Insurance, another detail of property investing

As we have found out the ‘hard way’, any type of investing is complex business. You have to learn the ins and outs and there are many-many details that you don’t figure out just from reading books. Any one of these little unfamiliar details can throw your calculations out of order and make a seemingly good, simple investment turn into a loser.

En example of one of these details is insurance coverage. For our miscalculated property investments there were 4 different insurances policies that had to be paid!

1) Bank loan insurance
2) Owner insurance
3) Renter insurance
4) Separate insurance against unpaid rent

Bank loan insurance protects the bank if you don’t pay back the mortgage.

Just like car insurance protects you against vandalism, robbery, accidents, and liability on your car, owner insurance protects you from many of the same things on the property, depending on the options you choose in the policy. However, some level of protection is mandatory.

Renter insurance is paid by the renter and covers internal damage to the property and damage caused to other properties, for example, the renter leaves the water running, the tub overflows and ruins the downstairs neighbor’s kitchen ceiling.

The insurance here that we didn’t count on was #4. We just wanted to make positive cash flow and avoided getting protected against unpaid rent. Only after losing 3 months of rent to an unscrupulous renter did we learn that this type of insurance was absolutely necessary. This amount was another detail that made our investment go bad, along with other things we didn’t know because we didn’t have the experience.

With property or any investment, always protect yourself as much as possible with insurance coverage. Hope for the best but expect the worst. If you can make money in the worst case scenario you made the right calculations.