By Josh Kattenberg
Pets! The thought brings varied reactions from different people. Tenants think of their pet as part of their family. A pet is something to be loved, enjoyed, and cared for. Many cannot think of parting with a family pet with which they have shared many fond memories. Property owners often have a far different reaction. Theirs is one of horror at the thought of the damages caused by pets including, pet urine, vomit, and feces in the carpet and scratches and chewing on doors, walls, and cabinets. They think of complaining neighbors calling about a barking dog. They think of citations from the city because of pet feces littering the lawns of the neighborhood. They think of their lawns ruined because of digging or running patterns. How can an animal bring out such varied reactions in people? It is a simple matter of risk vs reward.
When pets are allowed into a rental property, there is no question the risk to the owner increases. The question is, does the reward also increase? We must remember that, as with any investment, owning rental property contains risk. Without risk, there is no reward. The key is not to avoid risk, but to manage it. We do this all the time with insurance. Fire insurances doesn’t mean our house will not burn down, but it does mean that if the house burns down, we will not be ruined financially. The same applies to renting to tenants with pets. All the precautions in the world will not keep tenants and pets from damaging a property, but the proper risk management will help pay for the damage if it occurs.
Even though there are risks associated with accepting pets, did you know that there is also risk in not accepting pets? Consider the following. A large percentage of tenants own pets. If you the property owner are determined not to have pets in your property, you cut your property off from many otherwise qualified tenants. How does this affect you financially?
How Much Can Being “Pet UN-friendly” Cost?
For argument’s sake, let’s assume that 40% of all available tenants who would be interested in your property do not own pets. Let’s also assume that 70% of the tenants interested in your property would qualify based on credit, criminal, and previous landlord background checks. One more assumption: 50% of available properties similar to yours also will not accept any type of pet. If there are 100 properties similar to yours and 100 tenants interested in your type of property how many tenants qualify for your property? Twenty eight percent (% of qualified tenants times % of tenants without pets) of the 100 tenants will qualify for your property. So what is the problem? There are 100 other properties that are also competing with you for those 28 qualified tenants. 28 of those 100 properties will be filled with qualified non pet owners, while 72 properties will remain open to pet owners. (Remember that pet friendly properties will accept tenants who do not own pets as well. Your non pet property has a 28% chance of being rented. If your property remains vacant for one month, you have lost real money that you will never be able to recover. That is the risk of not accepting pets. But let’s assume that your property was one of the lucky twenty eight properties. Wonderful! But why were you one of the lucky 28? In a free market you must compete with others who are also in the market place. In order to compete and win, you have to offer a better product, with more benefits, at a lower cost to the customer. In rental terms, that means offering a more expensive property or including more utilities in the rent, for less rent than other similar properties who will and will not accept pets.
But what about the properties that accept pets? They are competing for tenants also, but they have a larger pool of tenants to choose from and far less competition. Pet friendly properties are only competing with the other 50 properties who will accept pets, but they have access to all 70 qualified tenants. Pet friendly properties have a whopping 140% chance of being rented to a qualified tenant with or without pets. (70 qualified tenants divided by 50 pet friendly properties) Because they will accept pets, the pet friendly properties have increased pet risk, but less vacancy risk. You can play with the numbers and there are quite a few variables including the time of year, the number of prospective tenants, number of available properties, etc. In addition, the percentages of these variables is constantly changing. The point to remember is that pet friendly properties will always have less vacancy risk—in our example they were 5 times more likely to be rented than non-pet friendly properties.
Ok, so how does a landlord manage their pet risk?
Methods to Control Risk of Pet Damage
1) Hire a professional property manager. Property managers have the systems in place to make sure the right steps are taken and followed up on when managing a tenant with pets. This is a great way to limit your pet risk. The property manager will most likely take care of all the following details.
2) Charge an extra pet deposit and/or pet rent. Pet owners expect to pay extra for having pets in a rental.
3) Conduct through credit/criminal background checks and landlord references. These will help you determine if the tenant is a good risk. Someone who pays their bills, does not have collection agencies after them, and is not in trouble with the law, shows that they are responsible in many areas of their life and most likely will be responsible when it comes to taking care of a pet and paying for any damages caused by the pet.
4) Place limits on the number, type, and size of pets allowed. You can put any limit you like on the property. Examples might be, no aggressive breads, dogs under 25lbs, no cats, must be spayed/neutered/declawed, max of two pets, etc.
5) Add a pet addendum which lays out the special requirements and responsibilities of owning a pet in the property.
6) Check with your insurance company to see how pet damages are handled.
7) Have a pet policy/handbook. Know your limits in advance and make sure the tenants also know those limits. Having clear boundaries is a good way to hold tenants accountable.
8) Conduct regular inspections. Nothing is more important for spotting problems early and putting your mind at ease than getting eyes inside the property to see for yourself.
Let’s assume the worst happens and pets damage your property renting for $1,000/mo. How much is really at risk? Because you accepted pets, you lowered your vacancy risk which is worth say one month less vacancy or $1,000. There are two pets in the property and you are collecting $25/mo. per pet or $600/year. In addition, you collected a $1,000 damage security deposit (not related to pets). You will have $2,600 to help pay for pet damage. However, if there is no damage, you will have made an extra $1,600 over the course of a year by renting to a tenant with pets. You have increased your annual return by 13% by accepting pets if they do not damage the property. If the damage is $2,600, you will have a zero net gain. If the damage is more than $2,600, you will have a loss. However, you will only suffer that loss assuming that your house insurance does not cover the damage and you cannot get the tenant to pay for the damage. You will need to decide if the risk of accepting pets is worth the reward of accepting pets. – See more at: http://expressrpm.com/should-you-make-your-property-pet-friendly.html#sthash.By0E7ybA.dpuf