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What happens if someone damages your investment property?

By November 30, 2021January 4th, 2022Insurance
What happens if someone damages your investment property? - Birds Eye View Of Large Tropical Resort With In Ground Pool and Palm Trees

There is a lot of confusion about what happens if your Airbnb, Vrbo, etc. is damaged by a tenant. You have invested your time and money to make your short-term rental look great, and you are a great host. So, it is understandably frustrating when you have to keep putting more money into the property due to damages. Although some minor wear and tear is to be expected, repairing things like broken fixtures, holes in the wall, or even spills that stain your carpet or area rugs can be very costly.

How are security deposits handled? Will you be compensated for the damage? What if a security deposit wasn’t included in the contract? Do you need to file an insurance claim? The answers to these questions can be complicated and circumstantial, but in this article, we will help you navigate how to handle these situations, and also how to make sure you are properly insured with short-term rental insurance for your vacation investment property.

Damaged Property? Here’s what you should know.

Few things are more frustrating than when you enter your investment property after a tenant has checked out to find that they have seriously damaged your property. Sure, a broken wine glass or a white towel that was used to clean up the spilled red wine (it’s always red that gets spilled) is to be expected. But when you walk in to find broken ceramic tiles or a broken handrail, we stop thinking in terms of nickels and dimes and start thinking dollars. This is an investment property, but it’s not much of an investment when you have to shell out hundreds of dollars for repairs. Fortunately, there are a few options for when things like this happen.

Security Deposits

The first thing you will want to check is whether or not the tenant paid a security deposit. This is the path of least resistance since you will not have to go directly after the tenant to recoup the cost of the damages, and more importantly, you will not have to file a claim with your insurance carrier, which may carry a high deductible and impact your annual premium due to frequency of claims.

Most vacation rental companies require a security deposit, however, they typically determine the amount of the deposit, not you. You may also have the option as the host to ask the tenant to put down a security deposit. It is important to use this option carefully and reasonably, as it can scare off guests who see this as a sign of mistrust or more unnecessary charges.

How it works.

Most vacation rental companies will apply an authorization hold for the security deposit on the guest’s credit card. Your tenant will not be charged the security deposit, but it will show as a pending transaction on their credit card statement. Once the tenant checks out at the end of their stay, and it is agreed that the deposit should be returned, the pending transaction will disappear, and the tenant will not be charged.

If you decide to charge a security deposit up front, there will not be a hold on the credit card for the security deposit. In this case, the tenant will only be charged if they are responsible for damage to your investment property.

Claiming damage to the vacation rental company.

Making a claim to the vacation rental company is usually a simple process, especially with well-known companies like Airbnb and Vrbo. You can submit a claim for damage to your property by going to the vacation rental company’s website and logging into your account. Look for the tab that reads “Resolution Center” or “Damage Protection” to report the damage. From there, you will be able to report the damage and request compensation for the damage.

Be sure to take photos of the damage and document the time and date that you found the damage, and the time and date that the damage occurred, if possible. You will also want to get an estimate on how much the repair will cost so that you have an idea of the compensation necessary when filing the claim with the vacation rental company.

If you decide to try to get compensation directly from the guest responsible for the damage, be sure to do so through the hosting site’s Resolution Center. If the guest told you about the damage up front, they may be willing to come to an agreement on paying for the repair(s). Let the guest know how much the repair will cost you, and let them know how much you will be asking them to pay. Your guest will be required to respond within a designated period of time. If the guest accepts the charge, the hosting site will be able to take payment from the guest and send that payment directly to you. If the guest does not respond or refuses to accept responsibility, you will need to contact the hosting site for assistance in resolving the claim.

What happens if none of that works?

If you have exhausted every avenue listed above and you still have not been compensated for the damages to your investment property, you may need to file a claim with your short-term rental insurance carrier. Short-term rental insurance (STR insurance) is a MUST HAVE when you own an investment property that you rent out on a short-term basis, whether you are using a hosting site such as Airbnb or Vrbo or flying solo and doing your own booking.

Short-term rental insurance is a specialty insurance that not all insurance companies are willing to write. Short-term rental insurance can be a personal lines policy, commercial lines policy, or a combination of the two. It not only covers damage to your property caused by guests, but also natural perils such as wind, storms, fire, vandalism, and more. STR policies also include coverage for your personal contents, such as furniture, artwork, and electronics, as well as coverage for water damage, mold, and even theft while the property is being rented.

A commercial or commercial hybrid STR policy offers all of that, plus some great additional coverages such as general liability and loss of income. Since this is an investment property that is generating money, you can (and should) look at it like a business. When you own a business, general liability is typically a requirement. Having an insurance policy that is structured to cover you like a business will allow you to increase your liability limits to over $1 million, decreasing your liability exposure and further protecting your assets. The loss of income coverage will allow you to continue earning money even when the property isn’t being rented out due to a covered loss. By having these extra features, you are able to maximize your profit and protect your investment, as well as your assets.

If you need an insurance quote for your short-term rental property, click here.