You should get insurance on every building that you own. For a relatively small annual premium ($4,000 for a $1,000,000 Building) you can insure yourself against a total loss ($1,500,000 Loss – replacement cost).
Multifamily Apartment buildings purchased with a loan are required to have insurance. 2-4 units are covered by residential insurance. 5 units or more are covered by commercial insurance.
How much coverage you want is up to you, the more coverage the more expensive, and the less coverage the less protection. Talk with your insurance agent to decide what’s best for you.
Policy term is 1 year, and you can change or cancel the policy at any time.
Insurance on Multifamily Buildings
Building insurance pays to replace the structure if it is damaged or destroyed. The building replacement cost is estimated as dollars per square foot. For apartment buildings, $125/sqft or less is probably not going to be enough. $150/sqft would be the minimum coverage an insurance agent would recommend. $200-$250/sqft is more than adequate.
Example, you own a 5,880 sqft building that you purchased for $950,000. If you insured the building at $150/sqft the amount of building coverage should be: 5,880X $150/sqft = $882,000.
Building insurance also covers demolition costs- Demolition can be another $30,000 to $50,000 tacked onto the building cost to demolish and remove the debris from old building.
Building insurance does not cover earthquake, flood (flood includes mudslides for hillside area). For different types of insurance on multifamily buildings, there is a comprehensive list below.
Liability Insurance Coverage
Liability Insurance pays for your legal costs if you are sued and pays the judgment up to the policy limit if you lose. If someone gets hurt on your property they may decide to file a lawsuit. People can sue for any reason and they will ask for a huge amount. Death is the least of your worries, it is the person who get seriously injured at your property and needs to be taken care of the rest of their lives that will cost you the most.
I don’t want to scare you with horror stories because multi-million dollar lawsuits don’t happen every day, in fact, they happen quite rarely, but they do happen, and you are not covered by insurance- they can bankrupt you.
As a commercial property owner, you have a big target on your back because personal injury lawyers assume you have bags of money laying around and they will grab for it. I heard a story of a tenant who wanted to commit suicide by jumping off the roof of her apartment building one night, but stumbled and tripped in the dark and seriously injured herself instead. She sued the building owner for $1,000,000 because the roof of the building wasn’t lighted properly…
A personal injury lawyer will happily take a $250,000 or more premises liability case on a contingency basis (contingency cases cost nothing for the injured person- the cost of the lawsuit is born by the attorney, and in exchange- if the attorney prevails in court or negotiates a settlement, the attorney keeps 50%. The injured party pays nothing, even if they don’t win). In addition to free attorneys, there are providing free legal service- tenants have many resources for free legal advice through LAHD and nonprofits while landlords have virtually nothing. They always advise tenants to go to court and have a jury trial, which is very good advice for the tenant, because as a landlord you don’t stand much of a chance in court when there is a jury deciding- they have a huge bias against property owners.
One thing to consider, when thinking about liability protection is whether you should incorporate and hold title as an LLC versus upping your Liability insurance. An LLC costs $800/yr in California annually. The first $1M in Liability insurance costs about $1,000 to $1,200 and then each $1M increment beyond that is ~$200/yr. So for the LLC protection that costs $800- you could up your $1M Liability policy another $4M to $5M instead.
How much Liability coverage do you need? It all comes down to how much you are worth and what you are comfortable with. Total coverage should match your net-worth plus five times your annual salary.
Example: let’s suppose you have $750,000 net-worth and make $150,000 per year. You should have liability insurance of $1,500,000.
Additional Liability insurance can be added with an umbrella policy.
Loss of Rent Coverage
When you suffer a loss to the building from fire or water etc, there is a good chance your tenants will have to move out while you make repairs and you might not be able to collect rent. You might be relying on that rent to pay your mortgage. Loss of rent insurance insures you for this. Get at least 1 year, but you can also choose to get 18 months or 2 years. With delays from claims adjusters and the building department, it will probably take two years before you are collecting rent again if you building was completely destroyed. Sorry, loss of rent does not cover lost rent from evictions or normal vacancy.
Personal Property Coverage
You might have a large amount of personal property on the property that you would like covered. This can be appliances like HVAC, dishwasher, washer dryers, Stoves, computers, Gym equipment, Pool Equipment, Fridges, lobby furniture . Your equipment Is not covered by the building insurance coverage. Landscaping?
The current building codes are much stricter today than in the past. Chances are if you have an older building, it doesn’t meet today’s code. This might make it more expensive to rebuild in the event of a loss (extra design fees for compliance with American with Disabilities Act, grandfathered in low parking requirements and setbacks no longer apply to new construction). The older the building, the more you need building ordinance coverage. Anything 1970’s or back I’d definitely want some of this in my policy. Building Ordinance coverage typically can be purchased for 15%, 25%, 50% of the property’s replacement value.
Your building insurance covers everything that is attached to the building, but it doesn’t cover any of your personal property. Examples of personal property you might have are Appliances (HVAC, Dishwasher, Washer/Dryers, Stoves, Fridges), Computers, Gym equipment, Pool Equipment, Lobby furniture, Exterior Signs, Window Coverings, and Landscaping.
Backup of Sewer & Drains Coverage
In multistory apartment buildings, sewer lines back up all the time (especially on the first floor). An overflowing toilet can easily cost $40,000 to $60,000 if left unchecked.
Money and Security
Don’t need this coverage- never accept cash.
Not sure what this covers
How High Should my deductible be?
