Making the Right Landlord Decisions
Safeguarding investments, mitigating potential losses, and understanding these risks is essential to success as a landlord, says a leading insurance company.
27 August 2023
Rental properties, for all their promise of steady income and long-term value can, if not managed correctly become ground zero for an array of unforeseen problems and potential hazards.
The reality is that damages, an often-neglected aspect of rentals, pose a considerable risk to an investment, says insurance company Initio.
These risks are as varied as they are prevalent, raising the pertinent question in the minds of property owners: “What damage is most likely to occur at my rental property?”
Safeguarding investments and mitigating potential losses, and understanding these risks, is essential to success as a landlord.
The company’s thorough examination of its loss data last year provides a detailed analysis of the challenges faced by New Zealand property owners.
Claims related to rented properties (including traditional rentals, own homes partially rented, and properties with multiple rentals) made up 35 per cent of all claims. When focusing on these rental-specific claims, Initio identified a broad spectrum of loss types, classified below in terms of claim numbers:
Water-Related Damage: At 21.6 per cent, this was the most common type of damage. These losses typically involved burst pipes and rodent damage; blocked pipes accounted for 6.4 per cent.
Accidental Damage: This category, representing 18.1 per cent of claims, includes an array of unexpected incidents, from minor mishaps to substantial accidents, illustrating the diverse risks property owners encounter. The losses range from outdoor misadventure, such as balls shattering windows or trees falling onto a property (while being pruned), to indoor accidents like stains on carpets and damaged rugs, often due to spills or pet-related incidents. There was also multiple kitchen bench damage, caused by hot pots.
Weather-Related Damage: Severe weather contributed substantially to claims, with flood-related incidents constituting 11.2 per cent and wind-induced damage representing 9.9 per cent. These statistics do not include severe flooding and storms earlier this year. Weather damage is hard for property owners to mitigate.
Other Incidents: Some more specific types of damage also occurred, albeit less frequently. These included:
- Malicious damage by tenants (4.6 per cent);
- Fire – accidental or unknown (1.1 per cent);
- Meth contamination (1.5 per cent);
- Issues with keys and locks (3.5 per cent);
- Impact damage, typically involving a vehicle, (5.5 per cent), e.g., car versus house.
Loss of Rent: There were several circumstances that led to loss of rental income, resulting in insurance claims. Property damage rendering the property uninhabitable was one such factor and is the most common.
However, issues such as tenant abandonment, non-payment of rent and eviction also contributed significantly. These loss-of-rent-only situations accounted for 3.3 per cent of total claims.
Frequency of claim vs cost
The above numbers are based on frequency (i.e., number of claims made). Initio also analysed the payout values for rental property claims. The graph below shows the top five losses by value. This data is presented alongside the frequency of each of these claims. It illustrates that losses like fire are uncommon but are high in value.
Fire-related claims constituted a mere 1.1 per cent of the overall number of rental property claims but made up 25 per cent of the total value of claims paid.
This underscores the potential devastation that fires can cause to rentals. The significance of this cannot be overlooked, highlighting the importance of equipping properties with smoke alarms and fire extinguishers. By taking these simple proactive measures, landlords can significantly reduce the risks associated with fires and safeguard their valuable assets and tenants.
Understanding the potential risks involved in rental property ownership can help landlords better prepare for and protect their investments.
Proactive and pragmatic management of landlord risk is a form of insurance in its own right. Initio says in its experience, with the losses it deals with, a landlord who focuses on tenant selection, tenant vetting, regular property inspections, fire extinguishers in kitchens regular maintenance (including plumbing and electrical checks), will outperform and not contribute to the statistics in this article.