A successful real estate investment requires more than just a property insurance policy. It also needs an asset protection strategy in case a lawsuit does hit your property.
This article will cover some of the most common tactics landlords use to protect their property investments including forming an LLC, getting insurance, and establishing an irrevocable trust.
Property Insurance
One of the best ways to protect a property investment is purchasing a home warranty policy. This can help you avoid costly repairs and keep your mortgage lender happy.
Another way to protect your investment is by maintaining routine maintenance. This will ensure that any problems are identified early and resolved before they become worse. This is also important for maintaining the value of your home, which can make it a more appealing purchase to potential buyers down the line.
Investing in real estate can be profitable, but it’s also risky. Many investors cut corners to keep costs low, but this often leads to financial disasters. A good insurance agent can help you determine the best coverage options for your rental property.
Rental property insurance is specifically designed to cover the unique risks of income-producing properties. It offers protection for your rental property, your financial investment, and your business. It can be more expensive than homeowners’ insurance, but it is well worth the cost.
Liability Insurance
Insurance is a key component in any property protection strategy. It can cover damages from fire, flood, and other catastrophic events. It can also protect against a lawsuit. Umbrella insurance offers an inexpensive layer of protection. It’s recommended for anyone with significant assets and wealth. It can provide peace of mind by safeguarding against unexpected risks and liabilities.
Landlord insurance is a type of liability insurance that covers the costs of rental property expenses, including lost rent and repairs. It can help investors avoid expensive judgments and financial disasters. In addition to insurance, it’s important to minimize risk by implementing thorough tenant screening and credit report checks. It’s also helpful to review and call references for applicants.
Another form of asset protection is to establish a series LLC for each property. This allows you to separate your real estate assets and prevents creditors from suing one property for debts on another. This strategy is also known as “equity stripping.” Consult with a legal professional to learn about the laws in your area.
Flood Insurance
Flood insurance is one of the most important investment protection policies that a homebuyer or landlord can buy. It protects against flooding caused by storms and other natural disasters. Many mortgage lenders require borrowers to have this policy in high-risk flood zones, and it’s a good idea for anyone buying a property in such a zone to consider getting the coverage. If a homeowner does file a claim, it pays out cash to cover damage and rebuild the home up to the policy limit.
You can find out whether a house is in a flood zone through the FEMA’s Flood Map Service Center website by entering its address. Homeowners can also make their homes more flood-resistant by constructing them on stilts or elevating the first floor without enclosing it. Insurers may accept an elevation certificate from the property owner to qualify it for optimal flood insurance rates. Just a few feet of water can cause $25,000 worth of damage to a home, so it’s best to be prepared for the risk.
Landlord Insurance
If you invest in a property and decide to rent it out on a long-term basis, a standard homeowners policy might not provide enough coverage. Instead, you’ll need landlord insurance, which is tailored for properties that are leased out and emphasizes tenant-related liability. Landlord insurance policies also offer a wider range of structural protections and additional coverage options, such as loss of rental income coverage. This type of coverage reimburses you if your tenants need to temporarily move out while repairs are being made, protecting your rental income against unexpected expenses.
Landlord insurance also offers extra property protections that go beyond the structure itself, safeguarding household appliances and furnishings, and often covering other structures on the site as well (such as free standing sheds). Some landlord policies even include personal belongings coverage for the landlord, if they choose to keep some of their own possessions in the home. Bundling your landlord insurance with a home, auto or umbrella policy can sometimes yield savings.