One of the least considered, but perhaps most important aspects of successful real estate investment is insurance against losses. Even though the market for residential real estate has begun to cool, commercial real estate investment opportunities abound. Commercial properties have additional risks that need to be mitigated and in today’s litigious society, it is important for investors to take the steps necessary to protect themselves and their investments.
As the housing market begins to cool off, the investment risk of real estate has increased somewhat. Residential and commercial real estate investors can no longer rely on a continually increasing market to bail them out of mediocre or bad purchases. The only real insurance you have here is to study investment analysis further and to really check your market before committing funds to a transaction.
There are other risks in commercial real estate that you can mitigate through third party insurance policies. The most common form is title insurance. Most real estate professionals recommend that buyers obtain title insurance on any property they purchase and if a loan is involved, the lender will make it a condition of obtaining the loan. The purpose of title insurance is to protect the buyer in the event that problems are found with the title after the close. Even though all sales of real estate include a title search, it is a good idea for the buyer to purchase separate title insurance as an extra measure of protection against mistakes in the search. This extra insurance will help protect the buyer in the event of any undiscovered liens, disputes over property lines, or other matters affecting title.
Another common, but important form of insurance for investment property is liability insurance. This provides the investor protection from liability in the event an individual is injured while on the property. It is all too common for individual property owners to be sued for seemingly frivolous reasons, so it is vital for all property owners to carry a sufficient amount of liability insurance to protect themselves and their personal assets. It may also help to have your insurance professional “walk” the property with you to point out potential hazards before they become law suits.
Hazard insurance provides protection in the event of damage from fire, accidents, theft, and vandalism. Depending upon where you live, you might want to look into adding protection from storms and natural disasters. All owners of real estate should have this insurance and again, if a loan is involved, the lender will require you to purchase it and name them as an additional insured.
Environmental insurance is a new form of risk management that is gaining in popularity with lenders. Instead of performing Phase 1 and Phase 2 environmental studies, more lenders are opting for insurance against this type of loss. Because lender liability is limited in current law, the focus is on paying the outstanding loan balance or the cost of clean up, whichever is less. A word of caution here: Make the lender get the insurance (you’ll still have to pay for it) … it’s not your job to understand the intricacies of environmental pollution and its risks.
In addition to these basic forms of real estate insurance there are other types of coverage that you may wish to consider. For instance, those properties located in or near flood zones may wish to purchase flood insurance, while those in earthquake prone regions may want to consider the purchase of additional earthquake insurance. And in the wake of 9/11, there is even the opportunity to purchase terrorism insurance!
In the final analysis, each real estate investor has to look at his or her own level of risk tolerance and what might actually affect the real estate investment. From there, with the help of an experienced commercial hazard insurance broker, you can then purchase the right mix of insurance needed to adequately address and mitigate those risks.
WANT TO USE THIS ARTICLE IN YOUR E-ZINE OR WEB SITE? You can, as long as you include this complete statement with it: ‘Craig Higdon, “The Investment Property Insider,” works as a commercial mortgage broker. He publishes the weekly “Investment Property Insider” e-zine and blog, www.InvestmentPropertyInsider.com. Visit the blog and get a complimentary report on commercial financing techniques.’
Should You Collect Extra Rent and Extra Security Deposit for Pets?
The collection of extra rent and extra security deposit is often an area of opposing thoughts between landlord and tenant. Therefore, let’s look at the problem from both perspectives, beginning with the tenant.
The Tenant
Many tenants think it is unfair to charge both extra security deposit and extra rent for the privilege of pet ownership and I will tell you why: If someone wants the pleasure of a pet (especially a dog or cat) an extra security deposit is nothing to pay for that pleasure. Most tenants understand that and know the extra security deposit is taken in case the pet somehow damages the rental unit. If they do damage something, the landlord pays for the damages out of that money.
Now when a landlord charges extra rent for a pet, are they charging it because the pet will be taking up more living space, use more hot water, or flush the toilet? No. They are charging extra rent because the pet could possibly cause damage to the property.
