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Friday, June 28, 2013

Insurance for Real Estate Investors

Distressed Property Insurance

As our group started out as specialists in distressed properties, one of the problems we came across was insurance coverage for asset and worker protection. We thought if the Bank won't insure it, no one else will. But let’s look at it from the Lenders point of view.

167 Street Living Room Unit 2 Rehab Duplex
Why would you Insure this Property?

Investors always preach, leverage someone else's money not yours. That's true but Lenders are taking a risk. What happens if an injury occurred on the property or the asset burns down? The Lender is either stuck with court costs, fines, hospital bills or his money is gone due to the lack of insurance. So FYI...Lenders are going to make you insure the property. We rather get our own policy than make forced payments to the Lender's insurance policy.

Depending on your exit strategy, you will eventually need some type of insurance.

Front View 1184 Rehab Duplex
Would You Insure This Property?

Below is an outline of some of the coverage’s we implemented while bringing properties back online:

Types of Insurance Coverage or Services

  • Builders Risk Renovation Policy - Provides coverage that protects a person's or company's interest in materials, supplies and equipment used in the rehab or construction of an asset should these items become lost or damaged.
  • Liability Insurance - It protects the property owner in the event he or she is sued for claims that come within property boundaries. The policy is designed to offer protection against third-party insurance claims, like contracted workers or tenants.
  • Windstorm - Most policies issued today DO NOT cover damage from high winds. It is very difficult to get a windstorm rider due to the size of the deducible, ranges from 10K to 15K.
  • Flood - Damaged caused by rising water. Broken pipe or hoses causes damage to interior of unit or building. Flooding caused by storm surge.
  • Fire, Theft and Vandalism - During rehab you can expect one of these three items to occur. Are you protected from these likely events?
  • Insurance Loss Consultants - Provides Claims Representation to Policyholders. If you experience an event that financial hardship will occur, the insurance company is going to use every resource available to limit the payout amount and the policyholder is expecting the repairs to be done with no out-of-pocket expense, including the deductible. Insurance Loss Consultants make sure that the investor receives the largest benefit to which they are entitled under the insurance policy.
  • 4 Point Inspection is required if an investment property that your company or contractor is restoring is older than 30 years or being refinanced. Insurance companies will want to check the following four systems before issuing a Homeowners policy:
    • Roof
    • HVAC - Heat, Ventilation and Air Conditioning
    • Electrical
    • Plumbing
  • Our Contacts - These are companies that specialize in issuing policies that are going to protect you against the hazards of being a real estate investor.

In the beginning of the rehab depending on your exit strategy, insurance might not be needed but you will eventually. Remember, any property has value even if you can't see it. Are you prepared to lose that value if you don't insure it?

Related Links, Blog Postings, Presentations or Articles:

Written by Bob Burns.
 
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Telephone #: 305-586-5280
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