Personal Property and Liability Risks for Real Estate Investors

Wednesday, January 30, 2019, 6:00 AM | Leave Comment

When investing in real estate, you’re likely to encounter risks along the way. Sometimes these risks are short-lived, like the kind you might experience when flipping a property.

Unfortunately, there are also longer-term risks, such as the problems you’ll face when you own rental property. So what are the risks, and how can you best insure against them?

Here are some tips:

Personal Property and Liability Risks for Real Estate Investors
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  • Property vs. Liability Risks

    There are two types of risks: property and liability. Property refers to actual physical property, while liability refers to responsibility. In other words, if a tree branch on your property falls on a guest’s car, that is a case of both property and liability. Property damage is involved, and because the event occurred on your property, you are probably liable.

    This can get a little muddy, though. Using the car and branch example above, that claim would be under your general liability insurance, not under a property policy, as the property insurance covers what you own and the general liability covers what someone else owns.

    As you can see, the two risks often overlap and can cause confusing situations. How do you insure for and deal with each one?

  • Property Damage

    Property damage comes in two different forms: damage to property you own or damage to property you don’t own that is on your premises. In some cases, you are not technically liable for property that is on your premises.

    For example, if you own a strip mall or other commercial property, and part of your lease requires the renter to carry their own insurance for the space they rent from you, most of the time you are not liable for the property inside that space. In other words, if there is a theft of their property, you are not responsible.

    There are some instances where you could be liable, though. This would depend on if you were negligent. If there was a lock on the rear door you did not repair, and the robbery was a result of that, you might have to cover their losses. Also, if there was a flood from broken pipes or fire sprinklers, you might be liable. Basically, this is about determining fault.

    When it comes to your own property, as long as you own it, you are liable for what happens to it and should insure it accordingly. However, this too is an area where things can get sticky. If something your tenant did damaged your property through negligence, they may be liable.

    The most important thing in all cases is to record what happened and take photos as soon as possible. Who is liable and which insurance company will pay the damages may end up being disputed between the insurance companies themselves, but the better documentation you have, the easier it is for both to come to a conclusion. The more you know about the basics of property liability, the better you can deal with situations as they come your way.

  • Trips, Slips, and Falls

    Trips, slips, and falls cost businesses a lot of money every year. It costs an average of $20,000 for each slip or fall claim, but it costs $50,000 to legally defend one. In addition, the person may seek damages and the defense and settlement can get even more costly. This is why prevention is the most important step you can take. Keeping trips and falls from happening in the first place is the best defense against liability.

    Here are some tips:

    • Inspect your floors. Repair tears in carpets that can be tripping hazards, make sure flooring transitions are smooth. If you have bamboo or hardwood floors, make repairs to any boards coming up that might cause someone to trip.

    • Handle ice and snow properly. Clear paths, clearly mark them, and put up warning signs about slippery surfaces. You can even hire a company that carries insurance of their own to do this for you. Be sure to include parking lots you are responsible for.

    • Think through design choices. Adding doormats where people can dry their feet is a great way to keep floors dry. Adding area rugs to your lobby is also adding a tripping hazard. Before making changes, consider how they might impact the safety of your space.

    Remember, you are liable for what happens only if it was something within control and you showed negligence. Making a legitimate effort to keep areas clear of ice and snow and reduce tripping hazards is a must.

  • Staging and Selling

    If you are flipping a property or even just selling one you’ve had for a while, you’ll probably need to stage it in preparation for buyer tours. This is a common place where liability, both for property damage and personal injuries, can become a factor.

    Again, being proactive and preventing issues is the best way to protect yourself and your investment.

    Here are some tips:

    • Hire a staging company. They can help you set things up in not only an appealing, but a safe way.

    • Be mindful of hazards. A fireplace is a great draw for buyers, but lighting a fire while you are showing a home may present some hazards and be a greater liability than a benefit. Be sure you follow proper safety precautions if you use the fireplace during open houses and other marketing events.

    • Take a look around outside. If you haven’t had the property long or aren’t intimately familiar with everything about it, be sure to look for tripping hazards on sidewalks, and even things like roots in the lawn. Look up; work to secure anything that might fall and injure someone or damage property.

    • Post warnings where applicable. Ice in winter? Mud in spring and fall? Slippery staircases? Advise visitors to use caution, avoid hazards, and use handrails and other available safety features.

    • Make sure your photographer is insured. If you hire a photographer to take shots of the property, make sure they have liability insurance in case anything is broken in pursuit of a good photo. If you hire a drone photographer for aerial shots, make sure they are licensed as well as insured.

Reducing liability and property risks will help you keep your investment profitable and avoid potential increases in insurance costs.

Personal property and liability risks are very real issues for real estate investors. Be aware, proactive, and work to prevent problems before they happen. Carry the right insurance, and be sure your coverage is up to date.

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