A neighbor across the street from my rental texted me at 3:35pm on a Saturday to say something had been beeping inside my property all day and my tenants appeared to be gone.
I drove over, let myself in, and found three smoke alarms stacked on the garage floor with the top one screaming away. No fire. No sparking. Just a pile of dead alarms nobody had told me about.
I’ve written about that whole episode and my tenant’s response, which was interesting. But the more I thought about it, the more I realized I had focused on the wrong person.
The tenant wasn’t the story. The neighbor was.
A woman with zero financial interest in my property spent her Saturday deciding whether to bother me. She could have put in earplugs. She could have assumed I already knew. Instead she texted, and in doing so she did the job that an insurance company charges thousands of dollars a year to do badly and slowly.
Insurance Companies Have Already Priced This Risk In
Years ago I wrote about viewing your tenants as guardians of your rental property instead of as consumers of it. It’s a mindset shift that makes it much easier to hold a property for decades, which is how you actually build significant wealth in real estate.
Here’s the part I underplayed. That isn’t just a feel-good reframe I invented to stop myself from selling. The insurance industry believes it so strongly that they’ve written it into your policy in language you’ve probably never read.
Most standard homeowners policies include a vacancy clause that kicks in after the home has been empty for a set number of consecutive days. The industry-standard threshold is 60 consecutive days and some insurers using only 30. Once that clock runs out, coverage disappears for vandalism, glass breakage, water damage, and theft or attempted theft. Fire and wind sometimes survive. Almost nothing else does.
Read that list again. Those are precisely the property losses that a warm body standing in the building would have caught early.
An insurer will happily insure your house. They will not insure your empty house. The only variable that changed is whether somebody is there to notice.
Two Winter Weeks In Tahoe, One Year Out Of The House
A friend of mine went to Lake Tahoe for a two week family ski trip during one of San Francisco’s rainiest seasons. While she was gone, a small roof leak got bigger in violent winds and it rained nonstop the entire time.
She came home to a flooded kitchen and two flooded bedrooms. Her insurer declared the house uninhabitable. She and her family moved out for a year while contractors ripped out the walls, floors, and appliances, dried the place, and rebuilt it.
Two weeks of nobody home turned a roofer’s afternoon into a twelve month renovation.
Damage doesn’t scale with severity. It scales with time. A dripping supply line is a $400 plumber call on day one and a $60,000 mold remediation on day thirty. The Insurance Information Institute describes exactly this pattern, where water leaked for days or weeks with nobody home to detect it, wrecking ceilings, walls, flooring, heating and electrical, with repairs topping $60,000 and the claim denied under the vacancy clause.
Insurers aren’t always being difficult. They’re trying to be accurate given they’ve seen every type of mishap imaginable with properties. Occupancy is a loss-prevention system that runs 24 hours a day and costs them nothing. When you remove it, you’ve handed them a fundamentally different risk than the one they quoted.
So this is how an optimist should think: a tenant who pays on time and calls you about a drip is not a customer. They’re an unpaid risk manager living on site. My tenant’s slightly cold email is worth far less than the fact that somebody normally lives there.
Build Yourself A Network of Guardians To Protect Your Property
Go meet your neighbors. It’s not only good for your social network, it’s also good for your net worth.
A majority of Americans say they know only some of their neighbors, and just 26% say they know most of them. In cities it’s worse, where only 20% know all or most of their neighbors compared to 35% in rural areas. A recent Rocket Mortgage survey found only 30% of Americans know their neighbors beyond a casual level, and 41% say knocking on a neighbor’s door feels too bold.
We have replaced the neighbor with the Ring camera. One of them notices a smoke alarm on a Saturday afternoon. The other one records the fire in 1080p. That works, but someone needs to take action.
For most of human history this wasn’t a strategy, it was just how survival worked. The village noticed the smoke. Somebody watched your animals or your kids while you were at market. Nobody framed it as risk management because there was no alternative to buy. We got rich enough to outsource it to an insurance company, and then we forgot that the insurance company shows up after the damage, not before it.
The good news is the instinct is still there. Even with all that hesitation, 68% of Americans report receiving support from a neighbor in the past year and 58% say they would turn to a neighbor in an emergency. Two-thirds of people who know at least some of their neighbors would feel comfortable leaving a set of keys with them for emergencies. People want to help. They’re just waiting for someone else to go first.
So go first. It costs you almost nothing.
Actions To Take With Your Neighbors
- Trade phone numbers with the four closest neighbors. For a rental, that means your tenant’s neighbors, not yours. The woman who texted me had my number because I’d introduced myself years ago. I had just forgotten, which is why her initial text, with typos, made me question where she was contacting the right person. Without that, she does nothing and my alarm screams for another week.
- Tell them when you’re traveling. Not the internet. Them. This is the single highest value use of a neighbor relationship.
- Leave a key with one of them. A neighbor with a key can shut off a water main in four minutes. A locksmith takes two hours and a police report. Also consider shutting off your main water line entirely if you will be gone for more than a week.
- Be the neighbor who reports. Reciprocity is the whole engine here. If you text somebody about their open garage door, they will text you about your alarm. If you’ve never spoken to them, they’ll assume it’s not their business.
- Introduce your tenants to the neighbors yourself. It converts your tenant from a stranger who might be running across roofs during Fleet Week into a known person, and it gives the neighbors a face to call before they call you.
The financial case is easy. A four-person text thread is a monitoring system with better judgment than any sensor you can buy, and it costs zero dollars a year forever.
