AUTHOR DETAILS
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Shaun Shenouda2 Posts
Shaun Shenouda is the Chief Operating Officer, Programs Executive at SES. He joined SES in 2014 as SVP of Operations and Technology, where he primarily focused on delivering customer value through innovation and service excellence. Shenouda has 20 years of experience offering master-policy Property & Casualty insurance, service, and technology to financial institutions. Prior to joining SES, Shenouda held the position of Senior Vice President of Integrated Solutions and Analytics at QBE, where he focused on business transformation, customer experience optimization, and M&A integration initiatives. Shenouda has a degree in Management Information Systems and received his MBA from Pepperdine’s Graziadio School of Business and Management.
Rental Property Risk Management
Preventative Measures for Successful Risk Mitigation by Shaun Shenouda While there is no stopping acts of God, you fortunately can mitigate many of the risks pertaining to your rental properties relatively easily and inexpensively. As you might suspect, some of the most prevalent risks pertain to losses caused by the residents. Given the increased propensity to spend more time at home due to COVID-19, there is an overall increased risk. Proactively taking steps to evaluate those risks and putting best practices in place to minimize those risks could save your rental property as well as lives! Fire! According to the National Fire Protection Association (NFPA), there were 340K house fires in 2019 (26 percent) resulting in 2,770 civilian fire deaths (75 percent); 12,200 civilian injuries (73 percent), and $7.8 billion in direct property damage (52 percent). Over the past three years, house fires have resulted in 40% of SES Risk Solutions overall losses which sustained an average loss of $70K per fire. We have also seen an uptick in frequency due to more people working from home, overloading their outlets, cooking fires, etc. WIRING Nearly 1/3 of the properties we insure were built in the 1960s and 70s, which coincidentally is when aluminum wiring was often used as opposed to the more expensive and higher performing copper wiring. Aluminum conducts electricity safely. It’s the connections that pose the most issues. According to the U.S. Consumer Product Safety Commission (CPSC), homes with aluminum wiring are 55 times more likely to have “fire hazard conditions” than homes wired with copper. Since permit data is often incomplete and/or unavailable, our investors do not always have easy access to determine if the wiring has since been updated. Solution: Engage with a professional contractor to inspect the property(s) to determine if the wiring has since been updated. Our research suggests the cost to be between $1500-$3000 to upgrade, if needed. FIRE EXTINGUISHERS Another highly effective and affordable best practice is equipping all your rental properties with a fire extinguisher. In a study performed by FETA (Fire Extinguishing Trades Association) where it recorded over 2,600 incidents, they concluded that in 81.5% of cases the portable extinguisher successfully extinguished the fire and in 74.6% of the cases the fire department was not required to attend. Despite the effectiveness, according to the PEMCO Insurance Northwest Poll, 27 percent of Northwest residents live without a fire extinguisher in their home. The poll suggests that among the most at-risk are renters, who are significantly less likely than homeowners to have fire extinguishers—58 percent of renters vs. 82 percent of homeowners. Solution: Generally, fire extinguishers are around $20. While they are easy to use, they will only be used if they are easily accessible. They also have a shelf life, so it is important to implement a recurring replacement process. We also recommend incorporating the location of the fire extinguishers and how to use them into your property management process. SMART HOME DEVICES Despite marketing advantages, better tenant satisfaction and increased profits, the value proposition for most smart home devices has only recently become more compelling as the price point for these devices has come down considerably. In fact, demand for smart home devices is growing so fast that experts have coined the term IoRE—or Internet of Real Estate—to describe the booming market in smart home devices. The smart home device market has doubled in size from about $44 billion to $91 billion over recent years and is expected to reach $158 billion by 2024, according to data from Precise Security. While tenants are likely to value smart lights and virtual personal assistants (VPAs), installing smart home products in your rental property can also be an easy and cost-effective way to protect your property. The acronym “Smart” comes from “Self-Monitoring, Analysis, and Reporting Technology”. Some insurance companies, like SES Risk Solutions, value this increased real-time awareness and may even offer a premium discount for landlords that have invested in installing such devices. Solution: Evaluate the specific needs of your property and investment strategies when considering Smart home technology options. The two we have found to provide the most value are: 1) Flood or moisture detectors. Renters may not place a high degree of value on these devices, but for a small price, moisture sensors can potentially save landlords a considerable amount of money through water damage prevention. Easy to install and affordable, these detectors can alert you to problems like slow leaks that may otherwise go unnoticed before they turn into major issues. They can also quickly inform you of big problems like burst pipes that can do major damage quickly. 2) Smoke and carbon monoxide (CO) detectors. Smart smoke alarms and carbon monoxide detectors take safety a step further than traditional models. Rather than just sounding an alarm, these smart versions can also alert you and/or your renters if there is a problem via an app. VACANCY Another very important set of loss prevention best practices are centered on vacancies. With nationwide occupancy rates above 94%, according to John Burns Real Estate Consulting, vacancy risk management may not be top of mind for investors. However, according to SES Risk Solutions loss history data, losses on vacant properties are over 1.5 times more prevalent and severe. There is the obvious increased risk of slow detection of an issue be it smoke, water leaks, etc. There is also an attractive nuisance, which can draw in squatters and thus increase propensity for vandalism, theft and arson as well as bodily injury. Solution: Top 3 suggested preventative measures: 1) Inspections. The landlord or property management company should physically inspect the vacant property on a regular basis (weekly). They should perform regular maintenance, remove fire-prone debris, check the plumbing, ensure the smoke detectors are functioning, confirm there has been no intrusion, etc. 2) Winterization. Make sure plumbing is drained and heat remains on. 3) Secure the property. Set up motion-activated exterior lights and put interior lights on a timer (simulate real usage). Home security
