Monday, March 11, 2013

Renters Insurance - You're unprotected without it

While homeowner's insurance is almost an assumption for anyone buying a home and auto insurance is mandated by law, renter's have never sought insurance protection in large numbers. Studies have shown that as few as 40 percent of all tenants are covered by renter's insurance. With tenancy rates once again on the rise, now is a good time to examine the benefits of renter's insurance.  At Rental Home KC, we feel renter's insurance is so important that all of the leases we write now require this insurance and proof of coverage.
Why Consider Renter's Insurance?
Many renters know little about renter's insurance, from cost to coverage. Here are a few of the reasons to consider buying a renter's insurance policy.

You're unprotected without it- Tenants often make the mistake of assuming that their possessions are protected by the homeowner's insurance of their landlord or condo association. But the policy owned by the landlord will almost certainly only protect structural damage to the building itself - your belongings are not covered.

You own more than you know - One of the most common misconception that renters have is over the value of their possessions. Many tenants assume that a hand-me down couch or outdated TV is evidence that they really don't have many "valuables". But the truth everything you own has value, from used furniture to your computer, movies, music and clothing. The typical renter owns roughly $30,000 worth of possessions - a figure that is completely unknown to them. In the event of a disaster, that's a lot of "junk" to replace.

It's relatively inexpensive - While policy pricing varies based on a number of factors, renter's insurance often costs between $10-20 a month. $200 dollars a year is a relatively low cost to protect $30,000 worth (or more) of your possessions. Many insurance companies will offer a discount if you bundle your renter's policy with an auto insurance policy.
What Does Renter's Insurance Cover?

Personal Possessions - In general, your personal possessions will be covered when lost to fire or smoke, lightning, vandalism, theft, explosion, windstorm and water damage (caused by broken pipes, etc). Items usually covered include:
  • Stereo systems, VCRs, and television sets
  • CDs, DVDs, videos, and tapes
  • Cameras and other photography equipment
  • Movable appliances, including microwave oven
  • Furniture
  • Sports equipment
  • China and glassware
  • Clothing
  • Books
Items that are usually covered with limitations:
  • Home computers
  • Cash, including coin collections
  • Checks, traveler's checks, and securities
  • Jewelry and watches
  • Precious and semi-precious stones
  • Comic books, trading cards, and stamps, including collections
  • Antiques and fine art
  • Goldware and silverware (theft)
  • Rugs, wall hangings, and tapestries
  • Firearms (theft)
  • Furs or clothing trimmed in fur
Liability - Most renter's insurance policies include some degree of liability protection. Liability protection covers you (up to your policy's limits) in the even that your negligence causes damage to the property, or if someone is injured inside your home. For example, if you leave the sink plugged and running, liability protection would cover the ensuing water damages.

Loss of Use/Temporary Housing - If your home or apartment is rendered unlivable by a fire or other disaster, you will have lost your place of residence in addition to your possessions. Most policies cover "additional living expenses" in the event of disasters specifically listed in the plan. Generally this means they will pay for you to live somewhere else while your residence is repaired, rebuilt or you locate new housing. There are limits on this type of coverage - the replacement housing must usually be of similar quality to your original residence, the coverage limit is typically a percentage of the policy's total value, and there may be a maximum length of time that the insurance company will continue paying for your housing costs.

Car Interior - Many renter's insurance policies also cover possessions that you keep within your car (CD's, books, portable computer equipment). Note that the car's value itself is not covered, and typically installed stereo equipment (which is often considered "part" of the car's systems) is not insured either.

Vacation Coverage - Some policies even go so far as to cover items within your possession while you traveling. This kind of coverage extension varies greatly, but is worth investigating.

What Isn't Covered?
Renter's insurance is not without its gaps, however. Most policies do not cover damage or loss of possessions related to three very common (and thus, hated by insurance adjustors) disasters: earthquakes, floods and landslides. Coverage for these disasters must be purchased as add-ons (known as "riders") to your rental policy or via separate insurance policies altogether.

