Avoiding Mistakes

Even though an agent may be perfectly qualified to sell you a home, they certainly don’t specialize in property management. Many agents are unaware of the specific legal policies that could cost you thousands of dollars when a problem arises.

Companies who only do leasing have a primary motivation to lease to the first person who walks in the door. Without managing the property, they have no feedback as to how a certain type of tenant behaves over time. Their motivation is not to find you the best possible tenant.

Many real estate investors consider insurance a necessary evil. The truth is that insurance is necessary and can certainly be evil if you do not have the right protection. Investor insurance is inherently more complex and much less standardized than your average homeowner’s insurance products that you are most familiar with. That’s why it is crucial that you understand what you need to purchase to mitigate coverage holes, otherwise you risk losing hundreds of thousands of dollars and damaging your excellent credit. Below is a list describing essential coverage options that you should include on every investment policy. Be careful; many of these coverage enhancements are not available with your typical home and auto insurance company. That’s why it is imperative that you discuss this with a licensed Texas insurance professional that understands your unique needs as a Texas real estate investor.

Did you know that The TEXAS ASSOCIATION OF REALTORS® Management Agreement requires you to list your Property Management Company on your policy as an additional insured? If you don’t have this protection, you are violating the contractual agreement between you and your Property Management Company. This protection is provided for FREE with many reputable insurance carriers.

Minimum coverage of $70-$75 per square foot in Texas is recommended in order to ensure your same property is rebuilt completely in the event of total loss.

Did you know that many basic policies only cover up to $100,000 of liability per property? This may barely be enough to pay legal fees, much less to indemnify for actual damages. Coverage of at least $300,000-$500,000 is required.

Coverage for hot water heater bursts, pipe breaks, and other common plumbing issues are regularly left off basic policies and are some of the most frequent claims.

If you have a homeowner’s policy form on your investment property, you need to switch to a dwelling policy immediately. Your current policy has a provision in it that excludes coverage if you do not occupy the home.

Most dwelling policies exclude coverage for any property left vacant for 30 days or longer. If your home is vacant, you need to be temporarily switched to a vacant home policy in order to be eligible for a claims payout.

If your property is significantly damaged due to a covered claim, your tenant will move out and more than likely not pay rent. With this endorsement, the insurance policy pays you rent while the home is being repaired / rebuilt. Katy Property Company has contacted Brenda Rammel to provide very competitive property and liability insurance for properties under our management.

To: Request a Quote

1. Contact: Brenda Rammel

2. 281.599.0600

3. Brenda@texasria.com

One of the mistakes that homeowners and investors make is failing to update their mailing address with the Appraisal District or removing the Homestead Exemptions or other exemptions from the property that they are no longer or not eligible for. When you buy a new rental property or move from a property and convert it into a rental property you need to update your mailing address with the Appraisal District and remove any exemptions that you have that you are no longer or are not eligible for. Also, many times, we have Deeds or other legal or important documents being mailed directly to the rental property. Some tenants do bring the documents, but most do not. By keeping your mailing address current with the Appraisal District, you can save yourself lots of frustration and or money.

To check to see what mailing address the Appraisal District has on file for you go to their website at www.Hcad.org or fbcad.org and go to property search to see the mailing address on file.

We also suggest Owners converting a personal residence into a rental home remove their Homestead Exemption. Failure to do so can cause a potential conflict with underpaid Real Estate Taxes. (Check with the appraisal district to ascertain whether or not you must remove your Homestead Exemption)

A common but costly mistake that homeowners and investors make is failing to
update their mailing address with the Home Owners Association (HOA).

If your property is in a Mandatory Home Owners Association (HOA) you should
personally contact the HOA and make sure that they have your current mailing
address and phone number every time you move. HOA’s can charge large fines if
HOA fees are not paid, are late, or if HOA violations go unanswered. HOA’s have
even foreclosed on properties where the owner did not pay the HOA dues or cure a
violation of their property simply because the HOA was uninformed of the owner’s
current mailing address.

Unfortunately, filling out our HOA addendum is not enough. Many HOA’s will not
recognize our HOA addendum even though it was signed by the owner of the
property simply because of the way the HOA rules and laws are setup. Most HOAs
will only talk to or deal directly with the owner of the property.
The importance of complying with the community covenants and restrictions has
been made clear by the Texas Legislature in the 1987 statute which states that the
community association covenants and restrictions will be liberally rather than
narrowly construed or interpreted. The Law also allows a judge to fine someone in
violation up to $200 per day from the day the violation began, plus court costs and
attorney’s fees. If the HOA does not have the owners current mailing address they
will mail the HOA dues invoices and violation notices directly to the rental property.
Some tenants do notify us and a few even bring the notices into our office, but most
do not. As a result, owners get charged with huge late fees, attorney fees, and could
end up facing possible foreclosure, all because the HOA doesn’t have the owner’s
current address. If you do not know the contact information please contact us, we’ll
help you look up the HOA information.

Vacancies, turnovers and lease terminators are your biggest expense. Charge fair rents, treat your tenants with respect and respond as quickly as possible to their needs. It is a lot less costly in the long run to take care of the little problems rather than wait until they become big problems. Vacant property is your Achilles heel.

It is almost always better to settle a dispute with a tenant (even if it’s not exactly the best deal for you) than to fight it out in court. The landlord-tenant laws are usually extremely unfair to landlords. In addition, tenants often have access to free “legal aid” lawyers who will fight you with tax-and-charity dollars almost indefinitely with all the laws on their side. In the end, it may cost you thousands. It’s not worth it just to win a point of pride. Usually, the only time it is really important to fight to the end is to get rid of a non-paying tenant. Even then, a settlement where you pay them to leave may be cheaper than paying even more attorney fees to fight to the bitter end.

Most successful investors have well maintained properties. Be sure to re-invest some of your cash flow back into clearing any outstanding maintenance problems there might be on the property.