The Hidden Weapon: Property Managers
Property managers can be the difference makers for profitable portfolios. Owning rental properties can be an outstanding investment. But managing and growing a portfolio is also full of inherent challenges and risks. Managing tenants, rehab and general maintenance, vacancy cycles, and even legal and code-related responsibilities can be complicated and challenging—often requiring a range of specialized skills, strategic vendor partnerships and operational capacity. Property managers can identify trends across your portfolio that you might not see. Trends they may identify in preventive maintenance, tenant screening and so on can help you to proactively make your portfolio more profitable and create a better experience for your tenants. Enhanced Tenant Experience Tenants are often a real estate investor’s primary revenue source. They can also be the cause of some of your biggest business risks, which is why creating and managing a tenant experience is one of the most important functions of a property management company. Working with a property manager who enhances a tenant’s renting experience can ultimately result in longer leases, fewer vacancies and your ability to maximize rents. A property manager will be available to your tenants 24/7 to handle emergency maintenance repairs, rent collection and move-ins/move-outs. They can also ensure that any damage is handled quickly, so that a small problem doesn’t become a big disaster. Better Operational Practices Property managers should have the resources to facilitate online payments, present key performance indicators and other data, eliminate extended vacancy and provide access to qualified and competitively priced maintenance/repair services. Property managers’ knowledge of local, state and federal landlord-tenant laws will ensure that all practices are in compliance. They should also have adequate processes in place to ensure proper record retention. In addition, property managers are experienced in recovering NSF checks (checks returned for “not sufficient funds”), collecting debts and evictions. Outsourcing these activities removes the burden from your operation and helps to insulate you, the investor, from having to carry out potentially difficult tasks. Property managers can also streamline tenant screenings and enhance due diligence, including checking credit reports, past evictions and criminal history. All of these help to ensure that only desirable tenants rent your properties. The Right Tenants Unfortunately, not all tenants are equal. Putting the wrong tenant in your investment property can significantly affect both short- and long-term profitability. Tenant screening goes beyond the basic credit check. Be sure you have a thorough understanding of the property management company’s tenant selection criteria. In a market with greater than 95% occupancy, it is an opportune time to charge your property manager with finding the optimal tenant. Finding the right tenants and keeping them happy increases the likelihood of lease renewal. A property manager should also look to increase profits by increasing rent at renewal. They will be able to gauge what a reasonable—but also profitable—increase should be, while also staying compliant with landlord/tenant laws. The Upside of Upkeep Most property management firms have standing relationships with a range of contractors from plumbers and roofers to HVAC technicians and excavators. Those relationships can mean less costly and faster repairs. Speed is a critical factor for many reasons, most notably tenant convenience and alternative living expenses. Routine maintenance, upkeep and upgrades increase the value of your property. According to data surveyed by PropertyMeld from 5,800 units across three markets examined over 18 months, preventative maintenance and overall upkeep can also reduce tenant service requests by 38%, thus cutting down on unexpected expenses. Regular inspections will ensure the property is kept in good condition and that the fire alarms are fully functional, while also verifying that all individuals living in the property have been screened and are listed on the lease. At time of move-out, the property manager should conduct a thorough inspection of the property and provide a report of all required and recommended repairs. Property managers can also help enforce that your tenants maintain an active renters/tenant liability insurance policy. Such a policy will help preserve the stability of your primary property and casualty coverage. According to a recent study by SES Risk Solutions, over 55% of all fire losses were tenant-induced—losses that would have been largely recoverable via subrogation, if a renters/tenant liability coverage were in place. Most importantly, a property manager takes the burden of the day-to-day operations off the investor, allowing the investor to focus on growing the portfolio. A trusted property management firm can also allow investors to expand their holdings beyond a tight geographical area. Finding the Right Property Manager Property management companies often focus on specific property types (single-family dwellings, multifamily dwellings, condominium units, etc.), so it is critical that your property manager has the specialized experience to handle your unique needs. Property managers should be an expert in their respective field and be quick to adapt to changes in the market and industry (i.e., marketing approach, tenant communications, etc.). Select a property manager that wants to establish trust and offers consultative services, such as through a dynamic Not to Exceed (NTE) amount for repairs and maintenance. Additionally, look for property managers that have policies and guarantees that protect you if they are unable to place a new tenant within a reasonable time. Marketplaces (such as Roofstock), and property managers will sometimes waive fees, cover rent and offer one-year guarantees on repairs and maintenance. Several industry events provide great access to property managers, including IMN’s Property Manager Forum. Online searches are also another great place to start. Here are key search terms to use: <Your City> Property Managers <Your City> Property Management Rental Property Management Rental Management Property Management Companies Near Me Ask for recommendations from your local chamber of commerce or property manager associations such as the National Association of Residential Property Managers (NARPM), read blogs and network with fellow investors. It’s also a good idea to talk to your insurance carrier or other risk management specialists to find out if you’re fully covered and to ensure your prospective property management company carries the right insurance.
