Author Topic: Can we please talk about insurance on a rental property?  (Read 1610 times)

Paper Chaser

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Can we please talk about insurance on a rental property?
« on: January 28, 2020, 08:00:31 AM »
I'm a real estate novice. I've been reading a lot here in recent months, and have been keeping a close eye on my local market for a few years now, just observing and trying to get a good feel for it. I can't usually make the numbers work for most of what I see these days (even in my LCOL area), but every once in awhile I see a property listed where the numbers seem to work for a rental. I'm good with the 1% and 50% rules. I'm relatively handy and feel like I can estimate what a property needs, what I might be able to fix, and what would need to be handled by someone else, so I think I know what my upfront costs might be in most cases as well as long term CapEx stuff.

The one area where I'm having trouble estimating my costs is insurance. Hence this discussion. How much should I expect to pay monthly to insure a rental. I'm looking at SFHs as well as some smaller multi family stuff like triplexes.

How much, and what kind do you carry? I realize this might vary a ton depending on property values, so maybe we consider it in terms of % of property value or something? I see some calculators and estimating tools default to $1000/yr for a place in the $100-150k ballpark (LCOL area). That seems low to me, but my only reference is my homeowner's insurance on my personal home, which is valued several times what some of the rental properties I'm considering are valued. Seems like a reasonable umbrella policy can probably be had for under $500 annually right? What advantages/drawbacks are there when going that route over another type of insurance?



cchrissyy

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Re: Can we please talk about insurance on a rental property?
« Reply #1 on: January 28, 2020, 10:19:14 AM »
you could ask your current insurance company to give you a quote if hypothetically you started renting out your house. i bet you'd learn some things in that process that would translate to what you're really aiming for.

in my case, the monthly cost was about 1/3 lower for the same property. i think i moved a few variables at once though. raised liability coverage. removed contents coverage. considered changing the deductible but don't think i did.  added loss of use coverage beyond their basic level (that means if, for example, the house burns down and stops producing rent, the insurance company replaces that income for me)

YttriumNitrate

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Re: Can we please talk about insurance on a rental property?
« Reply #2 on: January 28, 2020, 03:32:14 PM »
Obviously there are a lot of variables such as location, deductible, limits, etc., but as a data point when I changed my owner occupied house to a rental my insurance rates stayed about the same. The coverage on the items inside the house went down while my liability coverage went up, and the two changes basically cancelled each other out.

SndcxxJ

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Re: Can we please talk about insurance on a rental property?
« Reply #3 on: February 02, 2020, 07:40:12 AM »
In my HCOL area I typically pay $650/yr for a landlord policy.  This typically covers a property values at $600-700k.  I recommend making sure you have at least $500k liability, and I use about $250/sq ft of overall coverage (sometimes the value of the property is higher than the replacement costs).  I have been slowly switching from a $1000 deductible to a $5000 deductible and I am seeing my premiums drop from about $650 to about $500 annually.

Dicey

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Re: Can we please talk about insurance on a rental property?
« Reply #4 on: February 02, 2020, 08:04:08 AM »
We have three SFH rentals. We've never had a claim, yet due to other catastrophic losses in our state, our insurance went up 40% last year, and we expect it to stay that way for the foreseeable future. Changing carriers is not an option, as they're still far cheaper than most. Insurers are fleeing our state, not writing new policies. Who would have guessed this, much less budgeted for it? Oh, our state has just capped annual rent increases, effective this year without a heckuva lot of notice.

Being a LL is a j-o-b. I am FIRE due in large part to owning CA Real Estate, which has been amazingly buoyant in my lifetime. DH and I are crazy people who really enjoy DIY improving, flipping and BRRR-ing of houses, but there are times when my Current Self would strongly advise my Past Self to buy low-cost ETF's instead.

That is exactly what my Current Self would advise you, too. I'd also recommend JLCollinsnh's excellent Stock Series if you havent read it yet.

Paper Chaser

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Re: Can we please talk about insurance on a rental property?
« Reply #5 on: February 03, 2020, 11:57:21 AM »
Thanks for the responses thus far. Interesting to hear some different viewpoints from people with different levels of RE experience too.

Dicey, thanks for the input. You bring up a very valid point about uncertainty over the long haul. I live in a pretty relaxed environment for landlords as far as I can tell, and the general outlook of the people here/political climate is probably quite a bit different than where you are, but that could always change. I'm familiar with JLCollins and enjoy his writing. Thus far, pretty much everything we hold in investments is low cost index funds, and that wouldn't really be changing. Don't plan on diverting any of those funds to play RE games, so I feel ok there. The real estate wouldn't be a primary investment path, but the appeal of an alternate revenue stream with potentially greater returns is a strong siren song to deny. I just want to make sure that if I do take a position in RE, that I fully understand what I'm getting into.

Like you and your SO, we're also crazy people that enjoy taking something rough and turning it into something more. I'm reasonably capable when it comes to most home projects, and have local family connections in every homebuilding trade that could advise or help when called upon. I'm not afraid of a distressed property that needs some work, but once the original work is done, I'd plan on handing it off to a PM company for the day to day operations, and to avoid the midnight phone calls. My hope is that an approach like that could utilize my skills to save a little money up front and make the deal more financially palatable/lucrative, and then reduce time commitment/hassle over the long haul. I've been looking for strong Cash on Cash return more than property appreciation to hedge my bets as much as I can against unforeseen future hurdles. But you're right that index funds are pretty darn easy, and the time commitment for a busy young family where both parents work full time is far lower than what an RE project would demand. So thank you for the advice. I'm still weighing options, watching, and learning.
« Last Edit: February 03, 2020, 12:01:01 PM by Paper Chaser »

Bobberth

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Re: Can we please talk about insurance on a rental property?
« Reply #6 on: February 03, 2020, 03:09:25 PM »
Your best bet is to contact different insurers. When I started in 2008, I didn't know anything so I called USAA which was insuring our house and I was pleased with. They told me I HAD to insure for full replacement value, which for the small house I just bought for $18k was $260k. That was more than our own house was insured for and absolutely ridiculous. Then I went with the husband of someone my wife taught with. What he said sounded good so we ended up with our rental properties "under" our own house policy. I was fine with how everything was going and didn't have any problems. But in 2013 we had a hail damage claim on our own house, 2014 there was a fire at one of the rental properties and in 2016 we had water damage in our basement. When I called the agent about what was covered by insurance he told me I already had 2 claims against my policy and that if I had a 3rd they would drop me. I was pretty pissed at that time to find out that my tenants being dumbasses was a strike against protecting my family's home. I got into it with the agent, who tried to claim he never would have suggested putting a rental policy under an owner's house--like an owner would insist on it???, so I started looking around and ended up with Shelter who does a completely separate policy and has liability insurance included. Not only is it separate from my personal residence, it was cheaper as well. 

Kcinegnet

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Re: Can we please talk about insurance on a rental property?
« Reply #7 on: February 05, 2020, 12:55:25 PM »
You are required by lender to have insurance on the home as long as you are paying them off.