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Tuesday, May 22, 2012
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Market and consumer trends point to increasing numbers of pet households. According to the 2007-2008 National Pet Owners Survey, 63% of U.S. households or about 71 million homes own a pet. While there are no available statistics on the ratio of pet owners who rent, a conservative estimate is that 50 percent of renters own pets.
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As the newly created class of displaced homeowners starts their rental search, many homeowners have pets that will move with the family. Opportunities exist to accommodate owners with pets. Landlords receive the benefits of additional rental income and potentially fewer vacancies. Studies have shown that renters with pets average a longer rental stay than those renters who do not have pets.
Those landlords with a "No Pets" policy cite concerns about pet damage, noise, liability for injury, and insurance restrictions. Landlords who welcome animal companions, advertising "Pet Friendly" living, address these concerns through the use of pet deposits, rent differentials, and written pet policies and rules.
Breed, size or weight restrictions can be incorporated into the landlord's rental policies and lease agreements. A separate pet deposit as allowed by state statute can help minimize costs to repair pet damage. Requiring that pets have been spayed or neutered, have successfully completed obedience training, have regular health examinations, are licensed, are current with required vaccinations, and kept under control at all times(leash or harness) can reduce unwanted behaviors and help with safety and security issues.
Understandably, pet friendly housing does carry some restrictions necessary to protect and preserve quality of life and property value. The most common restrictions are the number of pets allowed per household, the breed of animal, the size(weight and height) of the pet, and proof of required licensing and vaccinations.
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Properties that are rented for short terms, whether for a few days or for a month or two often require consideration of issues not of concern for regular rentals. These unique characteristics create concerns for the owner and/or property manager in addition to all those that apply to longer-term unfurnished properties.
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In view of the short rental terms and the expense and hassle of repeatedly turning all the utility services on and off, the owner must usually provide telephone, CATV, electricity/gas, water, trash removal, and any other necessary utility service in his own name.
This is particularly important with long-distance telephone service where the potential expense is almost unlimited.
If the property will be vacant for an extended period, the circuit breaker for any electric water heater should be turned off. For a gas water heater without electronic ignition, the best approach might be to have the departing tenant turn down the thermostat rather than turn the heater off. If electricity is not to be discontinued or be turned off at the main breaker, you must also be sure that departing tenants turn off air conditioning and heating systems at the thermostat control.
Be sure to provide a list of maintenance vendors that the tenant can call in case of emergency if he cannot immediately reach you or your agent. You should at least provide vendors for the plumbing and heating/cooling trades. You must utilize a cleaning service that can be relied on to perform adequately and in a timely manner on specific scheduled times between tenants.
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Many real estate investors assume that their assets are protected because they have insurance on their rental properties. Unfortunately, they are dangerously wrong. For a long time now, judges and juries have been awarding outrageously large judgments for personal injury lawsuits and there is little chance that this will change in the future. In fact, judgments will likely increase at least as fast as real estate values. One million dollars of liability coverage under a basic rental policy, even when there is an additional one or two million dollars of umbrella policy coverage, doesn't help much if a judgment is 5 or 10 million dollars.
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Insurance coverage is necessary and provides protection against many risks, but it is usually cost-prohibitive to attempt to fully protect all your assets against every possible risk with insurance at a cost that is practical. Even if you spent the money in an attempt to cover the worst-case expected claim, you could still discover in the end that it provided inadequate protection either because the judgment is millions of dollars more than the coverage or because the matter being litigated is not even covered by your particular insurance policy.
Currently, both operational and income tax issues favor the LLC as the vesting entity of choice for most investors.
Of additional significant importance, it is usually best to have a separate LLC for each property. The reason for this is that a large judgment against an LLC resulting from a claim against one property owned by the LLC would result in all other properties owned by that same LLC being available for satisfaction of the judgment.
We advise you to seek competent professional advice regarding issues that are specific to your own asset protection and other risk management needs. However, it is to your advantage to have a good understanding of the issues prior to doing so.