The price of protection in real estate investing. Post 147


Coach Mitch’s REFLECTIONS™

 

Get your guard up

Homeowner’s insurance is a necessary part of the real estate investor’s armor. You can normally get your investment property included into your homeowners’ insurance policy, along with your car. The more you have to insure, the more valuable a client you become and you will qualify for any quantity discounts.

Do lower housing prices mean cheaper insurance?

No. Tumbling house prices may have you wondering whether homeowners’ insurance will fall also.

The answer is not easily seen. While US median house prices have fallen about 7%, year against year, do not expect premiums to be cut by a similar amount.

Your homeowners’ policy covers your home – but also much more. The typical homeowners’ policy also covers contents, and the value of contents is likely to have risen, as well as third party liability.

Industry experts have determined that as many as two thirds of American homes could be undervalued, when seeking monies for rebuilding due to a covered incident.

Most important

Your coverage must be evaluated with an  understanding that the buildings part of your policy should be based on the cost of reconstructing it, and not on its current value. To base your insurance on the current market value is to make a serious error.

Construction costs up or the same

While times are hard for builders, the evidence suggests that construction pricing has not fallen like housing prices. Prices of materials have moderated, and labor is not quite as expensive, but only slightly.

The wars in Iraq and Afghanistan are taking up any slack in the US market – keeping up pressure on prices.

Check your policy

It makes sense to check that your homeowners’ policy accurately reflects the cost of rebuilding any property that you own, including any investment property.

How to calculate your market value

  • Talk to your insurance broker. They have their pulse on the local market.
  • Insurers keep track of rebuilding cost and automatically adjust policies to reflect changes in pricing.
  • There are online calculators that can be used to assess current costs.
  • Ask a builder to do a walk through and estimate the reconstruction costs.
  • Have an appraiser do a full inspection and estimate the value of the property.

Traditional ways to lower your insurance costs

Unfortunately, lower real estate values will not lower your homeowner’ premium. However, there are other ways to reduce insurance costs. You might agree to pay a higher deductible, or make sure to use the same insurer for all your insurance needs.

The best way to reduce costs is to become knowledgeable.  Read the policy and learn about the components of the insurance.  You will be surprised how similar and how different each policy and company is.

Price check.

Call six companies and compare policies and rates.  Just fax over your cover sheet to get an apples to apples comparison.  By comparing companies, we saved over $600 and got better coverage.  That’s a lot of money.

Beware

Stories about insurance debacles are legend.

  • I will never forget a call from a coaching student informing me that a young child had fallen into a well on their newly acquired investment property. I had worked with this couple to get this property, their first, and I still remember his words, “Yes, I know that you told me to get property insurance…”
  • I will also never forget the nauseous feeling in the pit of my stomach upon receiving a letter from a tenant that read, “We had a girl scout meeting. Just letting you know that a young girl put her arm through the glass in your front door. She got 67 stitches. Her parents are consulting a lawyer and will be in touch with you soon.” I quickly recovered when remembering that I had liability coverage.
  • A vivid memory is the time that I was at an attorney’s office, fighting a claim that I, (my workers), had moved some portable front steps at a home that I had just bought and sold. It seems that the new owner became drunk and fell down the steps. Luckily, I could show that the new owner had moved the steps after my workers did, so I was not liable, but my liability policy would have protected me.
  • And, etched in my memory is the night that I had a washer hose rupture on the second floor of my home and the water went down two floors and did considerable damage. My insurance agent was of no help. Don’t forget, he is the agent of the company. I had to get a public adjuster. He got me at least triple what I would have known to get. He was well worth his fee.

See Coach Mitch’s “Ridiculously Simple System…” &#8284 for details.

Take care,

Mitchell Goldstein - Coach Mitch
518-439-6100 until midnight EST
www.CoachMitch.com

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