INSURANCE: A KEY PART OF INVESTING

Nobody likes thinking about bad scenarios. Illness, death, property destroyed by flooding — these are uncomfortable subjects. Many avoid planning for trouble because it seems remote. But my grandfather liked to say we should prepare for the worst, and the best will take care of itself. I think he was right, and careful preparation for hard times is the definition of smart.

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As a real estate investor, careful planning means understanding my properties’ unique risk profiles. Many different things can go wrong, and having the right insurance coverage is the key. Too many people only find out their policies exclude flooding when their homes have just been ruined. Does your policy cover wind damage? Fire? Earthquake? Loss of equipment? Reading the whole contract, with all the fine print, is essential. What is your coverage limit? Does your policy pay out based on replacement cost, or actual cash value? These questions can all be the difference between needed relief and a tragic situation.

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I advise any real estate buyer to invest time upfront to really understand their coverage and their needs. Alliance invests across the South, in areas that are exposed to hurricanes, so we always buy full flood coverage. One valuable policy add-on is coverage for lost rental income — so I know I can rebuild properly. No matter the property or the location, I always want to know my properties’ exposures and ensure we have the right coverage.

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Not all insurers are equally easy to deal with, so a cheaper premium on the same coverage isn’t always better. The increased solvency risk along with additional bureaucratic hassles of dealing with a second rater insurer can easily offset premiums savings. It’s also important to remember that when the whole region is affected, labor and building materials are always more expensive than anticipated, so a skimpy plan can really bite you in the rear.

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Alliance’s triple net lease properties usually require our tenants to carry property insurance, but we don’t rely on that alone. We carry our own policies. Sometimes that adds redundant coverage, but the most important thing is to avoid risky coverage gaps that could really sting after a disaster. When disaster hits, the marginal cost of buying more or better insurance always feels like money well spent.

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When you’ve been in the real estate business as long as I have, you realize that you need to be prepared for disaster. Planning only for good times is asking for trouble. That’s why I always have the right insurance as part of my investing strategy.

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