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The following was written by guest blogger Shaun Shenouda – Chief Operating Officer, Programs Executive, SES Risk Solutions.
While there is no stopping acts of God, you fortunately can mitigate many of the risks pertaining to your rental properties relatively easily and inexpensively. As you might suspect, some of the most prevalent risks pertain to losses caused by the residents. Given the increased propensity to spend more time at home due to COVID-19, there is an overall increased risk.
Proactively taking steps to evaluate those risks and putting best practices in place to minimize those risks could save your rental property, as well as lives.
According to the National Fire Protection Association (NFPA), there were 340,000 house fires in 2019 (26 percent) that caused 2,770 civilian fire deaths (75 percent); 12,200 civilian injuries (73 percent), and $7.8 billion in direct property damage (52 percent).
Over the past three years, house fires have resulted in 40 percent of SES Risk Solutions’ overall losses, which sustained an average loss of $70,000 per fire. We have also seen an uptick in frequency due to more people working from home, overloading their outlets, cooking fires, etc.
Nearly one-third of the properties we insure were built in the 1960s and 1970s, which coincidentally is when aluminum wiring was often used as opposed to the more expensive and higher performing copper.
Losses on vacant properties are over 1.5 times more prevalent and severe than those on occupied rental properties.
Shaun Shenouda – Chief Operating Officer, Programs Executive, SES Risk Solutions
Aluminum actually conducts electricity safely. It’s the connections that pose the most issues. According to the U.S. Consumer Product Safety Commission (CPSC), homes with aluminum wiring are 55 times more likely to have “fire hazard conditions” than homes wired with copper. Since permit data is often incomplete and/or unavailable, our investors do not always have easy access to determine if the wiring has since been updated.
Solution: Engage with a professional contractor to inspect the property(s) in order to determine if the wiring has since been updated. Our research suggests the cost to be between $1,500-3,000 to upgrade, if needed.
Another effective and affordable best practice is equipping all of your rental properties with a fire extinguisher. In a study performed by the Fire Extinguishing Trades Association of over 2,600 incidents recorded, it concluded that in 81.5 percent of cases the portable extinguisher successfully extinguished the fire and in 74.6 percent of the cases the fire department was not needed.
Despite the effectiveness, according to the PEMCO Insurance Northwest Poll, 27 percent of Northwest residents live without a fire extinguisher in their home. The poll suggests that among the most at-risk are renters, who are significantly less likely than homeowners to have fire extinguishers – 58 percent of renters vs. 82 percent of homeowners.
Perhaps one of the best stats to highlight the increased risk of fire in rental properties can be gauged from 2018 data from ISO (International Organization for Standardization): there were 1.5 fires per 1,000 traditional occupied homes vs. 2.75 fire per 1,000 rental homes insured in our national rental program.
Solution: Generally, fire extinguishers are around $20. While they are easy to use, they will only be used if they are easily accessible. They also have a shelf life, so it is important to implement a recurring replacement process.
We also recommend incorporating the location and how-to-use training into your property management process. If you are unsure if your property manager provides, we suggest inquiring with them. OSHA provides a great reference for placement, use, type, etc.
Another important set of loss prevention best practices is centered on vacancies.
With nationwide occupancy rates above 94 percent, according to John Burns Real Estate Consulting, vacancy risk management may not be top of mind for investors. However, according to SES Risk Solutions loss history data, losses on vacant properties are over 1.5 times more prevalent and severe than those on occupied rental properties.
There is the obvious increased risk of slow detection of an issue – be it smoke, water leaks, etc. There is also the possibility of drawing in squatters and thus increasing the propensity for vandalism, theft, and arson, as well as bodily injury. Whether they intend to strip the copper pipes, fixtures, and ductwork, or simply cause damage to the structure, it will likely result in a hefty out-of-pocket expense for investors.
Solution: Here are the top three suggested preventative measures:
Despite marketing advantages, better tenant satisfaction, and increased profits, the value proposition for most smart home devices has only recently become more compelling as the price point for these devices has come down considerably.
In fact, demand for smart home devices is growing so fast that experts have coined the term IoRE – or internet of real estate – to describe the booming market in smart home devices. The smart home device market has doubled in size from about $44 billion to $91 billion over recent years and is expected to hit $158 billion by 2024, according to data from Precise Security.
While tenants are likely to value smart lights and virtual personal assistants (VPAs), installing smart home products in your rental property can also be an easy and cost-effective way to protect your property. The acronym “SMART” comes from “Self-monitoring, Analysis, and Reporting Technology.” Some insurance companies, like SES Risk Solutions, value this increased real-time awareness and may even offer a premium discount for landlords that have invested in installing such devices.
Evaluate the specific needs of your property and investment strategy when considering smart home technology options. The two we have found to provide the most value are:
Flood or moisture detectors: Renters may not place a high degree of value on these devices, but for a small price, moisture sensors can potentially save landlords considerable money through water damage prevention. Easy to install and affordable, these detectors can alert you to problems like slow leaks that may otherwise go unnoticed before they turn into major issues. They can also quickly inform you of big problems like burst pipes that could do major damage quickly.
Smoke and carbon monoxide (CO) detectors: Smart smoke alarms and carbon monoxide detectors take safety a step further than traditional models. Rather than just sounding an alarm, these smart versions can also alert you and/or your renters if there’s a problem via an app.
Another effective risk management strategy for real estate investors is to offset their risk by requiring their residents to procure coverage that would protect their rental property from tenant-induced damage (accidental or otherwise).
Many investors/property managers require their residents to show proof of renter’s insurance to fulfill the lease requirements. However, nearly one-third of renter’s insurance policies are cancelled by the tenant mid-lease.
To combat this challenge, we encourage investors and property managers to require that the resident list them on the policy as an “interested party” so that they are notified in the event of a lapse in coverage.
SES Risk Solutions is a leading provider of insurance services for large portfolios of real estate. SES currently services over 50,000 properties for fiduciaries, owners, and managers through master policies on a nationwide basis. SES has a 30-year history of offering competitive and comprehensive insurance products complemented by unparalleled service and technology platforms for properties (residential, commercial, farm, and land) held in trust by financial institutions and real estate investors.
Shaun Shenouda is Chief Operating Officer, Programs Executive of SES Risk Solutions. He joined SES in 2014 as SVP of Operations and Technology, where he is primarily focused on delivering customer value through innovation and service excellence. Shaun has 20 years of experience offering master-policy Property & Casualty insurance, service, and technology to financial institutions. Prior to joining SES, Shaun held the position of Senior Vice President of Integrated Solutions and Analytics at QBE, where he was focused on business transformation, customer experience optimization, and M&A integration initiatives. Shaun has a degree in Management Information Systems and received his MBA from Pepperdine’s Graziadio School of Business and Management.
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Shaun Shenouda is not an employee of Equity Trust Company. Opinions or ideas expressed are not necessarily those of Equity Trust Company nor do they reflect their views or endorsement. These materials are for informational purposes only. Equity Trust Company is a directed custodian. Equity Trust Company, and their affiliates, representatives and officers do not provide legal or tax advice. Investing involves risk, including possible loss of principal. Whenever making an investment decision, please consult with your tax attorney or financial professional.
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