Setting Rent, Security Deposit and Fees to Displaced Tenants Covered by Insurance

[Ying B.]

I have a high quality 4/25 single family unfurnished rental in Atlanta suburb that currently asks for $2500 rent.  It used to command $2650 but through the winter, I have reduced the asking rent to $2500.  Due to large percent of unqualified applicants, I have kept it vacant for 2 months now.  I just received an interest from a company that would be paying the rent and any associated fees on behalf of the insurance carrier of displaced insurance tenants.  They still go through any application and credit/background check we require.  They prefer a 3 month lease with month-to-month available after the initial lease term, in case there are any delays with construction. They are happy to pay a premium for the short term.  It is a family of 2 with 2 small dogs (shih tzus). They are looking to move in ASAP.  I don't mind the short term lease as there is garantee on the rent payment at a premium.  This should put me in the Spring-Summer time frame where I will have an easier time to find the next (hopefully better qualified) tenants compare to  now. 

My questions for the Biggerpockets community are: what are considered standard/appropriate amount for the following category since these are short term lease with flexibility and also it is a company that is paying the bill?  

• Rent (I am thinking minimum $4000)
• Once it changes rto Month-to-month, should I increase the rent for the first 3 months?
• Sec deposit 
• Pet deposit or Pet Fee 
• Pet Rent 
• Admin Fee 
• Cleaning Fee 

Thank you. 

[Phillip Austin]

Although there is potential with these sort of arrangements, I've avoided them because they tend to require more management/time. 

Going up to $4K/mo is a steep increase and might result in a 'no' from the insurance provider since it sounds like it's ultimately being paid by insurance. However, I could be completely wrong.

For the rest:

MTM: increase rent 10-12%

SD: one months rent

Pet deposit/fee: $300 non refundable pet fee

Pet rent: $35/mo

Admin fee: $200

Cleaning fee: $500

[Trent B Paul]

Hey Ying,

I want to commend you for sticking to your guns and not settling for unqualified applicants just to get your vacant rental leased as that takes a lot of fortitude, but is typically the right decision. Also, I do think this may be the best case scenario for you because as you said, the end of their lease puts you in peak leasing season when you command more monthly rent for a longer term than in the winter season.

To answer your question, I'm not sure if $4000 will work without knowing exactly what suburb and neighborhood we're talking about and what the tenants exact needs are. The important thing to think about Is that you're dealing with an insurance company and they love cutting costs. If they do any DD, they may see that they can get a better rate elsewhere nearby. What I would do is reach out to a local Short Term Rental Property Manager and determine exactly what the local going rate is and price closer to that mark to not lose the opportunity.

Feel free to reach out if you'd like me to make an introduction to my go-to STR team to talk numbers free of charge to you

[Ying B.]

Thanks for your input so far @Phillip Austin and @Phillip Austin.  I told the middle company the following as I want to timely respond to them.  I also let them know I am interested in this deal being worked out.  

Rent till 4/30/2023: $3500/m with Jan prorated per the number of days stayed.  After 4/30/2023, Month to Month rate is $200 more at $3700.  

(I really don't think lower than $3500 will work for me as it only gives me 1000*3= 3000 to protect me for potential 1 month vacancy when they leave).

Security Deposit: 1-1.5 month rent but open to 1 month (pending screening outcome also). Move-in Admin fee: $200. Cleaning Fee: $500 if tenants keep the property reasonably taken care of (meaning not extremely filthy).  I really do think $500 is the minimum basic cleaning cost.  It will not be a detailed clean. 

Non Refundable Pet Deposit: $500 total for both dogs; Pet Rent: $35 each dog

Washer/Dryer hook up need to be done by Appliance company vendors (I used them before) to ensure done right. Stainless Steel Braided hose already in place to be used. W/D should be no more than 3 year old.

In this case, the middle company will furnish the place and housewares.

