Commercial real estate portfolios are meant to generate passive income, not drain savings. When a hurricane sweeps through town, a fire breaks out or another natural disaster occurs, multiple assets in portfolios may sustain damage. It’s tragic when years of work — including identifying and vetting a property, bringing it into compliance with government regulations and managing it successfully — are destroyed in one fell swoop.
Many real estate investors assume standard insurance packages will protect their assets during a crisis. Unfortunately, many discover too late that the blanket they thought was protecting them had gaps. As a result, they find themselves on the hook for expensive repairs. Worse, some might face a total loss. Whole businesses have been known to go under due to a single adverse event.
Savvy property owners and investors can avoid these outcomes by understanding the risks and taking proactive steps.
Shield your portfolio
First and foremost, investors should put their reading glasses on, because it’s a good idea to examine the fine print on your insurance policies. For instance, while standard coverage for real estate usually covers damage from fires, vandalism and high winds, it does not include damage from flooding, earthquakes or storm surges.
If a state requires a wind endorsement, investors will need to purchase additional windstorm insurance. Flood insurance is advisable if located in a hurricane-prone area.
“Business interruption insurance policies ensure that your expected income continues to arrive on time.”
No matter where the property is, check flood zone maps for each property. If a property is in or near a flood-prone area, purchase additional flood insurance. And business interruption insurance helps cover lost rent, payroll and utilities if a property becomes unusable.
These policies ensure the expected income continues to arrive on time. Coverage can include money for payroll and utilities. It can even reimburse for the expenses involved in temporarily setting up shop elsewhere or moving tenants to a new location.
This peace of mind is especially important when investors have a mortgage or other loans to repay, or if employees are depending on them. Otherwise, a few months with no income from the property can quickly lead to financial problems.
In the event that a property is damaged and a claim is filed, evidence will need to be shown that it was the storm or other natural disaster that caused the harm. Otherwise, the insurance company could argue that the cause was something else, such as wear and tear or poor maintenance, which would give them grounds for rejecting the claim.
Document property condition
For this reason, the property’s condition should be thoroughly documented on a regular basis with photos and videos. This establishes a concrete track record that the property was in good condition up until the natural disaster that caused the damage.
It is necessary to do this on a routine basis because investors might not be on the lookout for damage if there isn’t a widely publicized natural disaster. Yet many claims spring from non-catastrophic incidents, and this damage can still be costly to repair. It’s important to spot such damage as soon as it occurs, or else claims can be in jeopardy. Many insurance companies stipulate strict timelines in the policies they issue.
Property owners can complete this themselves if they are willing to dedicate sufficient time, energy and resources to the project. However, many investors find it more efficient to hire public insurance adjusters instead.
Engaging public insurance adjusters
Public insurance adjusters specialize in representing policyholders in insurance claims. They are also experts at the kind of proactive property inspection that results in successful payouts from insurance companies. Having professionals document the condition of a property on a regular basis helps prove that damage was caused by a legitimate cause that the insurance policy covers and ensures the strongest possible insurance claim.
The more properties a given real estate investor has, the more sense it makes to go the professional route, especially if the properties are clustered in a specific geographical area where multiple properties could be damaged by a single natural disaster. Filing multiple insurance claims in the wake of such an event is a monumental task.
In addition, the affected investor’s desire to rectify the situation as quickly as possible might also predispose them to accept a low-ball offer from the insurance company. That’s another reason why having a public adjuster involved can help — they work to ensure the policy- holder gets their payout fast, and that they aren’t shortchanged in the process.
The Florida Association of Public Insurance Adjusters has found when claimants didn’t use a public adjuster to file non-catastrophic claims, they only received $1,391 on average. When they used a public adjuster, that number shot up to $9,379 — 574% more than those who didn’t. For catastrophic claims, the difference was even greater: $17,187 versus $2,029. That’s 747% higher.
Real estate investing can be lucrative, but it also carries risk. Comprehensive insurance, regular inspections and documentation are essential steps to protect a portfolio.
