March 10, 2020

Rental Income Insurance Claims – Not As Easy As You Might Think

If you submit an insurance claim for lost rental income, be aware it might be harder than you think.  This is true whether you’re part of a big property management company collecting rent from dozens of units, or an individual who owns a few 3-family houses.

Either way, be careful.  Rental income claims can be surprisingly tricky.  Here are a few tips to help you out.

Take a microeconomic approach to tenant relocation

Tenant relocation is problematic – especially for big management companies.  You might think you’re doing the right thing by relocating tenants to another building within your rental complex.  Watch out.  That’s also the easiest way for the insurance company to claim you have not suffered any lost rent.

Avoid this pitfall by thinking in microeconomic terms.  What does that mean?  To start, prove the scarcity of the resource.  Maybe there are only a few vacant 1-bedroom apartments in your complex, for example.  You must prove that the vacancy wouldn’t be long-lasting because that type of unit turns over quickly.  After all, just because you were able to relocate a tenant, does not automatically mean that you haven’t suffered a loss in rental income.

Occupancy statistics

In high-demand real estate markets like Boston, we take for granted that virtually any property gets rented.  You have to get very granular to prove that you’re precluded from getting rent that you normally would have received.  The inverse, of course, involves landlords thinking their losses are double.  This is just not the case.  That person is still paying rent, after all.

Claim only what you actually charge

Basically, the calculation for rental income claims comes down to: 1. What you would have collected in rent; 2. What your expenses for the property amounted to; and 3. How long you must wait before you can rent the property again.

You have to prove that what your lease says you’re collecting is actually what you receive.  And those numbers must tie back to the tax returns.  Some landlords don’t always collect what the lease agreement says, or they set aside cash and report less on their taxes.  If there’s a difference between the amount you collect and your tax return, the benefit of the doubt will go to the insurance company.  This may mean that, to be made whole, you must go back and revise your tax returns.

Low-income housing

In Massachusetts, Section 8 (low-income) housing codes require landlords to stay compliant with the state and federal organizations that administer these programs.  Failure to do so can result in fines, so stay compliant.

We hope these tips are helpful. For more information, check out our blog on Saved Expenses which explains concepts that are very similar.

Mindi Labella

Mindi Labella

Mindi is a CPA who specializes in commercial losses, business interruption, extra expense and time element claims. She is an integral member of the SMW team, drawing on her business background to advocate on behalf of our clients.
If you’ve had a fire, flood or other property loss resulting in an insurance claim, and need a public insurance adjuster in Massachusetts, New Hampshire, Rhode Island, New England or anywhere in the U.S. or Caribbean, call Swerling Milton Winnick. We are the oldest and largest public adjusting firm in New England, and our team of experts will give you personalized, 24/7 attention to successfully resolve your residential or business insurance claim.