Therefore, when a landlord charges extra security deposit for wear and tear or possible damage and extra rent for those same reasons, many people believe they are being double-charged for the pleasure of owning a pet. And nobody likes to be double-charged.
The Landlord
On the other hand, from a landlord’s perspective, charging the extra rent for the privilege of pet ownership is smart business since the risk of damage is definitely higher, and the tenant should compensate for that risk. Let’s say you feel $25 a month is enough for compensation, so you add that to the rent. This additional $300 per year somewhat eases your mind should the pet cause damages to the premises.
Let’s say six months into the lease the tenant moves out. Upon their departure you discover Fido had a weak bladder and consequently ruined all the living room carpet. The $150 you collected in extra rent ($25 per month times 6 months) will not cover that replacement and because you didn’t receive any extra security money up front you lose.
The basic thought to keep in mind from a landlord’s perspective is a pet who has a bad day can do hundreds of dollars of damage to a property during that one day and collecting $25 or even $50 per month to cover that bad day just is not enough insurance—especially if this damage happens early in the tenancy. For this reason, it makes perfect sense from a landlord’s perspective to charge both extra rent and extra security deposit for a pet.
Therefore, although tenants may believe you are double-charging them, in reality, the combination extra rent and extra security deposit is really an attempt to cover all scenarios—and rightfully so. Ultimately, it is easier financially on the tenant because most tenants will not have the extra money for a much larger security deposit, such as a full month’s rent. Although this combination leaves you with a little more risk in the beginning of their tenancy, this risk is reduced with each passing month.
The one advantage about collecting extra rent is if upon departure, the tenant’s pet really did very little damage, then you’ve made more money on that rental since the extra rent is yours to keep no matter what.
The Answer
There probably isn’t a good universal answer to this question although there is one universal element. That element is this: if you allow pets, especially dogs and cats, in your rental, then you need to collect some form of compensation in case they cause any damage. This can be in the form of extra rent, extra security deposit, or both. Whatever you choose, provide yourself with as much coverage as possible. (I cover the topic of pets in other articles available on my website at http://www.findthatqualitytenant.com).
Don Conrad is the author of the book,” How to Find Quality Tenant”. His website at www.findthatqualitytenant.com is dedicated to educating and improving the landlords tenant selection process. This website contains educational articles, valuable links, free reports, a list of landlord associations, monthly tips, a Fair Housing Test, and much more.
New Loft Developments in Toronto, Ontario
Loft living is at its finest in Toronto, and the market is booming. There are literally dozens upon dozens of loft developments under construction in Toronto, and competition is tough. For many people interested in purchasing living space in a new loft development, the search begins early and it is grueling.
One thing that makes finding a loft so difficult is that 50 percent of loft developments are sold before the building is listed on the public market. This means that people wishing to buy a loft must do a lot of research and try to secure a loft before construction is completed. If they are successful, there are many rewards. Many lofts in the Toronto area increase in value anywhere from $10,000 to $20,000 on the day that they are placed for sale on the public housing market.
Lofts are distinct from condos in that they feature exposed ductwork, exposed beams and columns, few interior walls, and high ceilings. They are very open spaces, commonly two stories high and have a lot of original features that set them apart from other homes on the market.
There are two types of loft developments: hard and soft. Hard loft developments are created by converting an old commercial building such as a warehouse or factory. Once obtaining such a building, loft developers remodel the space into separate living units. Soft loft developments, on the other hand, are new constructions and usually allow for more open layouts and unique design characteristics.
There are numerous unique lofts available in each new Toronto development which are priced according to size and features. The low-end cost for a Toronto loft averages about $200,000, but you can spend upwards of $600,000 or more depending on the loft you choose. Some developers may even allow you to choose some of the finishing touches if you purchase a loft before construction is completed.
Whether you seek the quirky design of a loft conversion, or a more condo-like “soft loft”, you’re well advised to start early and leave no stone unturned. The right loft for you may just be on someone’s drawing board now.
For more information on this article or Toronto condos, visit Toronto-Condominium-Homes.com.