Rising home insurance costs will destroy your cash flow — here’s what you can do

Real estate investors are often most concerned about rental income and property taxes. They rarely discuss home insurance. Many people think that home insurance is the standard fixed price in most of the country and discount it, but if you are one of these people, you may be making a big mistake.

According to insurance.comThe national average cost of home insurance hovers around $2,800 per year, which equates to $231 per month, including $300,000 in homeowners and liability coverage and a $1,000 deductible. However, this number fluctuates across the country. As a real estate investor, it is important to note that the figures quoted are for owner-occupied home insurance. landlord An additional 25% should be added.

Not surprisingly, the states most at risk natural disaster (Hail, Storm, Tornado, Flood) insurance rates are the highest. According to Insurance.com, the five most expensive states for home insurance (with average rates ranging from $4,142 to $5,317 per year) are:

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

According to Insurance.com, the five states with the lowest home insurance rates (rates ranging from $582 to $1,551) are:

1. hawaii
2. california
3. Washington DC
4. Vermont
5. New Hampshire

Perhaps the most surprising of the states with low insurance rates is Hawaii. Don’t be fooled, though. The reason Hawaii is so cheap is that it excludes hurricane damage. So as a landlord, Read the fine print on what your policy does and doesn’t cover So important.

While weather is the most important factor in determining insurance rates, other factors to consider include population density, proximity to potential risk areas such as woodlands (wildfire), rivers and busy roads, or conversely, near fire hydrants and fire departments. Historical claims exposure in your area may also affect coverage.

How Landlords Can Lower Insurance Costs

There are some things landlords can do to minimize the necessary cost of property insurance, including the following.

Make sure your property is well maintained

Regular maintenance will ensure that cracks, leaks, faulty smoke alarms, mold and insect infestations are detected and dealt with early on.

Additionally, make sure your property has the following features:

• Closed fire door
• well-lit corridor
• Sidewalks are clean and tidy
• Functional fire escape
• Strong roof and foundation

Increase your deductible

Increasing the deductible (the amount that must be paid before coverage kicks in) can lower landlord insurance premiums and prevent unreasonable claims. By saving on premiums, you can purchase additional coverage to cover other claims.

Emphasis on safety

Insurance companies reward landlords who take safety seriously. Make sure to emphasize:

• monitor
• Indoor and outdoor lighting
• Alarm system
• Smoke and carbon dioxide detectors
• Connected smart security devices

Upgrade your hotel’s major systems

Many insurance claims are due to main electrical, plumbing and heating system failures. Making sure your systems are checked regularly and upgraded with modern systems (providing as much information as possible so the insurance company can verify) can help you get better pricing when it comes time to renew your policy.

Get the master landlord policy

If you have a sizable investment portfolio, insuring all your possessions under a single policy can ensure better premium rates. A master homeowners policy also means less paperwork and monitoring of multiple individual policies.

Shop around

You’d be surprised how much difference insurance quotes can make. Take some time to look around. Go online and ask other local landlords which companies or brokers they use and get multiple quotes.

Types of Landlord Insurance Coverage

As a landlord, you’ll want to consider including the following in your policy:

• Rental Property Insurance: Rental Property Insurance is the standard for landlord and bundled liability, hazard and loss of income insurance.
• Sewer and water line backup: Some utility/water companies may offer to include this in your monthly bill. However, it pays to have it written into your insurance policy because if your main water or sewer line breaks, the cost of repairs can run into tens of thousands of dollars.
• Flood Insurance: If you’re in a designated flood zone, this is an additional cost you can’t escape. (In short, don’t buy in flood areas.)
• Loss of income insurance: Loss of rent insurance will cover lost rent if your apartment becomes uninhabitable due to a natural disaster. Some landlord policies have this as standard, but for others it’s optional. Note, however, that loss of rent insurance does not cover a tenant’s inability to pay rent due to an inability to work (due to illness or other reasons). Expect to pay around one-third to one-half of your total landlord insurance premium, so consider this carefully in your overall calculations.
• Tenant Rent Default Insurance: If you can afford it, it might help you sleep better at night. Also known as rent guarantee insurance, this insurance protects landlords from tenants who don’t pay rent, keeping your cash flow steady and your blood pressure low.
• Pet insurance: Pet-friendly rental properties are in high demand and this is what you want to offer if you want to stay competitive. If your tenant’s pet attacks other tenants in your building or damages your apartment, you need to make sure you’re protected. Making sure your tenants have pet insurance included in their renters insurance is one way to solve this problem. However, local landlord-tenant laws vary from state to state, and you’ll want to examine the most cost-effective way to protect yourself while your pet is in your building.
• Umbrella insurance: This is often overlooked by landlords who care about their bottom line cash flow. However, if you have enough profit, umbrella insurance can be a godsend. It is secondary coverage that protects you once the limits of your standard liability policy are exceeded. This can be especially helpful if you are facing lawsuits, medical bills, and lost wages.

final thoughts

Be a landlord Full of potential pitfalls. You are at the mercy of weather and humans—both commodities are unreliable. In your pursuit of profitability, you must be aware of problems that could leave you penniless. It’s crucial to consider worst-case scenarios and ensure you have the right insurance policy for your investments.

As you expand, you will need to modify your coverage. Time is the great equalizer in real estate, and staying in the game is half the battle. If you hold on to your assets, your profits will increase over time, so if you have to spend a little more on insurance in the short term at the expense of cash flow, it would be wise to consider doing so in order to Make sure you can live to fight another day and increase your profits in the long run.

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Notes on BiggerPockets: These are the opinions written by the author and do not necessarily represent the views of BiggerPockets.