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We are in the home stretch of questions from the private lending FAQs series. Today, I am going to share with you how I answer the question that deals with insurance that we purchase that helps protect our private lenders and ourselves.
The question is: How does property insurance help protect me as the lender?
And here is my answer:
We buy property or hazard insurance to limit our risk and liability as a property owner and to protect the investment for the lender.
If there is a fire at the property that completely destroys the property (or another problem covered by the insurance policy) and the insurance company pays the claim, the proceeds and can be used to restore the property so it can secure the loan against the property.
Until my next post,
James
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With one or two properties tracking insurance is pretty straight forward and easy to remember, but adding a few more investment properties and tracking insurance becomes a much more challenging issue. In my office, we use a Property Insurance Report to keep track of insurance on all our properties in a nice summarized page (the link is for our Real Estate Investor Bronze Members and you must be logged in to view them).
On our Property Insurance Report, we track several things. Beyond the basics like property address and the insurance company name, we also track insurance premium info. What is our insurance premium this year? What was it last year? Large increases can prompt us to get additional quotes from other insurance companies.
We also track the deductible to see what we’d pay out if we were to make a claim. We can see, at a glance, what all our deductibles are with this report.
We also track start and end dates of the policy to quickly see and ensure that we are covered.
I personally also like to know what are the areas of coverage and the amounts of coverage for each major area like Fire, Liability and Loss of Rent.
The last thing we track is the date we paid the policy and whether it was paid out of escrow (which we do for many of our properties) or if we wrote a check.
Having summary reports like the Property Insurance Report can make managing your investment properties a lot easier. I strongly encourage you to either make you own report or borrow mine to use for your own personal properties.
Until my next post,
James
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Did you know that dog bites make up one-third of all homeowner insurance liability claims? I just read this alarming tidbit in the November issue of the AAA newsletter. If you are a landlord who rents to tenants with dogs, then this statistic should give you pause.
Many insurance companies won’t cover liability for dog bites for your rental policy. Depending on the state that you live in, it is not clear that your tenant can get personal liability insurance to cover dog bites either. For these reasons, it seems prudent to seriously consider whether or not it is worth it to rent to tenants with dogs – even small, seemingly harmless dogs. In the event that they bite and somebody sues, it’s possible that the harmed party will sue you – the landlord – if the bite occurred on your property.
If you currently have tenants with dogs, or you are willing to rent to tenants with dogs in the future, you should definitely find out whether your insurance policy covers the liability associated with the actions of your tenant’s dogs. Better to know in advance what you may be facing than to have it be a surprise. Furthermore, it also pays to examine the laws for your county and state regarding landlord responsibility. Some may not hold you liable unless you knew that the dog was vicious and/or had a bite history.
If you do still feel that it is worth the added exposure to rent to tenants with dogs, do make sure that you know the breed, size and bite history of any of the dogs that your tenants will be keeping. Furthermore, when you renew their lease, make sure that you check in with them about their dog(s) to ensure that there haven’t been any incidents. Then document this information in their rental file. Take any complaints you receive from neighbors seriously. Lastly, when you do your drive by inspections, take special note of the dog’s behavior and consider terminating the lease (within the limits of your local laws) if the dog appears to be vicious.
Until my next post,
James
P.S. Get easy to implement and profitable property management strategies in Secret Property Management Tips and Tricks authored by me, James Orr. In this audio program you’ll get a full hour of training with me on how to manage your rental properties more easily and more profitably and best of all, for a limited time, it is free to download.
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