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How Much Landlord Insurance Do I Need? - YouTube
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[Music]
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hey there jeremy goodrich here
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your real estate insurance guy and today
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we're going to answer
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one of the questions i get the most
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often and that is
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how much insurance do i need for my
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investment property
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so when you're asking that question
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you're really kind of asking for
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questions and we're going to answer
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all of them in this video very quickly
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the first is how much insurance do i
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need for my building
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the next is my stuff the third
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is liability coverage the finally is
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loss of rent those are really the four
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things that you need to know how much
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coverage
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you should have and then at the end
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we'll dig into a rookie mistake
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that tons of investment property owners
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make when it comes to
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insurance i see it on their coverage all
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the time when they bring it over and ask
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me to provide them a proposal
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and i'm going to show you at the end of
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this video how to avoid this mistake
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and how to make sure that your
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properties are covered properly
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all right let's dig right into it so we
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start with building coverage this is
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coverage for replacing the actual
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structure of your building
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and the most important thing to
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understand about this
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is that insurance is based on
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replacement cost
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not market value it does not matter if
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you bought the property
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for five thousand dollars fifty thousand
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dollars or five hundred thousand dollars
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what matters is how much it would cost
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to replace
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that structure so that is what insurance
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is based on and it's really key to
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understand that
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when you're talking about how much
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insurance you need for the building
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now obviously how much it costs to
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replace a building varies
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based on the building structure where
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you're at and all those kinds of things
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but one rule of thumb is to base
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particularly a single family rental
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on at least 125 dollars per square foot
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if you have a larger apartment that's a
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fifteen thousand twenty thousand square
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foot
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building maybe you can bring that down
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to about a hundred dollars a square foot
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foot but 125 dollars a square foot
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particularly for single
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single family homes is a key sort of
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base
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to go up from and obviously if you want
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to talk to a builder
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or if you're a builder yourself you'll
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have a real sense of what it would
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actually cost
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to replace that structure one thing
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that's important is that you don't
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forget about the demolition costs
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when a builder thinks about what it's
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going to cost to build a building
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they're usually thinking about a raw
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site that's sitting there ready to build
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on
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when you're actually navigating an
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insurance claim that building has burned
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down or
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has been taken out by a tornado or
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whatever the unfortunate thing is that
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you're dealing with
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and it's going to cost a solid amount of
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money just to get that land
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back to scratch for a single family home
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that can be twenty thousand dollars
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for a large apartment complex that could
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be two hundred thousand dollars
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so you're not only figuring what it
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would cost to replace the structure
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but also the demolition costs associated
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with getting that site
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back to the base that's the building
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coverage
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so now let's talk about your stuff as a
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rental property owner most the time you
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don't have
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a whole bunch of stuff inside the
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property and the way to think about
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stuff is if you turn the building upside
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down you shake it what what falls out
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if it doesn't fall out it's part of the
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building if it falls out it is your
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stuff or the stuff
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in the building so that's a nice way to
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think about those things
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those things are called personal
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property or business
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personal property the things that fall
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out if you were to turn it over and
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shake it
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your policy only covers the stuff that
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you own
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so think about it if you've got an
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apartment complex with 16 units
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pretty much all the stuff in those units
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is owned by your tenants
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your policy is not going to cover that
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stuff that is for their
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renters policy and it's why it's so
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important to make sure that they have a
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renter's policy
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but there is some stuff that you own
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inside the property
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a lot of times that is a stove
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fridge you know may just be those two
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things it could be a washer and dryer
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those are the most common things in
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spaces so you want to think about okay
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what do i
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own inside the property stove fridge is
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pretty much in every unit right but what
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else do i own
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inside the property and how much is that
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worth for most folks that have annual
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tenants inside their units i tend to
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think
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you know two thousand dollars to three
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thousand dollars of coverage is probably
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going to do it if you just have a stove
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in the fridge
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and if you've got washers and dryers
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maybe we go up to five thousand dollars
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per unit
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something like that okay liability
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coverage how much insurance do you need
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here most
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important coverage on your policy even
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if you
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have owned the properties free and clear
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you don't want any property coverage at
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all
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you should have liability coverage this
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is covered for bad things that happen to
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other people because of you or your
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building
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your property obviously is an extension
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of you or your llc
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if your property is owned in an llc name
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and so if bad things happen to other
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people because of that property there's
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a party and someone gets hurt
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someone trips and falls on the stairs or
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even the sidewalk in front of the
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property
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and they are seriously injured or they
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get a personal injury attorney involved
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your liability coverage is what's going
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to protect you
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in that situation so how much should you
