Real estate investors have a lot to worry about when it comes to the safety of their property and tenants. Natural disasters, intentional damage, or accidental negligence can eat into your profit, but it can also ruin the reputation of your property holdings. The best way to protect your investment is through comprehensive insurance coverage.
Learning from the Experts
Not all real estate investments are the same. As Aubrey Ferrao knows, luxury developments hold more significant risks of loss than the average middle-class household. The location also has a lot to do with risk exposure, and areas close to the shoreline, such as the Gulf Bay and Aubrey Ferrao properties along the coast in Florida, have to be insured against weather elements. These are the many elements that need to be considered when shopping around for an insurance plan. The investment type will also influence what types of insurance you will need, and you should work with an insurance agent that specializes in commercial properties for the best in coverage options. Here are some of the policies that may be recommended.
Hazard Insurance
Whenever structural damage occurs to the house or unit as the result of a fire, storm, or theft, this insurance policy assists with the funds to make repairs. This insurance is similar to the homeowner’s policies taken out, and a real estate investor that wants to turn the most profit will look to make a development deal in a state where the cost of the insurance is low when compared to the cost of the lease. It is possible to add endorsements to these policies for things like water damage from a sewer problem.
Loss of Income
The loss of rental income that occurs whenever a unit is uninhabitable by a catastrophic event can hurt your bottom line, as most real estate investors depend on rent payments for their cashflow. This kind of policy can provide compensation when you aren’t able to draw your typical rental fees. This is different from a policy that covers non-payment issues with tenants, but each of these plans allow you to bring in money whenever your rental income is lost. A plan that protects rental income due to non-payment is often labeled a rent guarantee policy.
Liability Insurance
The chances of someone being injured on your property or someone experience damage or loss with their personal belongings while on your property are extremely high. Should situations arise, you would be exposed to a lawsuit and claim for damages or other restitution. A comprehensive liability policy will be able to assist with the cost of the lawsuit as well as cover a portion of any damages that may be awarded against you.
Flood Insurance
Most insurance policies exclude coverage for issues of flooding and severe water damage, but a stand-alone policy addressing flood concerns can take care of this. If your development is in a designated flood zone or located in an area that is prone to extreme weather conditions, FEMA warns that just an inch of water damage can cost up to $27,000 in repairs.
Umbrella Insurance
Each policy you secure will have limits that may not cover the full extent of the situation. If this happens, an umbrella policy is able to extend coverage limits beyond what your standard policy will allow. You can usually add an umbrella endorsement to the individual policies you choose to take out or have one specially underwritten for your liabilities.
Real estate investments can be a profitable venture, but the risks and exposures you face could be financially devastating. Having the right insurance policies in place can help protect your investment from significant loss when things don’t go as planned.
