Good Property Management Involves Insurance Review
Following Hurricane Helene, insurance rates are projected to increase statewide for Georgia residents. Real estate investors understand that the net income after all expenses ultimately determines a properties value. Insurance is one of the key expenses that affect a properties value. This means that if insurance rates are going up, property values will adversely go down. To counteract this decrease in net income while still maintaining a decent enough property management insurance policy, property managers must either raise the costs of rent or find other ways to cut costs.
Net Leases
Commercial leases are often structured as net leases. Under this structure the tenant pays all operating expenses including insurance. Many commercial tenants are going to have sticker shock when they get their bill for their portion of the operating expenses.
Well written commercial leases have provisions to allow the tenant to reconcile operating expenses annually. In some cases tenants even have rights to get their own policy and supersede the landlords policy. These provisions are complex and often very detailed.
Residential Property Management
Unlike commercial leases, residential rentals are structured with the landlord paying most of the operating expenses. This means landlords of residential properties pay the insurance and will bear the brunt of all premium increases. The premium increases will naturally lead to higher rents. Landlords must pass the cost along to tenants through a rent increase or their investment will lose value. Landlords who employ professional property managers like Sherman & Hemstreet Real Estate Company are better positioned to keep costs down.
Property managers should shop the property owners insurance on homes they manage to ensure that premiums are competitive. Hurricane Helene has shined a light on the fact that deductibles matter. Many landlords who have been skimpy on their policies have been unable to file claims because of being priced out by high deductibles.
Ultimately, a good property manager will review all terms of the policy and ensure the proper coverages are in place with a reputable company at a competitive rate.
Read the Policies Closely
As an investor, property owners need to read their policy closely and understand coverages. Deductibles are not always fixed amounts and can be a percentage of the insured value. Some policies can even exclude certain building components like outbuildings or roofs. Debris removal, as another example, is a line item in some policies that many property owners learned was too low to cover the cost of cleanup.
Loss of Rents
One very important coverage all policies should contain is loss of rents. If a building becomes untenantable for a period of time due to a loss, this coverage pays the landlord the rents that the tenant would have paid. Currently, loss of rents coverage only goes up to 12 months and kicks in when a building is damaged or a total loss. This coverage is fairly inexpensive and can save a landlord a substantial amount in the event of a partial or total loss.
Attention to Detail is Always Key
Property management insurance is vital in the world of real estate. Just remember that even with the currently increasing rates, there are ways for you to counteract your net income from decreasing. Always read your policies thoroughly and work through reputable, professional property managers like the ones here at Sherman & Hemstreet.