Beyond the rehabbing process, for people investing in rental properties, only having Homeowner’s coverage could introduce additional issues. From a property risk analysis exposure, if the insurance company can prove the tenant caused the damage in question, the Homeowner’s policy may have an Intentional Acts clause giving the insurance company reason to deny a claim.
From a liability risk analysis exposure, does the Homeowner’s policy afford you third-party coverage in the event a tenant’s guest is hurt while visiting your investment property? What if your tenant has a service animal at your location, does your policy afford you coverage?
Additional Insurance Coverage Real Estate Investors Might Consider
If a general, all-encompassing Homeowner’s policy isn’t comprehensive enough, real estate investors can make sure other items are included. Here are some additional coverages that might appeal to investors:
- Replacement cost
- All risk insurance coverages with normal exclusions
- Wind and hail coverages
- Liability coverages in the event of a third-party injury or someone claiming to be injured on your investment property
In addition, it might be appropriate to include flood insurance, even if the property is not in a national flood zone. Five out of six flood losses experienced in Hurricane Harvey did not have flood insurance and many were not located in a nationally defined flood zone.
Here are a couple other considerations when seeking insurance:
You get what you pay for. Investors are sometimes finding that an extremely low rate, quoted outside the industry norm guidelines is not always accompanied by swift and accommodating claim payment. Do your homework and check references with your industry associates and leaders of any association of which you’re a member. This additional step will pay significant dividends in the long term.
Not all insurance providers are the same. Choose an insurance agent who knows your business and the market segment in which you are working. The risks you face in the future will continue to evolve and you need a knowledgeable source who will put your best interest before the mere selling of a low-cost policy. Understanding your financial exposures will go a long way in saving your real estate investments and possibly your business.
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I plan to purchase a rental property with my IRA. Does the rental income have to go back into my IRA?
Yes, all income generated by an IRA-owned property must return to your IRA. This ensures that you retain the tax-deferred or tax-free status of the investment.
If I invested in a rental property with my IRA, how does the rental income get into my account?
Rental payments are sent to Equity Trust for the benefit of (FBO) your IRA. The checks or money order should be made payable to: “Equity Trust Company Custodian FBO [Your Name] IRA.”
Once received, the checks or money orders are deposited into your IRA. All checks must be sent to Equity Trust with a payment coupon.
About Mark A. Gannaway
Arcana Insurance Services is an all-lines property and casualty managing agency that’s been working with real estate investors since it began in 2005. Long before that, founder and CEO, Mark Gannaway, served as President, Chief Marketing Officer, and Executive Vice President for several other well-known agencies and brokerages. With over 35 years of experience behind him, including 20 with Lloyd’s of London as a U.S. Coverholder; one of only a select few in the United States.
Mark A. Gannaway is not an employee of Equity Trust Company. Opinions or ideas expressed by Mark 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, Equity University and their affiliates, representatives and officers do not provide legal or tax advice. Investing involves risk, including possible loss of principal.