Are you an “accidental landlord” or a “reluctant landlord?”

One byproduct of the difficult economy is an increase in the number of reluctant landlords. Many homeowners have been forced to relocate for jobs or other reasons but they can’t sell their first house so they rent it out. Others are holding on to their house, reluctant to sell at a low and take a loss – so they are trying to wait out the market by renting their first home. It’s difficult to know how widespread this practice is, but one gauge is that some insurers are reporting a recent spike of 25% or more in demand for landlord insurance.
While individual circumstances vary and there are times when it makes sense to rent a home, experts advise caution. Waiting out the market can be a chancy proposition because it may take years for the market to sufficiently appreciate. Meanwhile, there are a variety of additional expenses and responsibilities that a property owner must assume: taxes, maintenance, repairs, insurance, and property management, to name but a few. It can be difficult to charge enough in rent to recoup the expenses. Plus, renting for a number of years can eliminate or diminish the value of capital-gains tax exclusions.
If you are trying to make a decision about selling at a loss or renting your property, be sure to read the article’s comments where several readers share their experiences of being landlords. The author also offers useful tips and resources about renting your house in a sidebar to the article.
Don’t forget landlord insurance
If you suddenly find yourself an accidental landlord, make sure that you are properly insured. The Insurance Information Institute notes that landlord Insurance generally costs about 25% more than a standard homeowners policy, but the price may fluctuate based on a number of variables: what state your property is in, the condition and location of your property, what type of property it is (condo, single home or multi-dweller unit, for example) and the level of coverage that you require. Insurance Journal talks about what landlord insurance does and doesn’t cover:

“These policies typically cover the building in case it’s damaged or destroyed by fire, lightning, wind, hail, cars or collapse from ice, snow or sleet. they also cover the landlord’s personal property used by the tenant or used to maintain the house. This could include appliances and landscaping machinery like snow blowers and lawnmowers.”

…and another important area of coverage:

“… the coverage helps protect landlords from liability if someone gets hurt on their property. Some policies also pay for some or all of legal expenses. It also will pay for some or all the medical expenses for people injured on the property if the landlord is found responsible.
Unlike a homeowner’s policy, the landlord policy also will compensate for lost rent if the building is uninhabitable because of damage that is covered by the insurance. This is a big deal for a landlord who relies solely on that income, especially if a building is under repairs for a long time. ”

Talk with your agent about exactly what a policy would and wouldn’t include. Some of the variables that will affect the price and that you will want to talk over with your agent are deductible limits (how much you pay out of pocket in the event of a loss before the insurance kicks in) and whether your coverage is for replacement value or cash value of any losses. You may want to supplement a basic policy with extra coverage options for things that are not included, such as coverage for floods or additional liability coverage. You’ll also want to look into any discounts that might be available – these can vary from insurer to insurer. Some possible discounts include reductions for packaging multiple policies with one insurer or discounts for having security or protective devices on your property.