Avoid Insurance Self-Harm

Don't let insurance premiums torment you!

As a multifamily investor, insurance premiums can be one of your highest expenses, second only to property taxes. Recently, I had an enlightening conversation with an experienced insurance broker who shared essential due diligence tips every investor should know before making an offer. Ignoring these key items can wreak havoc on your insurance premiums, so it is crucial to investigate them thoroughly.

Essential Tips

#1 Walk the Property

Always try to walk the property before submitting a Letter of Intent (LOI). If that's not possible, at least use Google Maps to get a visual. Regardless, these items must be reviewed during the due diligence process:

#2 Key Items to Investigate

Roof Condition

·       When was it last fixed or replaced?

·       What type of roofing is it?

·       General rule: roofs need replacement every 20-30 years.

·       Get exact dates!

Fire Suppression System

·       Is it locally or centrally monitored?

·       What percentage of the building is covered?

·       Is it in common areas only or in units too?

·       Are there smoke/CO detectors? Battery, hard-wired, or both?

·       Are fire extinguishers available to residents? In the units and common areas?

Parking

·       Is it included or street parking?

·       If included, is it covered (carport) or are there garages?

Electrical Panels

·       Avoid Zinsco, FedPacific, or stab lock breakers because getting insurance will be tricky.

·       What type of electrical wiring is in the building?

·       When was it last updated?

Appliances

·       Do you supply appliances for the units? (gas, stove, laundry, refrigerator, dishwasher)

·       What type: gas, electric?

Plumbing

·       Is it copper? When was it last updated?

·       If not copper, is it PVC, PEX, ABS, or galvanized steel?

Heating System

·       How is head handled? Furnace or radiator?

·       If furnace, is it natural gas, propane, or electric?

·       When was it last updated?

·       Centralized with AC or separate?

Security System

·       Is there one in place?

Insurance and Legal History

·       Have the current owners ever filed an insurance claim?

·       Request copies of any incidents or damages.

·       Ask about any past or current legal claims against the owners.

Final Thoughts

Remember, it's always advisable to get a new insurance quote for each investment property you're considering. This due diligence can save you from unexpected premium hikes and ensure you're making an informed investment decision.

By thoroughly investigating these aspects, you'll be better equipped to negotiate and plan for any necessary upgrades or replacements. This proactive approach can help you avoid insurance-related surprises and keep your premiums in check, ultimately protecting your investment and your bottom line.

Written by Veronica Sanchez, MD with edits and additions made by Elle Phelps