Professional real estate investors like, Patrick Carroll, need to know important two words:
Landlord insurance.
What’s special about landlord insurance? Homeowners and owners of rental properties deal with different kinds of risks.
- Income continuity. Did you know that insurance can make up for lost rental income when it is being restored after a fire, flood, or vandalism. Rental income insurance keeps up your cash flow when your tenants don’t pay.
- Enhanced liability. You have some liability coverage on your personal home through your homeowner policy. But your homeowner policy likely has a clause that it does not cover you if you rent your property for more than two weeks a year, and your exposure to liability claims is much greater when you are an investor. That’s because lawyers will assume you have deep pockets! Landlord insurance gives you far higher coverage limits than an ordinary homeowner policy.
- Umbrella coverage. Strictly speaking, umbrella coverage is for non-business property. But the objective of claims for a car crash, an attack by your pet on a guest, or even something like defamation or copyright infringement can be to force you to liquidate your investments. Umbrella insurance gives you $1 to $5 million in coverage to help you keep your investment portfolio intact.
One category of people who need landlord insurance but who usually don’t think about it are “accidental landlords.” These are landlords who are renting out their home while they are waiting to sell it or when they have to travel outside their city, state, or the United States on a work assignment. The same exposure occurs for these landlords as does for professional investors, except they are less aware of the risks.
Your insurance agent can write the coverage you need for those times you become a landlord temporarily for work or when you are selling your house.
What should you consider when you are getting landlord insurance? You need to cover loss of income, of course, and the replacement value of your property. But don’t stop there.
Carroll advises landlords to consider their entire portfolio, not just their rental property investments. Your entire portfolio is at risk (unless you form an LLC) when you rent out even one house. Don’t let the relatively small size of a rental real estate investment deter you from getting all the coverage you need.
