Renting to Tenants With an Insurance Loss

General Landlording & Rental Properties
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Renting to Tenants With an Insurance Loss

Bob H.
Rental Property Investor · Cedar Park, TX · Member since 2014 · 414 posts · 272 votes

I am considering renting to a couple who say they had a house fire. They say their insurance company will pay the rent. I see some red flags, and I'm wondering what other investors' experiences have been in this kind of situation.

The potential tenants seem reluctant to apply. The wife first said she didn't want a credit hit from a screening service's inquiry. (I need to check with my service to see if their inquiry constitutes a soft or hard credit check.) Later, she said the providers of furnished housing she is considering do not require applications. I presume some of these short-term furnished rentals are more like an extended-stay motel or an Airbnb accommodation. She also said that, because she works for a school -- something I would need to verify -- her background already has been checked for her job. I would not want to rely on someone else's background check.

I have not spoken to anyone from the insurance company, which supposedly is going to make a decision on allowing its clients to rent from me or rent a furnished place. Although my house is unfurnished and therefore less convenient, it is closer to the potential renters' home, making it easier to keep up with the restoration work.

The potential tenant also wanted me to include utilities and TV service in the rent and mark it up accordingly. She said she did not want to have to open accounts with the utilities and wait for reimbursement from the insurance company. That comment made me wonder what I need to worry about in that regard. Do insurance companies pay rent on time? Do they pay the usual security deposits required of renters? As for the utilities, I have to wonder how much the tenants would waste utilities when they know they aren't paying the bills.

I also wonder who is on the lease in this situation. Surely I can't rent just to the insurance company; if I didn't get paid I suppose that would make it harder to evict the tenants.

Despite these complications, I recognize that, if this and other insurance companies have a ready supply of clients with a need for temporary rentals of a few months, that could fit into my plans for this house, which my wife and I hope to use ourselves, but only in the summer.

I'd appreciate some suggestions.

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Stephen E.
St Thomas, Ontario · Member since 2013 · 575 posts · 408 votes
10y

Resistance to screening is futile for tenants dealing with a landlord who protects his/her interests. You can't let these people in if they don't pass screening. You have to go through the normal checks, no exceptions. If they don't like it they can walk. The last tenant I had trying to get out of normal checks (credit check, etc) had a list of bad accounts and collections as long as your arm. I said to him he must have known this would be found because all landlords conduct credit checks. No, he said with a sly look, not all landlords do.

My sense is that the proposed inclusion of cable and utilities may be an effort to work the insurance company over for a larger claim. The insurer may just cover the costs of accommodation and not the costs of services to the place of accommodation. The tenants would have had to pay utilities at their former home with the fire, the insurers may reason that the tenants should have to pay them at the new place and that they are just responsible for providing an alternate roof over their head. Include utilities and cable and hey presto - it can all be claimed from the insurer.

I refuse to lower my screening for anyone. It is just too costly to have bad tenants. Better to have a month or two of vacancy if you must to get stronger tenants. You are right, these people are suspicious. If they complain screening takes too long or refuse to comply, you should send them on their way.

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  • Chin P.
    SILVER SPRING, MD - Maryland · Member since 2015 · 77 posts · 43 votes
    10y
    Bob Hucker No specific experience renting to tenants with insurance loss. Red flags galore. I'd pass with no hesitation. Think of it this way. Most tenants are on their best behavior at the screening stage. The odds are that it will only get worst from here. Also, insurance company is in the business of collection premiums and limiting payments to the extent it can on other side. So you've got a payor who's incentive is to limit coverage. How long is the lease term? Will they be moving again in a few months? Is the turnover and releasing again in a short time worth taking them on? Is that cable/utility legit or is the tenant just trying to get reimbursed for something that the insurance won't reimburse for by sneaking it into "rent". Don't know. It would depend upon heir insurance coverage. If you end up taking them on, let us know how it turns out. Best of luck.
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  • Stephen E.
    St Thomas, Ontario · Member since 2013 · 575 posts · 408 votes
    10y

    Resistance to screening is futile for tenants dealing with a landlord who protects his/her interests. You can't let these people in if they don't pass screening. You have to go through the normal checks, no exceptions. If they don't like it they can walk. The last tenant I had trying to get out of normal checks (credit check, etc) had a list of bad accounts and collections as long as your arm. I said to him he must have known this would be found because all landlords conduct credit checks. No, he said with a sly look, not all landlords do.

    My sense is that the proposed inclusion of cable and utilities may be an effort to work the insurance company over for a larger claim. The insurer may just cover the costs of accommodation and not the costs of services to the place of accommodation. The tenants would have had to pay utilities at their former home with the fire, the insurers may reason that the tenants should have to pay them at the new place and that they are just responsible for providing an alternate roof over their head. Include utilities and cable and hey presto - it can all be claimed from the insurer.

    I refuse to lower my screening for anyone. It is just too costly to have bad tenants. Better to have a month or two of vacancy if you must to get stronger tenants. You are right, these people are suspicious. If they complain screening takes too long or refuse to comply, you should send them on their way.

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  • Chin P.
    SILVER SPRING, MD - Maryland · Member since 2015 · 77 posts · 43 votes
    10y
    Stephen E. I was thinking the same thing on the utilities/cable. Or even if they had some sort of premium insurance that will pay for locked in contracts like cable bills, maybe the tenant double dips and gets reimbursed once for cable at the old place and then again by grossing up rent for cable at the new place. A more benign way to look at it is that many rentals do include water, and sometimes electricity in the rent--probably because of how the building is or how the local market is. There may be markets that do cable too, just haven't heard of any personally. But that's a bit different than some sort of special side deal just because the insurance company is paying. The you don't need to screen me nonsense is just that and often a sign of someone who's hiding something.
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  • Mags S.
    Rental Property Investor · Phila, PA · Member since 2015 · 276 posts · 111 votes
    10y

    Check them out according to your criteria as you would any other prospective tenant.  FYI-mysmartmove.com, the transunion subsid creates only soft credit pulls.  Don't negotiate your standards.

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  • Bob H.
    OP
    Rental Property Investor · Cedar Park, TX · Member since 2014 · 414 posts · 272 votes
    10y

    Thanks, everyone. I'm going to pass on these people. They've been too much trouble already.

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