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Property insurance provides vital protection for investment properties, providing financial protection against a variety of risks that could result in devastating losses. About 1 in 20 insured households file a claim each year, according to the Insurance Information Institute. While some of the hazards that cause the most damage are unavoidable, such as hurricanes, many hazards can be mitigated through proactive measures.
These are five of the most expensive risks faced by investment properties, with tips on how to prevent and mitigate them.
1. Theft, vandalism and malicious mischief
Theft, vandalism and malicious damage account for a large portion of real estate investment property claims, particularly those that are being renovated or are vacant while on the market. These properties typically receive less traffic and are prime targets for thieves looking for new appliances, HVAC systems, building materials and tools.
Losses from theft and vandalism can range from a few hundred dollars to tens of thousands of dollars. It all depends on what the thief/vandal wants and what they can take/damage before being scared away by the threat of discovery. Our data concluded that the average cost of a break-in for an investment property ($8,000) is four times the national average cost for an owner-occupied home ($2,000).
Theft, Vandalism and Mischief Mitigation Tips
- Keep the property looking vibrant exist By maintaining your yard and ensuring proper lighting.
- Protect doors and windows with sturdy hardware and consider installing an alarm system with monitoring.
- please neighbor pay attention to Suspicious activity is detected and reported to you and the police.
- Use plywood, steel or Plexiglas shields to protect property when appropriate.
2. flood
Water loss is often caused by burst pipes during winter freezes one The most common yet preventable losses we see. These events can cause widespread damage. While data we’ve collected over the past five years shows average water damage costs range from $6,000 to $16,000, we project recent losses as high as $138,000.
The reason for such a wide range? if If the leak is discovered quickly, the damage can be minimized, but if the water has been flowing for days before anyone notices, the damage can be catastrophic. Cleanup is cumbersome, and restoring a property to a habitable or sellable condition after a water loss can take a significant amount of time.
Tips for mitigating flood damage
Property occupied:
- Insulate exterior walls, crawl spaces and attic ducts.
- During a cold snap, tenants are advised to open cabinet doors under sinks to allow heat to circulate About Uninsulated pipes that allow warm water to drip overnight, especially from faucets on exterior walls.
Vacant property:
- Set the thermostat to no lower than 55 degrees Fahrenheit.
- if you Unable To do this, ask a property manager or neighbor to inspect the home daily during a cold snap.
- Shut off the water to the street and drain the ductwork to winterize the house.
3. wind/hail
As we will discuss further in the hurricanes and tornadoes section, wind and hail events are becoming more frequent and severe. In early 2024 alone, we had over $30,000 in planned wind/hail damage, with the highest reported damage being $164,000. These events primarily affect Texas, Oklahoma, and Missouri and often result in roof damage, cracked windows, and damage to free-standing structures such as garages or sheds.
Tips for mitigating wind/hail
Attribute enhancement:
- Have your roof inspected and repaired regularly as needed.
- Install storm shutters or impact-resistant windows.
- Tenants are reminded to secure outdoor furniture and other items or store them indoors when severe storms are forecast.
4. hurricane/tornado
Increasingly severe weather events such as hurricanes and tornadoes have significantly impacted the cost of property insurance. Coastal states such as Florida, Texas and Louisiana are particularly vulnerable to hurricanes, which can cause widespread damage. For example, Hurricane Ian in 2022 lead to Damage reached $113.1 billion, making it the third costliest hurricane on record.
Tornadoes are also significantly destructive as of recentlythe number of disasters reported in three consecutive months in 2023 reached a staggering 466. lead to flooding.
Our internal data supports what many climate change experts and weather professionals are saying: the severity and frequency of these weather phenomena are increasing. Recent hurricanes and tornadoes in our program have caused significant damage, with damage totaling $202,000 to one property and $250,000 to another.
Hurricane/Tornado Mitigation Tips
Property preparation:
- Prune or remove damaged trees and branches.
- Secure loose gutters and downspouts and remove debris to prevent water damage.
- Modifications to fix and strengthen roofs, windows and door, including Garage Door.
Safe room:
- Construct a safe room in a basement, on top of a concrete slab, or in an interior room on the first floor.
- Make the room safe fully anchoredcan withstand strong winds and are made from materials that are resistant to flying debris.
5. fire
fire is Both One of the most expensive and common types of claims on residential investment properties. The Insurance Information Institute (III) reports that the average house fire costs approximately $40,000.
However, claims can escalate significantly, and a recent fire resulted in $375,000 in damage to one of our properties. program, Another caused $460,000 in damage. Fires can be destructive Not only does it involve the structure itself; Tenant’s property, appliances and adjacent properties.
Fire Mitigation Tips
Property occupied:
- Test smoke alarms monthly to ensure they are functioning properly.
- Provide fire extinguishers and educate tenants on their proper use.
- Install fire suppression products like StoveTop FireStop to control kitchen fires.
Vacant property:
- Layers of security measures to prevent unauthorized entry.
- Keep the property looking lived in to prevent vandalism.
- Neighbors are encouraged to report suspicious activity.
final thoughts
While some of the most expensive property damage, such as damage from hurricanes, tornadoes and other severe weather events, is inevitable, many risks can be mitigated through proactive measures. Property insurance remains an important safety net, but to avoid increased premiums and widespread losses, you must take additional mitigation measures.
This article is provided by NREIG
NREIG is a national independent insurance agency offering the most comprehensive, flexible, industry-leading insurance programs for residential real estate investment properties. Our team of advisors and experts provide unmatched service and streamlined insurance solutions to investors in single-family and small multifamily rentals, renovation projects and vacant homes. Seamlessly change coverage as your portfolio fluctuates and pay only each month for the coverage you need.
Notes on BiggerPockets: These are the opinions written by the author and do not necessarily represent the views of BiggerPockets.
