in your evaluation. In more extreme cases, you may need to bring in a professional inspector or contractor to assess the value of the damage. This analysis will be critical for your insurance claim or a legal proceeding with an uncooperative tenant.
Pursue Damages
Before you consider any legal options, your top priority should be to figure things out with the tenant. It can be far more complicated and expensive to pursue legal action against the tenant, and it is better to avoid wasting everyone’s time and money if possible. The key to settling the damages with your tenant is to get the agreement in writing so that you are protected in case they decide to renege on their lease agreement or payment.
If, however, the tenant refuses to pay for the damages they caused, you can involve law enforcement or the courts. For malicious damage, insurance often requires a police report to accept a claim. If the tenant moves away before resolving the issue, you could file a claim against them in small claims court with the help of a landlord lawyer.
What to Do if Tenant-Damaged Property Is Too Expensive to Fix?
Perhaps your security deposits and insurance policy are not enough to cover the cost of these repairs. Normal wear and tear are typically not too expensive to handle, but significant property damage could cost thousands of dollars. This is a lot of money to pour into an investment you already spend a lot of money on.
If the property is too expensive to repair, and you are concerned about finding buyers who will take a property that is rough around the edges, you can always seek out cash home buyers in Texas like A-List Properties. Whether you have significant damage or not, we will buy your property as-is with cash. If time is a factor, we can close the deal within two weeks of you accepting our fair cash offer.
If the damages are too significant to overcome, contact us online or call us at (972) 526-7042 to tell us about your property. We can get the deal done quickly and are not concerned about the condition of your property, so you can skip all those costly repairs and cleaning.
Zach Shelley
Zach Shelley is a seasoned real estate investor with a diverse network spanning across the nation. As the founder of his own real estate venture, Zach is committed to offering innovative solutions to homeowners facing various real estate challenges.. Through his dedication and strategic approach, Zach continues to make a significant impact in the real estate industry, providing homeowners with alternative pathways to navigate their property transactions.