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have well
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i would start at a base of a million
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dollars no matter how many
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properties you have even if you have a
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couple try and and have that liability
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limit at a million dollars of coverage
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if you only have one or two that may
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seem like a lot but you think about the
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scenarios that could happen in worst
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case
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situations a million dollars is going to
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address
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most of those situations for one or two
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properties
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and so you'll be properly covered to
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handle
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those situations one rule of thumb is to
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look at the
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assets of the llc
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and make sure that your coverage is at
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least
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that number so if you have 10 million
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dollars in assets
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in an llc try and make sure you have at
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least 10 million dollars of
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liability coverage it's just a rule of
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thumb you really want to talk with your
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lawyer
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your accountant and your insurance
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advisor on exactly what it is that you
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need
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but it's a solid rule of thumb to look
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at the assets and say well let's make
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sure we've protected
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at least our assets if you own these
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properties in your personal name
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you should consider your personal assets
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as well because
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if something bad happens at one of those
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properties and it's in your personal
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name
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a personal injury attorney can come
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after your assets as well as the asset
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that was the building itself where the
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bad thing happened so just make sure
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that you have enough
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liability coverage um to address those
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kinds of things
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all right the fourth thing is loss of
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rent if a property is out of commission
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for a year a fire took it out
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we've got to rebuild that property you
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cannot make money off of it if it was a
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16 unit building
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all of those units people are going to
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move out and aren't going to be paying
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you rent and so you will not be getting
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that rent
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during the period of time that we're
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rebuilding this property so
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there is coverage on your policy that
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replaces
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that lost rent which could be really
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important obviously this is thousands of
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dollars that you are
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out during this period of time where
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you're having to rebuild and to
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have that coverage is really really
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helpful so
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how much should you have well it should
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equal about one year of
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your rental income from that property so
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if it's a single family home
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and that property is bringing in a
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thousand dollars a month then you
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would want to make sure that you have 12
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000 of coverage for loss of rent so you
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have coverage for at least a year most
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the time
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we can get something rebuilt in a year
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at longest
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and so that's why that rule of thumb
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makes a lot of sense
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all right so what did we address well we
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talked about building coverage making
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sure you had the building covered
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properly
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we talked about your stuff your personal
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property or business personal property
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liability coverage the most important
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coverage that you have on your insurance
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policy and loss of rent
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coverage for if you can't make money off
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of a building because we're rebuilding
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it over the course of time
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we're going to cover that so let's dig
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right into that rookie mistake so
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you the biggest mistake that i see is
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that people
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under insure a property and think it
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will be
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okay in a claim there's a complicated
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answer to
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why this is the case and there's a video
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i've created on co-insurance so
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if you want to learn more about this
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just search coinsurance and watch our
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video on that but essentially insurance
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companies
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have set up a protection system for
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themselves
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to make sure that you insure properly
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because they make money off of
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the amount of insurance that you put on
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the building so if you only insure for
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50
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of the replacement cost of the building
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and you think well i'll get 50
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and a claim and i'll figure out the rest
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i'll just knock it down you know
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clean space off go buy another building
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co-insurance is going to give you
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even less than that in fact you're going
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to be very disappointed in a claim
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situation i'm working with someone right
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now
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who is extremely underinsured because he
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only had small loans on each of these
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properties and was thinking well at
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least it covers the loan
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well insurance companies have set it up
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in a way where it probably won't even
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cover the loan and you'll be in real
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trouble and i'm trying to help him
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work through that so don't make that
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rookie mistake of under insuring your
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properties talk with your insurance
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advisor and make sure you are doing that
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right all right well if you enjoyed
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this bit of information we have a
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complete guide to
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rei insurance it digs deeper into all
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the things i talked about here and more
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helps you organize your insurance helps
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you understand
[576]
how it works and gives you a nice base
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you know you don't want to think about
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insurance all the time
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but when you are thinking about
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insurance you want to understand it make
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sure you have it right
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have the peace of mind that it is
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correct and then move on with your life
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the complete guide to rei insurance can
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help you with that
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all right and finally if you'd like to
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watch more videos on our channel you can
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do so by clicking
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right next to me there there's all sorts
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of videos on
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insurance for your investment properties
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and if you would like for shine to help
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you out if you feel like you want a
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real advisor someone who actually cares
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about you who wants to be a part of your
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real estate investing team go ahead and
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click the link right below me
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we can get on a phone call talk about
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what your insurance scenario is
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and get you set up with some options all
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right
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until the next time don't forget to
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shine
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