SS184: Navigating Property Insurance: What Every Real Estate Investor Should Know

  • June 24, 2024
  • Rokon Ahmed
  • Strategy Saturday
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SS184: Navigating Property Insurance: What Every Real Estate Investor Should Know

Property insurance is a vital requirement when investing in real estate. In this episode, Charles discusses how to navigate property insurance as a real estate investor.

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Talking Points:

Property insurance is an important component of real estate investing. It provides protection against potential financial losses caused by unexpected events such as theft, vandalism, natural disasters, and liability claims. Let’s break down the key points of a property insurance policy that every real estate investor should know.

  • Type of Coverage: There are several different types of coverage afforded by most rental property insurance policies, sometimes referred to as a Business Owner’s Policy or BOP. Some policies might not include all of these coverages, so it is best to verify that before choosing one.
    • Dwelling Coverage: This protects the physical structure of the property, including the foundation, roof, and walls.
    • Personal Property Coverage: This coverage protects your belongings inside of the property, like furniture, appliances, and electronics. It may also cover your belongings at another location. I have rented several self-storage units over the years, and I have never had to sign up for their insurance because I was able to provide documentation from a property insurance policy of mine that offered coverage for my belongings off-premises.
    • Liability Coverage: This is a very important one. This protects against lawsuits for bodily injury or property damage that occurs at your property.
    • Loss of Rental Income: This will cover lost rental income if the property becomes uninhabitable due to a covered loss.
    • Additional Living Expenses: This covers temporary living expenses if the property becomes uninhabitable due to a covered loss.
  • Policy Limits and Deductibles: Understanding the policy’s limits and deductibles is crucial. The policy limits are the maximum amount the insurance company will pay for a covered loss. Deductibles are the out-of-pocket expenses that property owners must pay before the insurance company starts to pay. If you have a solid reserve fund, you can play around with deductibles and premium amounts to see what makes the most sense to you. I had a rental property where I increased the deductible from $1,000 to $2,500 and saved more than $1,000 yearly. Of course, I was playing the odds that I would not have a claim in the first 2 years.
  • Replacement Cost vs. Actual Cash Value: This is an important part of every property insurance policy, and it is imperative to understand what type of policy you are signing up for to compare apples to apples. Replacement cost coverage pays to replace the damaged property at its current market value. On the other hand, cash value coverage takes depreciation into account, meaning that you may receive less money for older items.
  • Factors Affecting Premiums: Some of the major factors influencing premiums are the location of the property, its age, and the overall condition of the property. The type of construction, the materials used, and the presence of any safety features like smoke detectors, security systems, fire alarm systems, etc., in addition to the policy limits and deductibles selected.
  • Risk Management Strategies: Keep your property in good overall condition. Fix doors, stairs, sidewalks, driveways, etc. when required. Install a hardwired fire alarm system, add emergency lighting, and ensure all walkways and parking lots are clear and well-lit at night. Every property I have owned has been well-lit at night. Lightning is inexpensive and goes a long way to making tenants feel safer.
  • Work with an Experienced Independent Insurance Agent: Build a relationship with an independent agent who is experienced in working with real estate investors. Utilize an independent agent over a captive agent since captive agents are contracted to work for only one insurance company, while independent agents can work with various insurance companies. A good independent insurance agent can help explain the intricacies of insurance policies and coverage options to ensure you are adequately protected.

By understanding these key points and working with an experienced agent, real estate investors can best protect themselves against any financial losses stemming from unforeseen events.

Transcript:

Charles:
Welcome to Strategy Saturday; I’m Charles Carillo, and today we’re going to be discussing navigating property insurance, what every real estate investor needs to know.

Charles:
So property insurance is an important component of real estate investing. It provides protection against potential financial losses caused by unexpected events such as theft, vandalism, and natural disasters in addition to liability claims, which might be the biggest one. Let’s break down the key points of a property insurance policy. Number one is the type of coverage. There are several different types of coverage afforded by most rental property insurance policies, sometimes referred to as a business owner’s policy or BOP. Some policies might not include all these coverages, so it’s best to verify that before choosing one dwelling coverage. This protects the physical structure of the property, including the foundation, roof and walls, personal property coverage. This coverage protects your belonging inside of the property like furniture, appliances, and electronics.

