Real Estate

Rising Home Insurance Costs Will Destroy Your Cash Flow—What You Can Do About It

Real estate investors are usually most concerned about rental income and property taxes. They rarely discuss home insurance. Many people think that home insurance is a standard fixed price in most parts of the country and give it little importance, but if you are one of those people, you could be making a big mistake.

According to insurance.com, the average cost of home insurance nationwide is around $2,800 per year, which equates to $231 per month for $300,000 in residence coverage and liability and a $1,000 deductible. However, this number fluctuates across the country. As a real estate investor, it’s important to note that the numbers listed are for owner-occupied homeowners insurance. land lord Another 25% should be added.

Not surprisingly, the states are at greatest risk. natural disasters (hail, storm, tornado, flood) have the highest insurance rates. The top five most expensive states for home insurance—where average rates range from $4,142 to $5,317 per year—are:

  1. Oklahoma
  2. Kansas
  3. Nebraska
  4. Arkansas
  5. Texas

Data from Insurance.com shows that the five states with the lowest home insurance rates—where rates range from $582 to $1,551—are:

  1. Hawaii
  2. California
  3. Washington DC
  4. Vermont
  5. New Hampshire

Perhaps the most surprising state on the list of low insurance rates is Hawaii. However, don’t be fooled. Hawaii is much cheaper because it doesn’t cover damage from hurricanes. Therefore, as a landlord, Read the fine print of what your policy does and doesn’t cover is very important.

While weather is the most important factor in determining your insurance rate, other factors to consider include population density, proximity to potential risk areas such as forests (Forest fire), rivers, and busy roads, or conversely, proximity to fire hydrants and fire departments. The historical risk of claims in your area may also affect insurance.

How can a landlord reduce the cost of insurance?

Landlords can do a few things to keep the necessary cost of insuring the property as low as possible, including the following.

Make sure your property is well maintained.

Regular maintenance will ensure that cracks, leaks, faulty smoke alarms, mold, and infestations are spotted and taken care of early.

Also, make sure your property has these features:

  • Closed fire doors
  • Well lit hallway
  • A clean path
  • Functional fire escape
  • A strong roof and foundation

Increase your deductible amount.

Increasing your deductible (the amount you must pay before insurance kicks in) lowers your homeowner’s insurance premium costs and prevents frivolous claims. By saving money on your premium, you can purchase additional insurance against other claims.

Emphasize safety.

Insurance companies reward owners who take safety seriously. Make sure you emphasize:

  • Security cameras
  • Indoor and outdoor lighting
  • Alarm systems
  • Smoke and CO2 detectors
  • Integrated smart security devices

Upgrade your property’s main systems.

Many insurance claims come from faulty mains electrical, plumbing and heating systems. Ensuring your system is regularly checked and upgraded with the latest systems (provide as much information as possible so insurers can verify) when it’s time to renew your policy. helps to get better value.

Get a landlord’s policy.

If you have a large portfolio, insuring all your properties under one policy ensures a better premium rate. A homeowner’s insurance policy also means less paperwork and overseeing multiple individual policies.

Shop around

You’d be surprised how much insurance prices can vary. Take some time to shop around. Go online, ask other local landlords what companies or brokers they use, and get multiple quotes.

Types of Insurance Coverage for Landlords

As a landlord, here are some things you will need to consider in your policy:

  • Rental Property Insurance: Rental Property Insurance Standard for landlords and bundles liability, risk, and loss of income insurance.
  • Sewer and water line backup: Some utility/water companies may offer to add this to your monthly bill. However, it’s worth writing into your insurance policy because if your main water or sewer line breaks, the cost to repair it can run into the tens of thousands of dollars.
  • Flood Insurance: If you’re in a designated flood zone, this is an additional expense that you won’t be able to float. (In short, don’t buy in a flood zone.)
  • Loss of Income Coverage: If your apartment is rendered uninhabitable by a natural disaster, rental loss insurance will cover the lost rent. Some landlord policies include it as standard, but it’s optional for others. However, understand that loss of rent insurance does not cover the tenant’s inability to work (due to illness or any other reason) and thus not pay rent. Expect to pay about one-third to one-half of the total premium for a homeowner’s insurance policy, so factor that into your overall calculations.
  • Renter’s Fixed Income Insurance: If you can afford it, it may help you sleep better at night. Also known as rent guarantee insurance, this insurance protects landlords from tenants who default on rent, keeping your cash flow steady and your blood pressure low.
  • Pet Insurance: Pet-friendly rental properties are in high demand, and if you want to be competitive, this is something you’ll want to offer as well. If your tenant’s pet attacks another tenant in your building or damages your apartment, you want to make sure you’re covered. Making sure your tenant has pet coverage in their renter’s insurance is one way to go about it. However, local landlord-tenant laws vary from state to state, and you’ll need to check the most cost-effective form of security when you have pets in your building.
  • Umbrella Insurance: This is often overlooked by landlords who are concerned with their bottom line Cash flow. However, if you have the margin, umbrella insurance can be a good ass. This is secondary insurance coverage to protect you once your standard liability policy limits have been exceeded. This is especially helpful if you face lawsuits, medical expenses, and lost wages.

Final thoughts

Being a landlord Full of potential pitfalls. You are at the mercy of weather and humans – two unreliable commodities. In looking for profits, you should pay attention to the potential problems that can make you unemployed. Factoring in worst-case scenarios and making sure you have the right insurance policy for your investment.

As you scale, you will need to modify your insurance. Time is the great equalizer in real estate, and staying in the game is half the battle. Should you maintain your assets, over time, your returns will increase, so if you have to spend a little more on insurance at the expense of your cash flow in the short term, it’s wise. Consider doing this to ensure you can survive. To fight another day and increase your profits in the long run.

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Note via BiggerPockets: These are the opinions expressed by the author and do not necessarily represent the opinions of BiggerPockets.


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