Buying Multifamily Property Insurance

Buying Multifamily Property Insurance to protect your investment property can be challenging if you are not prepared. The capital markets that invest in insurance companies expect to make a profit, which requires the insurance company underwriters to scrutinize your property to make certain it will not produce any potentially avoidable claims.

Two Types of Multifamily Property Insurance policies

Insurance companies offer two types of policies for coverage, Business Owners Policy (BOP), or a Package (Property & Liability). If your carrier offers a BOP, it comes loaded with lots of coverage. If you are offered a package, you have to request the different coverages you specifically want. Buyer beware- not all agents know what they are doing, and may offer you less coverage than you expect.
A typical landlord insurance policy will include coverage for:

• Building
  
• Loss of Rents
  
• Liability 
  

These are the standard requirements for Multifamily Property Insurance from your lender. Beyond the standard coverages, you want the best coverage for the lowest cost. For property, there are specific endorsements you want to include if possible;

• Special Form
  
• Mechanical Breakdown
  
• Building Ordinance or Law
  
• Backup of Sewer or Drain.
  

In order for you to get the best coverage and price for your multifamily property insurance, the following are some tips to follow to keep from busting your budget.

The age of the property is the first consideration

The number one characteristic insurance companies look at is the age of the property. It’s safe to say that any property that is less than thirty years old is acceptable to most insurance companies. 
For properties older than thirty years, you need to get some specific information during your due diligence period in order to get the best rate your insurance company has available. Pay particular attention to the age of the building systems:

• Roof
  
• Plumbing
  
• Electrical 
  
• HVAC. 
  

If you are buying a property that is less than thirty years old, you still want to know the age of your systems so you can make plans for future replacements. Each year the systems get older, they are one year closer to the end of their life and will need to be replaced. 
Work with your contractors to determine the useful life remaining and the likely cost to replace and create a capital improvement fund. If you do this properly, you will have the funds you need to replace the worn-out systems when they need to be replaced. When you do replace any of these items, do yourself a favor and let your insurance agent know so you can get credit for maintaining your property. 

Additional concerns underwriters look at:

• Claims History
• Location
• Proximity to wildfire fuel
• Distance from Coast 
• Fire Sprinkler Systems
• Crime Score; if your property is located in a high crime area, fewer carriers will offer coverage, and those that will offer coverage will restrict coverage.
• Pictures of building: if the property has junk all around, hanging off balconies, etc, you will not get an offer from the most preferred companies.
• Management
• Do you require your tenants to carry Renters Insurance?
• Do you allow BBQ grills?
• Percentage of occupancy/ vacancy
• Type of tenants; students/ senior/ Section 8

Depending on your strategy, buy & hold or buy, increase value and sell, will determine a lot about how you chose to operate. Regardless of your strategy, insurance is an operating expense that lowers your net operating income (NOI) and your market value. It is critical that you know how to get the best multifamily property insurance in order to avoid surprises that upset your budget or worse do not provide the convergence you need when you have a claim.

To discuss your multifamily property insurance needs, please click the link to schedule a call.

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