5 Rules Every MA Landlord Should Live By

I’m pretty sure that if you asked anyone who has ever been a landlord you would get an overwhelming response that it’s not as lucrative or easy as they originally thought it would be. Fact is, owning a rental property can be a lot of work, and end up costing you a ton of money!

I certainly don’t mean to be Eeyore here, and I know that when done right it can be very lucrative, but from an insurance agent’s perspective, I don’t see a lot of people doing it right.

So you’re probably thinking, “Well Mike, you are an insurance agent. What do you know about real estate or rental properties? Why should I take advice from you?”

I’m not a real estate agent, and I don’t own a rental property. However, several of my friends and clients own rental property, and because I insure a bunch of their properties, I’ve seen a lot of the struggles.

1.) Do your due diligence

This is without a doubt the largest mistake I see landlords make. They are in such a rush to make money, they don’t pay enough attention to the property itself. Trust me, I get it–you want to buy the cheapest property possible which can create the biggest profit. The problem is, the property is cheap for a reason. It has problems–lots of them.

Many people buy properties in low income areas, with hopes of re-painting the walls every 3-5 years and making some rental income. The problem is, that insurance companies don’t want to take a risk with you.

Be very careful with the “as-is” property. Unless you have money to play with, steer clear. This will almost always cost you more money than you think. Most “as-is” properties are either foreclosers or properties that have been vacant or abandoned.

If you don’t know what to look for in a rental, a home inspector and make sure everything checks out, or at least that you know what you are getting into.

Everything must be up to code before you have a renter in the property. Period.

In particular, you need to make sure the wiring, plumbing, heating, and roof are all functioning properly, and that they’ve been upgraded or updated within the past 20 or so years. More problems arise with these three things than anything else, and you are putting yourself at risk for a lawsuit, and your tenant safety at risk if they are not in good working condition.

And whatever you do, make sure there are no mold problems. You need have the house tested, and make sure it is documented. Mold can kill–literally.

You may make the choice that the benefit outweighs the cost but before you buy a rental property and put get a tenant, do your due diligence on the home.

It’s always worth the time, money and effort.

2.) Create a written contract

Find a lawyer and pay the fee. Trust me it’s worth it. You need to have a written rental contract and lease in place before the tenants moves in.

If at all possible, don’t sign less than a 12 month lease.  The longer the tenant is under contract, the less re-marketing the property you have to do.  Make sure they understand the contract and require that they sign it.

By making sure they understand the legal contract and that they will be held accountable for the property, you can save yourself thousands down the road.

3.) Screen your tenants (thoroughly!)

Rarely do I see someone screen their tenants. Most landlords are worried about getting someone in the property to pay rent and fail to check the prospective tenant out beforehand.

At the very least, you need to make sure your tenant is carrying their own renters/tenants insurance policy (HO4 ). Let the tenant know that your insurance will not cover their contents or liability.

Whether you allow pets or smoking is up to you, but I’d be careful with both, because in the end, they could cost you more money if you have to repaint, replace carpeting, etc. They could also potentially result in liability exposure with dog bites, and fires.

4.) Make sure you have insurance (Landlord Insurance)

Having the right type of insurance for your investment property is extemely important. The problem is, most people don’t know that they need a separate type of policy.

You can not buy traditional homeowners insurance for a rental property. If the home is not owner occupied, it is not eligible for the standard homeowners coverage. What you need is called a Dwelling Fire policy, or sometimes it’s referred to is a Landlord Insurance policy.

Remember that the underwriting for rental properties is generally a little tighter, and the coverage isn’t as broad as what you would find in a homeowners policy. As I mentioned before, many people buy properties in lower income areas, with hopes of painting the walls and making some rent money.

The problem is, that’s the type of property that insurance companies don’t typically want to take a risk on.

Still you must buy this type of policy for a rental. Do not buy a homeowners insurance policy because it is not designed to cover a non-owner-occupied property, and a claim would be denied if you had the wrong coverage.

Another thing you need to be aware of, is that most Dwelling Fire policies state that if a property is vacant/un-rented for more than 30 consecutive days (some companies will allow 60 days), coverage can be reduced and even eliminated, so make sure not to let the property sit vacant too long.

If the home will be vacant for more than 30-60 days, you need to let your insurance carrier/agent know and the right kind of coverage can be put in place.

5.) Keep tabs on your properties

I’ve had people call me for quotes for their rental properties, and when I begin to ask them about the construction information, they know absolutely nothing about the house.

Some people don’t know whether the house is brick, frame, or vinyl sided. They don’t know the age of the roof or the last time the systems of the home were updated.

If you own a rental property it is important that you know all of these things.

You need to keep tabs on your property.

Keep records of all repairs, and make sure you physically visit or at least drive by the property every month or so to make sure everything is in good working order. This is your investment. You need to maintain the property just as if it was your primary residence.

Owning a rental property can be a profitable business that can generate a lot of passive income, however, if you don’t abide by these 5 rules, it could end up costing you a lot of money in the process.

Have questions regarding your landlord insurance coverage in Massachusetts?  Whether you are looking for coverage in Hanover, Hanson, Pembroke, Boston or anywhere else in MA, Richardson Insurance can help.

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