Owning a rental property isn't always easy as you have to deal with various types of tenants and some will give you the headache that you didn't ask for.
You are lucky if you get a good tenant that will protect your property and pay you the rent on time. And when they move out after their one or two year contract ends, you will get back the property in the same manner as you handed it over to them upon signing the tenancy agreement.
But what happens if you get a tenant that promises you the moon and the star but they do not deliver their promise? Moreover, you will have issues with the tenant such as delayed rent payment or they suddenly moving out without giving you the two month's notice that is required and as stated in the tenancy agreement.
How can you protect your interest, investment, and property?
Some suggest that you should purchase landlord insurance. It might be one of the easiest decisions you can make, both as an owner and landlord.
Buying landlord insurance is a safe way to protect your investment, said Metro Homes Realty Bhd executive director See Kok Loong.
Landlord insurance is a type of insurance policy that covers a property owner from financial losses linked with rental properties.
"Not many Malaysians are aware of the importance to get one and protect their investment. Insurance is one of those things that some people mistakenly think it isn't worth the cost. That's why people choose not to take appropriate insurance coverage to insure their assets and their income.
"When it comes to insuring their homes, most Malaysians only insure it because of bank requirements due to mortgages. Landlord insurance is not on the radar of all property investors," he said.
He said landlord insurance covers property investors for a variety of events that can result in a financial loss, and it is tax-deductible.
So how can it protect you?
1. Rental loss – You can insure your investment property for loss of rent, but not when it is vacant. This applies to both commercial and residential properties. Rental loss is when your property is damaged such as by a storm or flood, and it is uninhabitable for some time. You can insure your property for such an event, but you must be able to provide evidence of everything, including the exact rental loss that you have experienced.
2. Rent default and theft – Unfortunately, sometimes an ideal tenant can become a worrisome one, perhaps due to changes in financial or personal circumstances. The tenant may stop paying the rent for a few months, giving all kinds of excuses, and then suddenly one day you discover that they have moved out, leaving behind not only outstanding utility bills but damaged assets. A landlord insurance policy can cover you for rent defaults in such circumstances. It can also provide coverage for theft, such as if the tenant took some of the items that you own from your partly or fully furnished property.
3. Malicious damage – Your rental property will need to be constantly maintained because of the wear and tear of tenants living in them. There are cases where the tenant will tell you that only two or three people will stay in the unit, but at the end of the day, there will be more than five or six people, some using the sofa and carpet as their 'bed'. Damage can be done beyond the norm – either malicious or as an act of vandalism. Perhaps your tenants hosted a party that got out of hand and significant damage to the walls was sustained, or the kids drew on the walls or put holes in it for whatever reason. In such instances, unless your tenants are prepared to pay to have the damage remedied (though you've probably given them notice to leave anyway), you can claim for your financial loss through an appropriate landlord insurance policy.
4. Legal costs – Appointing a lawyer to issue a letter of demand for outstanding rent is the first step by the landlord. However, for a layperson to engage a lawyer and pay the professional fee might not be so simple. Landlord insurance policies can provide additional cover for legal expenses that are incurred in remedying an issue with a tenant, such as legal cost for a letter of demand.
5. Home fixes – Older buildings face situations such as burst pipes, break-ins that damage the door lock, among others. Landlord insurance offers coverage for such risks – which is especially useful if you don't live near the rental property. The coverage will come in handy and reduce arguments between the landlord and tenant over the cost of repairs.
6. Mortgage loan installment protection – This is coverage for landlords in the event rental residential properties are deemed temporarily uninhabitable or in the case of accidental death or permanent disablement. The insurance will cover a six-month mortgage installment or a benefit amount. (This is similar to personal accident insurance but it covers mortgages.)
7. Public liability – One of the most significant benefits of landlord insurance is its public liability cover, especially when it comes to commercial properties or property with common areas. This insures you against an injury or death that occurs on your property. This is insurance for you as the owner, lets says if the tenant or a visitor who is injured on your property decides to take legal action against you.
So before you get your landlord insurance policy and sign on the dotted lines, you should double-check the fine print to ensure the policies cover you for everything. Shop or ask around for a good policy that doesn't cost too much.