Risk Mitigation with Short Term Rentals
The reason property owners invest in short term rentals is to increase their income and net worth. If their risk mitigation practices are not adequate, short term rental ownership can result instead in losses.
Here is an example: A property owner creates and self-manages a popular and profitable short term rental with a tree house theme. A housekeeper falls off the tree house balcony and is injured. The owner does not carry workers compensation insurance and is therefore liable for payments to the injured worker of several hundred thousand dollars.
Since Atlanta Vacation Rentals (AVR) carries workers compensation insurance, our property management clients have coverage for this specific risk, if the housekeeper is managed by us.
Four primary kinds of damage protection short term rental owners need to be sure are in place.
1
A short term rental homeowner's insurance policy.
These policies are purchased by the home owner and replace any prior homeowner's insurance. Homeowner's insurance policies for owner-occupants or for long term rentals generally do not cover short term rentals. Two examples of short term rental homeowner's policies are Proper and Steadily; there are several other carriers. It is a best practice for homeowners to add their property managers to their homeowners insurance policies as additional insured: This eliminates the risk of subrogation claims. Briefly, a subrogation claim is when a homeowners insurance carrier files suit against a property manager to recover funds paid out to a homeowner for a claim.
Most property management agreements call for the owner to reimburse the property manager for such claims. Adding the manager as additional insured eliminates this risk to the owner. The homeowners insurance industry is in a state of rapid change. AVR can refer homeowners to insurance agents who are experienced in guiding owners through a turbulent homeowners insurance market.
2
Insurance policies carried by property managers
Some property managers carry insurance. Does yours? Atlanta Vacation Rentals carries workers compensation insurance and general liability insurance. This means that if we hire and manage housecleaners and other vendors to maintain your property, that work is covered by our workers compensation and general liability insurance policies (thus in the scenario at the beginning of this article regarding a worksite injury, the worker's compensation claim should have been paid by AVR's workers compensation insurance policy not the homeowner's personal assets).
If you are using or evaluating property management other than Atlanta Vacation Rentals, ask them about their insurance coverage.
3
Insurance products provided by the Online Travel Agencies (OTAs) such Airbnb which cover guest-caused damage.
Airbnb has an excellent product, Aircover, which provides up to $3 million in host damages and up to $1 million in host liability. Atlanta Vacation Rentals believes Aircover is a pretty good product and Airbnb includes it for all Airbnb host listings. Other OTAs or channels such as VRBO, Booking.com, and direct bookings offer no insurance at all or the insurance they offer is not cost effective (in Atlanta Vacation Rentals' opinion). For this reason, Atlanta Vacation Rentals supplements such insurance for non-Airbnb channels as described below.
4
Supplemental damage protection for non-Airbnb channels.
AVR believes it is a best practice for short term rental owners to market their properties on multiple short term rental channels plus have the capability for direct bookings. This will maximize occupancy and revenue. However, the owner or manager should carry supplemental damage protection products to cover guest-caused damage for reservations via non-Airbnb channels. As of June, 2024, Atlanta Vacation Rentals uses Superhog for this purpose. For Atlanta Vacation Rentals, Superhog provides coverage of guest-caused damages up to $5 million for non-Airbnb reservations.
Disclaimer: Do your own due diligence. AVR is not a licensed insurance agent. While AVR believes it is an industry "best practice" for a short term rental to have the insurance coverages described above, AVR cannot speak to any of the specific policies described above and AVR has no way to know which claims an insurer may cover and which claims may be denied.
Fraud is a risk in short term rentals.
A guest pays for a stay with a fraudulent or stolen credit card and the reservation fees paid are charged back to the owner. There are several ways Atlanta Vacation Rentals mitigates this risk. As with insurance, Atlanta Vacation Rentals currently believes that Airbnb does a good job verifying guest identity and protecting hosts against fraud, but other channels such as VRBO, Booking.com, and direct bookings need supplemental protection.
For this, Atlanta Vacation Rentals currently uses Superhog, which provides the services below:
- Guest identity verification. Non-Airbnb guests submit a government-issued photo ID and a selfie which are compared using biometrics. Additionally, email address and phone number are validated against fraud.
- Damage waivers. Non-Airbnb guests either pay a non-refundable waiver fee which covers $500 in guest caused damage. This takes care of the "low hanging fruit" of guest-caused damage.
- Short term rental agreement execution. Atlanta Vacation Rentals has an attorney-drafted short term rental agreement that is customized for the laws of Georgia. Non-Airbnb guests are required to sign it.
Electronic monitoring of your property
Atlanta Vacation Rentals implements electronic monitoring devices including the following:
- Remotely operated door locks. The last four of the guest's cell phone are added to the lock at check-in and removed from the lock at check-out. This increases ease of access for the guest and reduces the risk of squatters entering the property using a key or door codes that are never changed.
- Noise monitoring in the property. Minut sensors monitor noise in the property to protect against parties. Minut sensors can also report on the number of people in the property by counting cell phones.
- Cigarette and marijuana smoke detection. Minut sensors detect and report the presence of cigarette and marijuana smoke.
- Motion detector. This lets us know if there are people in the property when it should be vacant.
- Outward facing video cameras for all external doors. We have a permanent video record of every person and animal who enters the property.
AVR believes that well-considered insurance coverage and other risk mitigation strategies including those described here are in the best interest of every property owner and property manager. However, risks can never truly be eliminated.