But the real return isn’t financial. Feuding with a neighbor is one of the most miserable ways to own property, and it follows you home every single day. Harmony on your block is worth more than the deductible you’ll avoid. That the harmony also happens to protect your largest asset is just a bonus.
Nine Ways To Insure Your Property Better
Since I’m udpating my lease anyway, I went through my coverage too. Here’s what I’d suggest.
1. Call your insurer before any extended absence, not after. Sabbatical, long trip, remodel, estate in probate, a rental sitting empty between tenants. A vacancy permit endorsement suspends the vandalism, water damage, and theft exclusions for a set period, and it usually costs extra. That extra premium is one of the best deals in personal finance. You’re paying a few hundred dollars to keep six figures of coverage alive.
2. Know the difference between vacant and unoccupied. A furnished home you intend to return to is unoccupied. An empty home with no intent to return is vacant, and which bucket you land in decides whether your claim gets paid. Leaving the furniture and utilities on is not a technicality. It’s coverage.
3. Get replacement cost, not actual cash value, on an older home. I’ve covered this comparison in depth. If your kitchen is 20 years old, actual cash value pays you for a 20 year old kitchen. That’s not a rebuild. That’s a down payment on a rebuild. Replacement cost gets you a brand new kitchen of similar quality at today’s prices.
4. Buy water shutoff hardware. Automatic leak detection with a motorized main valve shutoff runs a few hundred dollars installed. Compared to a year in a rental house, it’s free. This is the single highest ROI purchase for anyone who travels. The monitor is an app.
5. Teach your tenants where the shutoffs are. Toilets, sinks, and the main valve outside. Walk them through it at move-in. Then give them written authority to call a plumber up to a set dollar amount without asking you first. Nothing kills a small leak faster than a tenant who isn’t worried about getting yelled at.
6. Put the alarm clause in the lease. Require written notice within 24 hours if any smoke or CO alarm becomes inoperable, and prohibit removing one unless it’s replaced. Three dead alarms on my garage floor for an unknown stretch of time is a liability problem, not an etiquette problem.
7. Consider increasing your deductible. Going from a $1,000 deductible to $5,000 can cut your premium meaningfully, and it stops you from filing the small claims that get you non-renewed. Insurance is for catastrophes, not for a cracked window.
8. Reshop every two to three years, and check your dwelling coverage. Carriers reward new customers and quietly escalate renewals. At the same time, replacement cost inflation means the coverage figure that was right in 2019 may not rebuild your house in 2026+. Underinsured is a worse outcome than overpaying.
9. Require renter’s insurance and photograph everything. Their policy covers their stuff and gives you a second insurer with an incentive to help. Video walkthroughs at move-in and move-out settle disputes in about eleven seconds.
You Don’t Legally Need Home Insurance If You Own Outright
There are plenty of benefits to paying for your house in cash or paying off your mortgage. However, the less discussed benefit is that once you own your house outright, maintaining a home insurance policy is not necessary.
Home insurance is not required by law anywhere in the United States. Your mortgage lender requires it, because they’re protecting their collateral. Pay the house off and that requirement disappears with the loan.
So yes, you could cancel your policy and pocket the premium. I know people who do it. On a paid-off property in a low risk area, the math isn’t crazy since most insurance claims don’t surpass the deductible.
But be honest about what you’re doing. You aren’t saving money. You’ve hired yourself as the insurance company. You are now the one who writes the check when a kitchen fire takes out $400,000 of your net worth, or when someone slips on your walkway and sues.
The test I’d use is simple. Could you rebuild the house from liquid assets tomorrow, without touching your retirement portfolio or changing your lifestyle? If yes, going bare is a defensible decision for that specific property. If no, you’re not self-insuring. You’re gambling with the largest asset you own to save maybe $200 a month.
The thing is, every rich person I know still has life insurance even if they can self-insure. Insurance not only covers the cost of damage, it also provides peace of mind. The wealthier you get, the more you tend to optimize for serenity.
For almost everyone, the better move is the middle path. Keep the policy, raise the deductible to $5,000 or $10,000, and self-insure the small stuff where you’re actually capable of absorbing the loss. That’s the whole logic of Buy This Not That, my Wall Street Journal bestseller about making optimal decisions under uncertainty. You want to eliminate the risks that end you, not the ones that annoy you.
Prescence Is The Cheapest Property Insurance There Is
The reason insurers won’t touch an empty house is that presence catches problems while they’re still small. Nothing about that principle is limited to real estate.
It’s the reason I’ve been a stay at home dad for a decade despite the income I gave up. Small problems with kids compound exactly the same way a leak does. Caught early, it’s a conversation on the drive home. Caught late, it’s years of repair work. I’m writing an entire book about this, Your Children Will Be OK, because so much of parenting turns out to be about being there when the beeping starts.
Every good tenant, every attentive neighbor, and every parent who happens to be home is running an unpriced insurance policy nobody sends an invoice for. If you plan to continuing building semi-passive income with real estate, occupancy is vital.
I’m going to drop of my favorite raspberry scone and cup of coffee at the neighbor’s house now.
Have you ever had a vacancy clause deny a claim, or had a tenant or neighbor catch something that would have been catastrophic? And would you drop coverage entirely on a paid-off home? I’d love to hear how you’d play it.
Invest In Real Estate Without The Vacancy Clause
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Nobody has ever texted me on a Saturday afternoon about a private real estate fund. There’s no lease to rewrite, no smoke alarms to inventory, and no adjuster asking how many consecutive days the building sat empty.
Fundrise is a long-time sponsor of Financial Samurai and I have personally invested with them since 2016.
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