Most investors spend time crunching numbers on rent rolls, cap rates, and financing—but overlook a critical component of deal health: insurance.
Insurance is more than a line item on your operating budget. It’s your backstop when things go wrong—and if mishandled, it can kill your returns or your entire deal.
1. Why Insurance Can Make or Break a Deal
A common rookie mistake is to accept the seller’s insurance costs as accurate. But:
-
Sellers are often underinsured
-
They may have legacy policies or favorable rates you won’t qualify for
-
Premiums can spike due to property age, location, or claim history
After closing, you could face a dramatic cost increase—one that instantly cuts into your projected cash flow.
2. The Hidden Risk Factors
Some properties carry higher insurance risk due to:
-
Geography: Flood zones, wildfire zones, hurricane-prone regions
-
Age: Older roofs, knob-and-tube wiring, or outdated plumbing
-
Occupancy type: Section 8, student housing, or short-term rentals can all raise premiums
-
Prior claims: If a property had mold, water, or liability claims, premiums will reflect that history
Smart investors bring in their own insurance brokers during due diligence—not after closing.
3. Types of Coverage You Need
Your property insurance policy should include more than just the basics:
-
General liability – For injuries, tenant disputes, and legal claims
-
Property and casualty – Covers physical damage from fire, storms, or theft
-
Loss of income/business interruption – Covers rent lost during major repairs
-
Umbrella coverage – Additional protection in case of lawsuits or catastrophic events
Don’t assume “basic” coverage is enough. Always review policy exclusions and coverage limits carefully.
4. Plan for Premium Hikes
In recent years, insurance premiums have been rising across the U.S., especially in states like Texas, Florida, and California. Budgeting based on last year’s numbers won’t cut it.
Factor in annual increases and get multiple quotes during underwriting. You may even need to shop carriers mid-deal.
Conclusion
Insurance isn’t just a box to check—it’s a strategic part of your investment. It protects your asset, shields your income, and gives you peace of mind. The investors who understand it deeply are the ones who don’t get surprised when things go sideways.
Protect your property like your portfolio depends on it—because it does.
