Written by Kevin Kiene
Landlord insurance costs have risen significantly over the last decade. In just the last four years, the average cost of property insurance has increased by 25 to 45%.
Rising insurance costs directly cut into investors’ returns and can impact investing strategies. To ensure their properties stay profitable, Landlords need to be aware of changing insurance costs and have a plan for dealing with them.
Several factors have impacted insurance costs in recent years. As a general rule, Landlords pay more for insurance than homeowners do. Insurance companies see Tenants as a higher risk than owner-occupants. To compensate for this risk, Landlord insurance typically costs 20-25% more than homeowners insurance.
That said, the cost of both Landlord insurance and homeowners has increased dramatically in the last decade. Several factors have led to this increase, including:
Rising insurance premiums mean increased operational costs for Landlords. This leads to decreased profits and less attractive returns. While some of the added expense can be passed on to Tenants through increased rent, this isn’t always the case.
Insurance costs are fixed. Even if a property is vacant or if rental markets soften, Landlords are responsible for paying insurance premiums. This cuts into cash flow and makes properties less desirable for investors.
Small Landlords and Landlords in high-risk areas are the most impacted by higher insurance rates. Property owners in California and Florida have been hit the hardest.
Extreme weather has caused insurance costs to double or triple in these coastal areas. Many Florida homeowners are paying four times the national average for insurance. In addition, it’s prompting some insurance companies to leave the areas altogether. Experts anticipate that Texas, Louisiana, and Colorado will see similar increases in the coming years.
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Insurance costs aren’t going down and will likely continue their upward trend. Landlords need to be aware of this and proactive about addressing it.
The good news is there are things you can do to minimize the impact insurance costs have on your investment portfolio. Here are some tips for dealing with this new reality:
Landlord insurance is a rising concern for Landlords, but it’s an issue that Landlords can manage with good systems and planning. Effective Tenant Screening and property management are two key ways Landlords can help to keep insurance and operating costs down.
Visit ezLandlordForms.com to start a Tenant Screening, create a Lease, or customize a preventative maintenance checklist. We have tools for every phase of the Landlord lifecycle and can help you get the most out of your investments. Create a free account today.
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