There is another area that I think Owners should at least be aware of, i.e. you are dealing with 3 or maybe 4 parties really: 1) Tenants, 2) middle company, 3) crews that do the move-in and out of furniture and W/D connection, and 4) insurance carriers. If there is no major damage from the tenancy (water/fire due to negligence), then you are good but if there are these types of major damages not due to Landlord neglegence, then the fact that Tenants are the only party on the Lease, it can be challenging to go after the other parties.  I had this happen to me before where the company who disconnected the Washer did not close the Valves and Tenant turned off Water several weeks before notice date so it actually left me with a big insurance claim.  I have a call in with my attorney about how to protect ourselves when multiple parties could potentially be liable but at least this time around, I am more aware what could go wrong and could be smarter and more proactive. 

[Nathan Gesner]

Quote from @Ying B.:

You sat vacant for two months, so the home isn't worth $2,500 a month right now. You immediately increase rent $1,500 to milk an insurance company, which is the type of behavior that causes our premiums to go up.

I've rented to insurance companies before and our only increase is to potential work required for another turnover in less than one year.

[Ying B.]

@Nathan Gesner
I don't believe your comments regarding milking insurance is supported in my case.  Please note, I have mentioned the Insurance company asked for a 3 month lease and then go month to month. They are happy to pay a premium and they said they have seen approved 25-30% higher than asking price in the past.  So I expect that range to be the norm and reasonable.  My regular 12 months lease is $2500.  I increased to $3500 asking rent with insurance which allows me to have $1000 * 3 = $3000 for a 1 month vacancy due to accepting a 3 months lease.  This does not even factor any repairs in less than 3 months stay.  I can turn over a property within 10 days if there is no major damage.  If tenants leave end of month, I get ready around the 10th of the following month, new tenants may not be able to move in till the following month as they already paid their rent for that month where they live so there is a good chance I have 1 month vacancy after 3-4 months lease.  Asking $3000 more to compensate for that vacancy is very reasonable and $3500 is the minimum that works for me.  My premium is 40% not 30%. 

Upon researching, I discovered this thread 
https://www.biggerpockets.com/... where people who have experience with placing insurnace claim tenants have given real data as to what they have been offered by Insurance carriers: 6 months minimum, 50% premium, any damage above security deposit, as long as you can prove the tenants were responsible and you did incur the cost to remedy the damage, the insurance covers. I hope the info from this cited biggerpockets thread is not fraudulent.   

By the way I am not like some landlords, I am proud to say my properties are free and clear (I know it is contrary to what is advocated by many in Biggerpockets).  I put in capital investment as an institutional investor as the house floor, system, roofing are fairly new with higher grade material and high quality labor and there is no delayed maintenance.  Just because I choose to keep the property vacant, does not mean it is not worth $2500, as I have studied the market in my zip code very closely and very regularly and I am confident I am offering a high quality product at a reasonable rate.  I have 35-40 leads and there have been 6 applications (but this is because I do pre-screen over the phone) and have some filtering before it gets to the application phase.  Out of the applications I processed, they almost all fabricated past landlord info which is so easy to spot.  Some have evictions that I can ascertain within 10 mins after checking magistrate court records with address/phone/name match.  One presented fake pay stubs saying she is a senior network engineer but her employer info is not publicly available and I asked for coand she again sent me an email address that does not have the domain matching the company, and from the recipient address on paystub, I checked by calling the apartment and they said she is not in their system.  Whoever fabriated her paystubs are not intelligent enough to make a convincing story on easily discerned details.  There was one couple who seemed to be honest but they only make $70K combined where I need at least 90 K gross to qualify them.   By now I have encountered a full spectrum of people who showed interest and I believe I have conducted my business very properly based on the education I acquired through reading and practice and lots of from biggerpockets.  

A good debate is healthy.  I have learned a lot from you Nathan in the past but it is OK to disagree some times. 

[Ying B.]

Update: I just got approval from the Adjustor and will show them the property soon.  I will seize the moment. 

[Joe Scaparra]

@Ying B.  Right on Ying! Follow your gut.   There is a cost for short term rentals as the market demand is actually picking up.  I actually rent two of my duplex units in what I call Mid Term Rentals, 30 days minimum fully furnished all bills paid.

There is a website FurnishFinders.com that markets to medical professionals.  Mainly traveling nurses on 3 months or more contract work.  You might check out that site in your area to see how your rent compares to those offerings.

Cheers.