Renting to Tenants With an Insurance Loss

[Bob H.]

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.

[Stephen E.]

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.