Real Estate Insurance: Is Your Investment Protected?

Real estate insurance is easy to overlook until you need it.

For investors and syndicators, simply having a policy isn’t enough. You need to know what it covers and whether it can protect your investment if a major loss occurs.

Is Your Property Properly Insured?

Your property’s market value, loan balance, insurance limit, and replacement cost can all be different.

A lender may be focused on protecting its loan, while investors also need to consider their equity and the cost of rebuilding. Meeting your lender’s insurance requirements doesn’t always mean your entire investment is protected.

The Risk of Being Underinsured

Lower coverage may save money on premiums, but it can become costly if a major loss occurs.

If insurance doesn’t cover the full cost, investors may need to provide additional capital. For syndicators, that could mean a capital call and unhappy LPs.

Regularly reviewing your coverage, limits, and renewal pricing can help identify potential gaps.

Make Sure the Right Entity Is Covered

Real estate investments often involve several LLCs, partnerships, and management companies.

Make sure the correct entity and property are listed on each policy. A simple mistake could cause problems when you need to file a claim.

Insurance Proceeds and Section 1033

Insurance proceeds can also have tax consequences.

Tom and Nate discuss Section 1033, which can apply when property is destroyed, stolen, seized, or condemned. In certain situations, investors may be able to postpone gain by reinvesting proceeds into qualifying replacement property.

Timing, elections, documentation, and replacement property requirements all matter.

Review Your Coverage

Insurance may not get much attention when things are going well. When something goes wrong, having the right coverage can make a major difference.

Know what your policy covers before you need to use it.

Schedule a discovery call today.