With the latest advancements in satellite imagery and data, viewers can now see the pathway and immediate impact that hurricanes, wildfires, floods, tsunamis, tornadoes and other natural disasters can cause as they threaten a coast, town or neighborhood. Yet, some property owners still prefer to be more reactive than proactive when it comes to preparing for a potential disaster. This is despite the fact that they have poured valuable investment dollars and countless hours to acquire, renovate and maintain their property through the years.
As a lender on nearly 30,000 residential real estate investment properties across the nation, we understand the importance of protecting a property or portfolio. We have seen the damage that can be inflicted upon a given home. In our perspective, it is critical it is to prioritize insurance, especially one that is inclusive of natural disaster coverage. To be fair, most investors realize they should have insurance in place and are often required to show proof of coverage to obtain a loan. But, does this mean they know exactly what is covered? Many investors do not fully understand the details surrounding insurance policies. In this article, we hope to shed light on a few key elements to benefit our real estate investment community.
The Year of Record Damage: 2017
When it comes to natural disasters, last year was one for the record books. In 2017, there was an unprecedented number of catastrophic events in the United States, with a total of 59 major disaster declarations across more than 35 states and territories. These catastrophes caused over $306 billion in collective damage (while some estimates indicate over $400 billion). In addition, 4.7 million people registered with the Federal Emergency Management Agency (FEMA) in 2017. This was a 1,000% increase from 2016 in federal disaster aid.
The rise of events in 2017 serves as a reminder to investors to better prepare and protect their assets. Investors need to constantly ask themselves: What steps have I taken to ensure that my properties are protected? How can I further reduce my risk and liabilities?
Types of Policies
To answer questions like these and more, we highly suggest seeking information regarding natural disaster coverage directly from local insurance agents. Agents are a great resource and investors should contact them for suggestions about the best policies for their investment area and budget.
Chances are, if you live in a high-risk area for potential storms, you likely know a close friend or relative that has experienced the undue stress of filing a claim after a storm. Don’t wait to learn from a bad experience to find the right insurance policy or provider. To help investors with their search, the following paragraphs highlight the different types of insurance policies and the limits surrounding them.
Landlord insurance offers coverage for physical damage to a property’s structure caused by hail, wind, lightning, ice, fire, snow, or other covered perils. Ideally, a landlord policy will include replacement cost coverage in the event of a total loss. This policy covers the landlord’s personal belongings that have been left behind for the tenant to use.
These policies also have liability coverage which compensates for medical expenses and/or legal fees in case a tenant or a guest gets hurt on the premises.
Many landlord policies include rent-loss insurance. This additional coverage protects landlords from loss of rental income after damages on the property cause tenants to move out. This coverage is offered for a specific timeframe while owners are repairing damage and unable to collect rental income. Rent-loss protects investors from potentially spending out-of-pocket money just to continue making loan payments while also paying for repairs.
The coverage you place on the property only covers the structure and your interest in the property. For that reason, many landlords require tenants to purchase renters insurance before signing a lease. This is important to consider if investors want to ensure a positive relationship with their tenants in the event that both owner and tenant need to report claims. Hint: many tenants tend to purchase renters insurance for a month or so, only to prove their coverage and later cancel their policy. To confirm coverage, landlords should check regularly or ask for proof of longer durations like an entire year paid in full.
Suggested Steps to Take
The following steps are meant to guide investors before and after a natural disaster:
- Keep an emergency fund
- Always have reserves for your deductible
- Out-of-pocket expenses may arise while you wait for your insurance company to refund
- Call your insurance agent as soon as possible
- Find out what information is required to complete your claim
- Take pictures of everything (before and after) to potentially be used as evidence of damage
- To ensure a maximum return, keep all receipts related to improvements
- Make copies since the ink on many receipts often fade
- Save copies of all correspondence with your insurance company
- Look for updates on assistance programs from relief organizations
- Ask your accountant if you qualify for a Tax Relief deduction
CoreVest understands the value of investing in residential real estate properties. As such, we have carefully selected the insurance requirements to protect investors and reduce their risk among natural disasters. We work with borrowers to take responsible steps for all parties involved even before executing and funding a loan. This makes the certainty and efficiency of our process even more reliable and secure.
CoreVest is the leading lender to residential real estate investors. We provide attractive long-term debt products for stabilized rental portfolios as well as credit lines for new acquisitions. For more information about how CoreVest can help grow your rental or rehab business, contact us today.