Charles:
It may also cover your belongings at another location. I rented several self-storage units over the years, and I’ve never had to sign up for their insurance because I was able to provide documentation from a property insurance policy mine that offered coverage for my belongings off premises Liability coverage, this isn’t an important one. This protects against lawsuits for bodily injury or property damage that occurs at your property. Loss of rental income. This will cover loss rental income if the property becomes uninhabitable due to a covered loss and additional living expenses. This covers temporary living expenses if the property becomes uninhabitable due to a covered loss. Number two is policy limits and deductibles. Now, understanding the policy limits and the deductibles is crucial. The policy limits are maximum amount of insurance company will pay for a covered loss, and deductibles are the out-of-pocket expenses that property owners must pay before the insurance company starts to pay.

Charles:
If you have a salt reserve fund, you can play around with deductibles and premium amounts to see what makes the most sense for you. I had a rental property where I increased deductibles from $1,000 to $2,500, and I saved more than a thousand dollars a year. Of course, I was playing the odds that I would not have to have a claim in the first two years, which luckily I didn’t. Number three is replacement cost for actual cash value. And this can be a little hard to understand in a little difficult even if a agent explained it to you, but this is an important part of every policy because it’s imperative to understand what type of policy you’re signing up for to compare them apples to apples. Now, replacement cost coverage pays to replace the damaged property at its current market value. On the other hand, cash value coverage takes depreciation into account, meaning that you may receive less money for older items.

Charles:
Four is factors affecting premiums. Now, some of the major factors in influence premiums are the location of the property, its age, and the overall condition of the property, the type of construction the materials used, and the presence of any safety features like smoke detectors, security systems, fire alarm systems, et cetera, in addition to the policy limits and the deductible selecting. Now, number five is risk management strategy. So keep your property in good overall condition, fixed doors, stairs, sidewalks, driveways, et cetera. When required, install a hardwire fire alarm system at emergency lighting and ensure all walkways and parking lights are clear and well lit at night. Every property I’ve owned has been well lit at night. Lighting is an inexpensive and goes a long way to making tents feel safe. During your course of owning rental properties, there’ll be times when the insurance company comes out and reviews it, and I’ve had this before where they tell you it’s usually a few months before the policy renews and they tell you all these things have to be fixed, and then you have time the next month or two to get all that done.

Charles:
Get pictures of it, get documentation, and send it over to your insurance agent who will send it over to the insurance company. Work with an experienced independent insurance agent. Now build a relationship with an independent agent who is experienced in working with real estate investors. I always suggest speaking to other real estate investors and find out who they use for their agent. Utilize an independent agent over a captive agent. Since captive agents are contracted to work for only one insurance company, while independent agents can work with various insurance companies, a good independent insurance agent can help explain the intricacies of insurance policies and coverage options to ensure you are adequately protected. Now, by understanding these key points and working with an experienced agent, real estate investors can best protect themself against any financial losses stemming from unforeseen events. I hope you enjoyed. Please remember to rate where you subscribe, some many comments and potential show topics@globalinvestorspodcast.com. If you’re interested in actively investing in real estate, please check out our courses and mentoring programs at syndicationsuperstars.com. That is syndication superstars.com. Look forward to two more episodes next week. See you then.

Charles:
Have you always wanted to invest in real estate, but didn’t have the time, didn’t know where to find the deals, couldn’t get the funding and didn’t want tenants calling you. Since 2006, I’ve been buying income producing properties and great locations that provide us with consistent passive income. While we wait for appreciation in the future and take advantage of tax laws while we’re waiting and unlike your financial advisor, we invest alongside our investors in every property we purchase. Check out to investwithharborside.com. If you like the idea of investing real estate, if you like the idea of passive income partner with us at investwithharborside.com, that’s investwithharborside.com.

Announcer:
Nothing in this episode should be considered specific, personal or professional advice. Any investment opportunities mentioned on this podcast are limited to accredited investors. Any investments will only be made with proper disclosure, subscription documentation, and are subject to all applicable laws. Please consult an appropriate tax legal, real estate, financial or business professional for individualized advice. Opinions of guests are their own information is not guaranteed. All investment strategies have the potential for profit or loss. The host is operating on behalf of Syndication Superstar, LLC, exclusively.

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