While real estate investing can sound very lucrative, there are risks that deter a lot of would-be investors. It’s important to acknowledge that these risks exist and even more important to be prepared for them.
It’s important to take proactive measures to protect your assets and finances. Protecting yourself as a real estate investor requires a combination of proactive measures. This post will go over several key areas to address in order to protect yourself.
Property Insurance
Property insurance covers damage to your investment property caused by fire, theft, vandalism, or weather events. It’s important to make sure that your policy covers the full value of your property and that it’s meant for your property type!
There is a difference between renting to long-term tenants and short-term tenants. A typical landlord policy will be insured for long-term tenants while a short-term policy will be for tenants who rent for less-than-a-month at a time.
As a short-term rental investor, I insure my properties as a short-term rental with Steadily Insurance, which offers landlord insurance for short-term rentals. While a landlord policy for short-term rentals is more expensive than the typical landlord insurance, the insurer will cover damages caused by short-term renters.
Not only do landlord policies cover damages, but they also protect you legally with liability coverage. If a tenant or guest decided to sue, your coverage amount would be used to pay for legal fees and/or settlements. Sometimes, it’s in the best interest of the insurance company to settle rather than dragging a legal dispute for months or years.
When selecting an insurance policy, make sure to read the terms and conditions carefully to ensure that you are getting the coverage you need. The insurance company will deny any claim if the policy is for a long-term rental when the property is used for short-term renting. You can read more about how insurance plays a big part in short-term rentals here.
Umbrella Insurance
Umbrella insurance is an additional liability policy that provides coverage beyond the limits of your existing insurance policies. It covers claims against you for bodily injury, property damage, and personal injury. An umbrella policy can protect you from significant financial loss if a lawsuit is filed against you and it exceeds your coverage amount on your landlord policy.
As the value of your assets increase, it’s a smart idea to increase your umbrella policy coverage appropriately. With more to lose, you want to make sure your coverage increases proportionally to your net worth.
Flood Insurance
If your investment property is located in a flood-prone area, you may want to consider purchasing flood insurance. Standard property insurance policies typically do not cover damage caused by floods. For peace of mind, flood insurance may be a good idea to look into.
Rent loss insurance
Landlord insurance has multiple coverage areas and rent loss is one of the most valuable ones. Rent loss insurance provides coverage for lost rental income due to property damage or other covered events. It’s a valuable policy to have in case your property becomes uninhabitable and you are unable to collect rent. It’ll help keep your finances afloat while the property is undergoing repairs that prevent you from collecting rent.
Final Words
As a real estate investor, it’s important to understand the risks associated with your investments and to take steps to protect yourself. Obtaining different insurance coverages can provide you with the peace of mind you need to focus on growing your investment portfolio.
Insurance is one area you don’t want to be cheap on. Insurance is there when you need it. It can mean the difference between protecting your asset and having to let it go because of financial constraints.