Reducing Investment Property Insurance Premiums
And Increasing The Value Of Your Real Estate Investments
You would think that investment property insurance would be priced like a commodity. Most people would consider it a commodity and, all things being equal, would choose the insurance that cost the least. However, this has not necessarily been my experience.
When I am in the process of purchasing a commercial investment property, one of the things on my checklist is to line up property and liability insurance. In my particular situation, I have real estate investments in many different cities and geographic areas, so I like to get a number of quotes from different brokers.
Now, before I go further I want to emphasize one thing. When I refer to reducing your real estate insurance premiums, I do not mean in any way, shape, or form that you should under insure your properties in order to save on the premiums. Doing so would be foolish on at least two levels.
1. If you are under insured and something happens (building burns down), you are likely in deep trouble.
2. If you under insure to reduce your premiums and thus your property expenses the only thing you gain is some minor monthly cash flow. Ahh you say, but "aren't you forgetting about the increase in the value of the building due to the decrease in the expense". Sorry. Any prudent commercial real estate investor is going to "plug-in" their own value for insurance premiums when they run the income and expenses. I know I do. And when they get their own investment property insurance quotes to fully insure the property, there goes your extra value.
What you should be aiming to do is to lowering the premiums as much as possible, without putting the rental property at risk of being under insured. There are legitimate ways of accomplishing this. One obvious way is to shop around. As I alluded to above, in my experience I have found that investment property insurance quotes can vary widely from broker to broker and insurance company to insurance company. As I am not an expert on the insurance industry by any stretch of the imagination, I could only guess as to why this is the case. But it is. Shop around.
Also, talk to several brokers. Like any industry some are better than others, or simply have access to different products through the companies they represent.
When I was just starting out in the commercial real estate investment business I was able to increase the value of one of my properties by about $33,000 by simply switching my investment property insurance provider. The building had a replacement value of over $3,000,000, so the premiums were not cheap. I believe I was able to save about $3,000 per annum on premiums, which at a 9% capitalization works out to about $33,000.
Your goal when it comes to increasing the value of the income property in question is to be able to show your prospective buyers (or future buyers) how they too can achieve the same low premiums. Introduce them to your broker if you must. In the mean time, you get to enjoy the extra monthly cash flow.
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