Owning and managing a rental property is a demanding business. There are benefits to be had, but there are also many risks and responsibilities for landlords to be ready for since it’s on you to keep things running smoothly.
One thing you may not need to fret about is finding potential tenants since it appears the demand for housing in B.C. and across Canada is always jumping. Thus, being a landlord can be lucrative and rewarding.
Data published in June by Rentals.ca ranks Vancouver as the most expensive city in Canada to rent a one-bedroom apartment at approximately $2,377 per month. That’s a 19.9% increase over a year ago and $244 more per month than a comparable unit in Toronto, which ranks second. Other B.C.-based cities listed in the June National Rent Rankings top 10 include Burnaby (third overall at $2,012 per month for a one-bedroom place) and Victoria (ninth at $1,870 per month). From a national perspective, the average cost of monthly rent for a single-bedroom apartment is $1,591, an 8.05% increase versus one year ago.
Despite the costs involved with maintaining a property, understanding how best to protect your property and prevent accidents is vital to ensuring your rental property business is successful. That’s when the value of landlord insurance comes into focus.
What Types of Landlord Insurance Do You Need in B.C.?
Whether your rental income property is a house, condominium unit, or basement apartment, a typical landlord insurance policy contains a few different coverages to form a comprehensive package. They include:
- Commercial general liability (CGL) insurance: CGL provides financial support for claims of third-party bodily injury or property damage that occur on your property or result from negligence or unexpected accidents. For example, if a tenant or one of their visitors trips, falls, and is injured on the property, the policy indemnifies the policyholder to assist with the medical costs associated with the loss.
- Commercial property insurance: This type of coverage protects your building and its contents from loss or damage resulting from fire, flood, extreme weather, theft, or vandalism. It may also include rental income coverage for lost rent payments. For instance, following an insurable loss, you cannot rent the dwelling while it’s under repair because it’s uninhabitable.
- Equipment breakdown insurance: Coverage for your dwelling’s HVAC (heating, ventilation, and air conditioning) system and the kitchen appliances if they are damaged because of a mechanical or electrical issue is equally important. Equipment breakdown insurance pays to repair or replace these items following a covered claim.
There are additional coverages you might want to include in your policy. For example, legal expense insurance is a valuable add-on to offset the costs of hiring and retaining a lawyer should you need one. Say you are audited by the Canada Revenue Agency and want to appeal the decision and need legal advice, or if you wish to pursue legal action against a former tenant for damaging your property: hiring a lawyer in either scenario can be expensive. However, legal expense coverage costs significantly less.
Also, asking your tenants to purchase tenant or renters insurance to protect their possessions and provide them with some liability coverage is worthwhile. Your landlord insurance policy does not cover your tenant’s personal property if they are destroyed or damaged by a flood, for example.
Tips to Manage the Cost of Your Landlord Insurance
How insurance companies determine the cost of a policy depends on several factors, including:
- Where your property is located
- The type of property: a single-family dwelling such as a house, a one-bedroom condo, or another kind of living space
- If your rental property is a building, how many rental units it has
- The cost to rebuild the entire building if it is destroyed
- The length of time you’ve been a landlord or rental property owner
- Your annual and projected revenue
- Your insurance claim history
Often, the cost of an annual premium is also dictated by factors beyond your control, such as inflation, a challenging economy, insurance fraud, or an increase in natural catastrophes that trigger a spike in insurance claims. So even if you have a claims-free history, it’s conceivable you may see an increase in your premium at renewal. But here are some ways you can help reduce that possibility and keep your premium low:
- Shop your rate regularly. If you don’t explore your options regularly, how do you know you are getting the coverage you need at the best price? Don’t be complacent with your insurance coverage. Review your policy annually, update it, and shop around regularly.
- Perform preventative maintenance regularly. An insurance policy is a contract between you and your insurance company. But know that an insurance contract is not a maintenance contract. In other words, be hands-on managing your rental. Be proactive and fix things inside and outside your property before they become problematic and cause real damage. For example, if there is a leaky water pipe in the laundry room, don’t wait for it to burst and flood the building.
- Thoroughly screen your tenants. Conducting thorough checks on your tenants can help prevent many issues like noise complaints, damage to your property, or someone who stops paying the rent. Do criminal background checks through the RCMP, credit score and history checks via Equifax and TransUnion (Canada’s two premier credit reporting bureaus), and ask for employment references.
- Partner with a business insurance broker. Shopping for a competitive, comprehensive landlord insurance policy can be time-consuming and confusing. Partnering with a licensed broker can take the hassle of shopping around off your hands and clear the air on what your policy provides, including its limits and exclusions, so you understand it.
Also, ensure you understand B.C.’s tenancy laws and rules to know your rights and the rights of your tenants to avoid disputes or arguments. For example, as a landlord, you must provide your tenant with written notice a minimum of 24 hours before entering the rental property for any reason. Furthermore, you and your tenant are required to inspect the property together before they move in and after they move out, and you must provide them with a copy of your inspection report within seven days of doing so.
How Small Business BC Can Help
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