Buying and managing a rental property can be an exciting endeavor.
Owning an apartment or condo building can provide supplemental income or even allow you to change careers completely. Owning rental property can be an incredibly rewarding experience that provides for a very flexible lifestyle.
But with many rewards comes a fair amount of risk.
To cover your bases and reduce your exposures as a property owner you must, of course, get property insurance to protect you and your tenants from loss. However, property insurance can be somewhat limiting. It’s important to understand exactly what the insurance covers. But even more important is understanding where risk still lies, and how you can combat it.
Are you, and your tenants, protected?
There are three potential risks you should be aware of if you’re a building owner:
1. Tenant discrimination
Get to know tenant discrimination laws before you seek renters for your building.
The Fair Housing Act of 1968 and the Fair Housing Amendments Act of 1988 detail that property owners and managers can’t discriminate against or deny potential tenants from a rental unit based on race, religion, national origin, familial status, age, disability or gender.
In each of the past several years, nearly 9,000 discrimination complaints were filed, with disability discrimination complaints topping the list.
While almost half of these complaints are dismissed each year, there are a number of cases that land in federal court with awards to the plaintiffs averaging over $50,000.
Even if a current renter or a prospective tenant files a complaint against you as a property owner and it’s later dismissed, you must still pay attorney, court and other legal fees.
Property owners should ask their business insurance brokers about Tenant Discrimination Liability insurance, which protects from lawsuits and can offset the high cost of attorneys’ fees.
With so much emphasis placed on property coverage and general liability, Tenant Discrimination coverage is often forgotten about or dismissed as unimportant. This protection is a relatively inexpensive and easy to obtain, and should be considered by every multi-family unit owner.
2. Aluminum wiring
In the 1960s and 1970s, copper prices rose significantly, creating a problem for builders who used copper wiring in housing. Builders replaced copper wires with similarly conductive aluminum ones, but electrical terminals that weren’t updated to connect with aluminum wires created a serious fire hazard.
If you own a building with aluminum wiring, your insurance carrier will want to know. They’ll likely request that you remediate the aluminum wiring to eliminate the fire hazard and meet underwriting requirements. While completely rewiring a building is the foolproof solution, most carriers will allow building owners to use switches and converters that create a safer connection between aluminum wires and copper terminals.
Some insurance carriers will still consider covering a building that hasn’t solved for this wiring issue, but that also comes at a price. You’ll likely see premiums that are significantly higher than policies from the same company for buildings with remediated wiring.
3. Tenant cooking accidents
As a property owner, you know that you can do everything in your power to protect your building, but in the end, most claims stem from something a tenant has done. And most of those issues start in the kitchen.
An unattended pot, some cooking oil and a gas range make a dangerous combination. Of course, a standard property policy protects the building owner against loss because a fire. But there may be additional costs not covered by insurance, including a pricey deductible.
To lower risk and prevent kitchen fires in the first place, property owners can use stovetop fire suppression devices that automatically release extinguishing powder if a flame erupts from the stove and is high enough to reach the hood. These systems are a safe, inexpensive way to reduce the risk of fire damage to an apartment or condo unit or worse, the entire building. Some insurance companies will even offer a discount for installing and maintaining these devices.
As a property owner, the last thing you want is to be completely surprised by an incident that isn’t covered by insurance. You can avoid being blindsided by working closely with your broker to understand all of your potential risks.