Who owns rentals. insurance question?

[LD1]

Trying to make a jump into investing in a rental property. Under contract on a nice 3-unit property. I am waiting on a call back tomorrow from insurance agent for an estimate...

But those of you that do have rentals, how much does insurance run you vs a homeowners policy?

I would think rental property would be less since they don't have to cover personal property?? My homeowners policy with dwelling, dwelling extensions, and personal property is around 300k total coverage and costs me around $750/yr or around $63/month.

Would I be correct to assume that a 200k rental property should cost less?

Just trying to get a better idea of what my monthly costs will be.

 

[SPIKER]

It is the liability insurance that costs so much, as anyone hurt on the property will be looking to file a law suit against the wealthy property owner.. The building costs are often the less expensive part of insuring smaller rentals.

Couple items I have learned, don't trust what other law lords say, typically if they are one the renters are renting from and they give a good review of the tenant, it might be because they want them gone.

Be sure to check credit scores against ALL of them, have a lease that spells out EVERYTHING like no fish, dogs cats elephants or chickens in the house. (ya don't ask me how I know about chickens in the house...) Be sure to push for max security deposits & take video walk thru on EVERY rental with the people signing the lease. Expect to replace the carpet between tenants & repaint as well as repair walls on a regular basis. Something to have in the lease is parking, trash pickup, exterior building maintenance needs and ability to inspect property at least once a year if they stay longer.

probably some things I'm missing but can post more later...

Good luck LD1

 

[forgeblast]

Spiker makes many great points. My buddy did not do this rented a place he bought. Tenants were pros at living rent free. They paid two months and then song and dance and then finally after all the court hearings etc they ended up living there for another 4 months for free. It was a mess. A better lease agreement would have worked wonders for him.

 

[Dutch445]

LD I moved out of my home 2 years ago and it became a rental for me. I ended up
taking out a landlord policy for the house, single family, and the premium for the same
house went up about 20%. It's now a commercial policy, and like everything else
the premium is more. I bet it has to do with non owners living in the house, and the
increased risk for injuries and claims that go along with that.
I do require tenants to carry renters insurance, as my landlord insurance does
not cover any of their contents..
Also, it gives the tenant some liability insurance in case they were to cause major
damage to the house, or if there was a injury , dog bite, etc...

 

[bdeboer]

We currently have 3 residential rentals, all single family in Ohio. They all seem to be in the 450-650/year range for insurance, have a separate umbrella policy for the liability. I figure one month per year per rental goes to overhead for insurance, and another 2-3 months for property taxes depending on the property.

In my area, it seems that across the board that there will be credit issues when screening renters. I screen municipal court websites for evictions, and the sheriffs "offender" registries. Then I use E-renter to screen with birthdate, SSN and driver license number for a fee.

The rule of thumb I have found to be true on rentals is figure on 11 months rent per year as you will have a vacancy on average every other year. Which means a month to clean up and show another month before the prospective renter will be ready to move in.

 

[LD1]

Insurance left me a voicemail today. A little higher than I was thinking, but they estimated the "replacement" cost a good bit higher than I was thinking too. $~360k replacement cost, and $1300/yr ins.

I figure one month per year per rental goes to overhead for insurance, and another 2-3 months for property taxes depending on the property.

I guess if that is a good average, I am still under that. The ins would be ~2/3rds month rent and the tax would be a little over 1 month rent. So Almost exactally 2months rent will cover tax+ins

 

[300UGUY]

I've got one, and the insurance cost about $1100 per year. But here in Michigan, the property taxes on non homestead property are pretty steep. Over 2K for taxes.

 

[LD1]

I've got one, and the insurance cost about $1100 per year. But here in Michigan, the property taxes on non homestead property are pretty steep. Over 2K for taxes.

Taxes on this one run about $2500/yr.

I did talk to my ins agent today, and she is going to figure me some more numbers. Like raising the deductible and only insuring for like 80% replacement value.

Either way, it ain't a deal breaker. Even with the "little higher than expected" insurance, that cost is relatively small in the grand scheme. At current rental rates (which are a little on the low side IMO) minus my expenses (loan, tax, ins, trash, water, and sewer) they are still positive cash flow for a 15 yr loan. If I am able to get by with only $200/month in unforseen expenses average (vacancy, repair, bad tennate, etc) at the end of the 15 years, I will own them free and clear + recouped my initial down payment. Which is the goal. Not to make extra income, but to not cost extra either. The profit will be long term. Equity after the 15 years + rental income at that time.

 

[bdeboer]

Taxes on this one run about $2500/yr.

I did talk to my ins agent today, and she is going to figure me some more numbers. Like raising the deductible and only insuring for like 80% replacement value.

Either way, it ain't a deal breaker. Even with the "little higher than expected" insurance, that cost is relatively small in the grand scheme. At current rental rates (which are a little on the low side IMO) minus my expenses (loan, tax, ins, trash, water, and sewer) they are still positive cash flow for a 15 yr loan. If I am able to get by with only $200/month in unforseen expenses average (vacancy, repair, bad tennate, etc) at the end of the 15 years, I will own them free and clear + recouped my initial down payment. Which is the goal. Not to make extra income, but to not cost extra either. The profit will be long term. Equity after the 15 years + rental income at that time.

Do the renters pay the electric/gas? They won't heat it like someone that pays the bills, lol.

I make them transfer the electric into their name before they move in. On properties with propane heat, I own the tanks. They can shop around however they want.

 

[grsthegreat]

on one of my rentals the insurance and taxes combined eat up maybe 2 months of the rent. But after you figure in depreciation on the house and its write off on taxes its nearly a wash.

I paid cash for this rental. cash that was earning me 0.5% interest is now earning me 8% interest thru rents.

The house i bought was only 9 years old,so the rents are higher. By attracting higher rents i feel you get a better tenant. So far 5 months later, not a single late payment AND they are decorating the outside and taking care of the house like it was their own.

My 2nd rental is handled thru a company out of state, so higher costs involved, but again its a cash cow.

And something to consider. Rent income does NOT count against social security. A person could have 10 houses paying in $8,000 per month and they dont have to claim the income against soc security. But get a job at walmart and for every two dollars you make they yank one dollar from soc sec payments. Something to think about