A rental property fire can happen, what do you do?
This is a new one for me. In the last 30 days, two different customers have had a rental property fire! I swear I had nothing to do with it. One happened because of faulty wiring in the attic which caught fire. A passerby saw the smoke and called the fire department. No one was hurt. The second one was a little more scary: Tenants go into attached garage. Smell some gasoline, but don’t think much of it. They turn the key to start the car. It sputters and then boom. Entire garage erupts in flames. They jump out of the car, run in the house and grab kids. Everyone makes it out. Fire department believes the car had a small hole in the gas tank. In first case, the duplex is completely doused with water, upper unit is destroyed by water and fire department, no flames. In second case, fire destroys garage (with car in it), the breeze way that connects garage to house and ran inside the attic so much of house is destroyed. In first case, insurance does NOT total out building. In second case, building is total loss. In both cases, the tenants had to move out (in the first case of the duplex, both tenants were lost). Security deposits had to be refunded. Not sure about paying pro-rated rent, though. Lease is automatically broken. You as the landlord are not obligated to find a place for them to live. While I am not an expert at this, nor have I personally gone through it, here are some thoughts I have after talking to my customers:
- Make sure your insurance has a “loss of rent” rider that will pay you the rent while it is vacant and being fixed up.
- Recheck your deductible. A $2500 deductible may save you some money, but it is going to hurt when you have to pay that out-of-pocket and refund any damage deposits. Going to a $1000 may not be that much of an up charge.
- Once per year, have your insurance guy send a letter to your tenants encouraging them to buy renters insurance. This $50-100 per year can provide up to $25k in possession insurance. All of the above tenants lost a significant amount of their stuff. Plus, maybe this would be a defense in court if the displaced tenants sue you for damages.
- Understand if your insurance provides for simple replacement of property or restoration of property. There is a big difference between replacement and restoration of 100-year-old 6″ wide oak trim and Home Depot ranch trim. If your property has historical significance or if some of the appeal of the property is the beauty of the old stuff, make sure your policy will restore it to original condition.
- If you have some type of damage such as tornado or fire or even a police raid, if possible, try to board/secure the property yourself. A different customer of mine had a situation where the police broke down a door and a couple of windows in a medical emergency at his rental property. The City of Minneapolis assessed him $3,400 to board 2 windows and 2 doors. My duplex customer above was able to have the time and materials he spent on boarding applied against his deductible.
- When you do a major remodel or upgrade on your property, make sure to document that work so you can show the insurance company that you just put new cabinets in or new carpet. Then they can’t try to claim that they are giving a reduced amount because of the age of the property.
- If you have a major claim for a rental property fire, consider hiring a private claims adjuster. This is someone who is in your court that pushes the insurance company to pay you every dime you need to restore this property. They take 10% typically of the insurance claim, but the couple of people who I know who have used them say it was great.
- Dryer fires are almost as devastating as a house fire and they occur 15,000 times per year. The amount of the damage may be just low enough that your deductible won’t cover it or it only slightly above your deductible and is not worth filing the claim. Can you find another $1000-2500 for repairs on your property for a neglected dryer vent? Make this part of your fall projects at your properties.
- Do you have 2-3 fire extinguishers in each building? These can keep a small fire from getting large such as a kitchen grease fire.
- Are your smoke detectors working? You can replace your building, but you can’t replace lives.
Next time you are at your rental, take a look around and see if there is anything that could cause a fire and fix it.