If you haven't made an inventory of your possessions, now is the time to do so. Make a list of all items you own including appliances, furniture, electronic equipment, art, clothing, books, music and movies. Take photos or video of as much as possible, indicating where in your home the items are kept. Store this inventory and any additional files in a safe, offsite location as a backup (online storage makes for a quick alternative to a safety deposit box or the like).

Replacing Lost Items
One major thing to check when shopping policies is the whether the company will be writing "actual cash value" (ACV) or "replacement cost coverage". Actual cash value only pays you for the item's worth on the current market, while replacement cost coverage reimburses you for your actual costs when replace lost or damaged items. For example, if you bought a $1000 laptop computer 3 years ago, ACV would pay for the laptop's current (depreciated) value. Replacement cost coverage will cover your expense for replacing the laptop
In most cases, under replacement cost coverage you will have to pay for the items out of pocket and then submit the cost for reimbursement. Replacement cost policies also tend to have higher premiums, but pay out more should you need to file a claim.

Questions to Ask:
While renter's insurance is almost always a wise investment, you should shop around to find the policy that best fits with your situation. Below are some sample questions to ask when looking for the right coverage:
  • Will your insurance cover any property shared by your roommates?
  • Which items should you take photographs or videotapes of?
  • What are the limits on specific categories of personal possessions?
  • What circumstances are covered in your personal liability?
  • What circumstances are covered in the medical coverage for others?
  • What is the price and protection difference between "replacement cost coverage" and "actual cost coverage"?
  • Will you be notified before any rate increases because of policy changes or inflation?
  • If your building were damaged or destroyed, would you be compensated for interim housing?
  • How much protection would you have if your home were damaged or destroyed because of an action by yourself or a guest?
  • Will your personal liability include defense costs in the case of a lawsuit filed against you?

Saturday, March 9, 2013

Rental pricing

We often hear questons about why rental prices are high.  In particular, people are often surprised that it costs more to rent a home than to buy a similar home.  There are several reasons for this:
  1. The mortgage payment is lower because the owner invested a substantial amount in the down payment or in improvements to the house.  
  2. There are many costs to own a rental home other than the mortgage payment.  Taxes, HOA dues and repair costs are among those.  For example, the owner may have to absorb multiple-thousand-dollar costs like repainting the exterior every few years.
  3. The owner is taking all of the risk.  When you buy, you can lose money if you need major repairs or the real estate market goes down.  With rent, your cost is fixed regardless of these situations, that are beyond your control.
  4. The owner wants to make a profit.  Some investors are looking for "cash flow" from their rental properties so they price the rent a little above their total costs.   In the past few years, many private owners actually price Below their costs since their objective is just to cover as much of their costs as possible until the real estate market improves.
The monthly payment alone is almost always less to Buy than to Rent a home.  That's IF you have the down payment money, usually about 20% of the sale price, and qualify for a loan.   And IF you don't have to make major repairs.

Another question is "what is a fair rent amount?"  That depends on a lot of factors but, like real estate sale prices, it is mostly related to "comps".  In other words, how much it would cost to rent a comparable home.   Since no two homes are alike, that can be difficult to determine but location, size, number of beds/baths/garages, finished basement, and how updated the home is are key factors.  Two homes that are close on these factors should rent for about the same amount.

There are some general rules of thumb, depending on location.   In Johnson County, Kansas, rent is usually between $0.75 per square foot and $0.90 per sqaure foot.  Average is about 80 cents.  Homes with lots of services and amenities provided by the HOA will be at the higher end as will homes with high-end decor such as granite countertops.  Older homes that have not been remodeled are lower.  So, a "typical" 2000 square foot house in this area will probably rent for $1600-1800/month.  There are exceptions, of course, but you will want to check comparables carefully if rent on the house you are interested in is above or below these averages.