Successful property investing is easier than most people think. The mistakes that prevent most would-be property millionaires from realising their potential are predictable and easy to avoid. In this series of blogs, Den details each of the most common mistakes and how to ensure you don’t make them.
Mistake number 8 – Being uninsured
I consider myself an astute investor. I have a $4m portfolio which brings me a nice amount of passive income as well as considerable capital growth. I look after my properties and, generally, I have good managers and tenants. With all this great stuff going on, you’d wonder why I would bother with insurance. But it’s something I won’t invest without.
Why wouldn’t you insure?
There are two main problems with Landlord’s Insurance. The biggest problem is that insurance feels like lost money because, unlike renovations, maintenance or other improvements, you don’t actually see anything for your financial outlay. The other problem is that it’s hard to work out exactly what cover you need; do you go for the super-duper coverage or do you get the bare minimum? How do you know what you need?
It’s no wonder that so many landlords are uninsured, or inadequately insured. Sooner or later, however, things will go wrong (I’ve had everything from tenants disappearing without a trace to illegal activity in one of my properties!) and you’ll be glad you’re adequately insured.
How do you know what insurance you need?
Firstly, it is worth considering how much cover you require as far as lost rent goes; do you want to receive the lost rent from a tenant who stops paying rent or skips town? What about the rent lost if there is malicious damage and you need to take time to repair your property before you can rent it out, thus losing more rent? How many weeks of lost income do you want coverage for? And the damage itself?
Remember also that you’ll need insurance that matches your purchase. If you’ve purchased a unit or apartment, find out what insurance is provided from the Body Corporate – as a general rule consider that they will probably cover incidents that occur outside your unit/apartment including the exterior structure of the block but you need to check that this is the case. If you’ve purchased a house then you’ll need to cover the structure of the house as well as all the other considerations.
So what can we learn?
Make sure you’re covered, from the first day you need cover. For some purchases, that could be from the date you sign the contract (before you actually take possession). Shop around and find out which insurance companies offer the right level of insurance for you.
I’d recommend being covered for all possible eventualities (Murphy’s Law dictates that the one claim type you decide you don’t need will be the one that happens to you!). I insure all of my properties for 13 weeks of lost rent, keeping in mind that a tenant who stops paying rent probably won’t be evicted for up to eight weeks.
What can we do now?
Check your insurance policies and make sure you have the right amount of cover. If you don’t, change your cover. After all, the point of insurance is so that you can rest assured that you’re covered in all eventualities.
And then you’ll really sleep well.