Deductibles on Multifamily buildings are typically between $5,000 and $10,000. You want your deductible large enough that you would actual use the insurance if you have a claim. A lot of owners will eat a small $1,000 or $2,000 loss because its not worth the hassle and they don’t want a claim that will raise their premium. Having a skilled maintenance crew/ handyman is invaluable. If your handyman can get a small job done for a couple hundred dollars he can take the sting out of smaller losses. If you are looking for providers of insurance on multifamily buildings, keep reading!
For Apartment Buildings in Los Angeles, Capital Insurance Group (CIG) is my favorite insurance company. They offer the best coverage at the most competitive prices. Need a CIG insurance agent for a quote? Send me an email and I will send you referral!
Standard and Poors ??
Am Best A
Farmers insurance is one of the biggest insurance companies in the US. Investors like Farmers because you can get a very low annual premium, however, they might be light on coverage so be careful and make sure you understand your policy.
Standard and Poors AA-
Am Best A
If you have any more questions or need help finding insurance on multifamily buildings, please reach out by clicking the button below. I will be in touch.
Mortgage Lenders require borrowers to carry fire insurance. I recommend upgrading your fire insurance to Homeowner’s insurance because there are many additional risks that fire insurance does not cover. Fire insurance covers loss due to fire and that’s it. The lender will not fund your loan until a Certificate of Insurance has been delivered to escrow. Besides, it’s a just good idea to insure your home.
A lot of buyers wonder why lenders require fire insurance, especially in Los Angeles where there are Earthquakes as well. This is for two reasons, one fire insurance is much less expensive than earthquake insurance, a typical annual premium for fire insurance may cost $800 per year where as earthquake insurance might be an additional $2,500-$3,000. The other reason is fire is the most common cause of property destruction.
How common are fires? More than 1,000 home fires are reported on an average day. That’s one every 85 seconds! Home fires kill seven people per day.
1 out of every 310 households reports a fire each year.
Aside from the damage of the fire itself, smoke can ruin parts of the home that were unharmed by the flames. Methods used to contain and extinguish the fire, such as spraying water from fire hoses or using flame retarding chemicals can cause more damage to the property than the fire itself! These are just a few reasons fires can be so destructive.
The number of House Fires in the US dropped from 2.2M in the 80’s to 1.4M today
Improvements in firefighting methods and home building techniques have dramatically lowered the number of fires each year in the US.
there are more than two million California homes at high risk for wildfire danger – a number that constitutes nearly 15% of all homes statewide.
Areas that are RED are High Fire Zones in Los Angeles County
Homeowners in “Very High Fire Hazard Severity and Wildland Area Forest Fire Risk” Zones, or as I call them High Fire Zones, may have difficulty finding fire insurance.
NHD High Fire Hazard Severity Zone
The Natural Hazard disclosure statement that you receive as part of your disclosures in escrow will indicate whether you are in a high fire zone. Hillside homes in Los Angeles always are. Being in a High Fire Zone means paying a higher premium for fire insurance and experiencing some difficulty when finding an insurance company who will cover you. A lot of Homeowners like to bundle their car insurance and home insurance together to get a discount- you might be disappointed that your current car insurance provider (GIECO, Progressive, AAA, Travelers, Mercury) will not insure your hillside property for fire insurance. A lot of California insurers pulled out of fire insurance after the devastating Malibu Wildfires in 2007.
No matter how high your property’s wildfire risk, you can always get fire insurance through the state of California under the Fair Plan enacted in 1968. The Fair Plan was created to guarantee that all CA home owners can get fire insurance. The Fair plan covers dwelling but does not cover contents, liability, or loss of use. Fair Plan insurance rates are low, maybe only $500 a year, but that’s because it offers so little coverage.
Example California Fair Plan Quote (only Basic coverage for Fire and Lighting)
Fair Plan insurance is better than nothing, but if you are only carrying Fair Plan insurance you are under-insured. The Basic Dwelling Coverage is Fire and Lighting, and Internal Explosion and That’s it. Extended coverage adds windstorm, hail, explosion, riot or civil commotion, aircraft, vehicles, smoke, and volcanic eruption for perils insured against. Vandalism or Malicious Mischief may be added to the policy. No Mudslide or Flood. No Liability Insurance whatsoever. Limited Personal Property (10% of value) and Limited Fair Rental Value also known as loss of use (2 weeks!). You can increase the coverages on these two if you wish.
Some insurance companies provide extensions on top of the Fair Plan that increase the coverage for . You will be best off if you get an insurance company that will write you a homeowner’s policy (State Farm, Allstate), but if you can’t find one or decide those who will are too expensive (Lloyds of London, Pacific Securities), getting the Fair Plan and adding coverage might be your best option (Farmers).
Owning a home is a major accomplishment and one of the best investments you can make! Protecting your home from harm with Homeowner’s insurance is essential. Nobody likes paying insurance, until you need it, and then you will wonder how you could ever live without it.
For a relatively small annual premium you can protect yourself from a large unexpected expense or a total loss. For a normal size house (1,500-2,000 sqft) with average coverage you can expect between $1,000-$1,200 annual insurance premium. For Larger homes (4,000-5,000 sqft) premiums can range between $2,500 to $3,000 a year. As a general rule of thumb coverage is about $1,500 Per $1M or property value.
Highend homes that are worth 10M or more can be difficult to insure because most major US insurance companies like All State, Farmers, State Farm, etc cap their homeowners insurance policies between 2M and 4M for property value. AIG insurance and Chubb Insurance like insuring highend luxury homes, so they are good companies to get a quote from if you are buying a luxury home.
Lenders require buyers to have insurance to get a loan. The minimum amount of insurance a lender requires is fire insurance, but I strongly recommend to always upgrade your insurance policy to Homeowners Insurance.
Homeowner’s Insurance has two main coverages: Building Insurance& Liability Insurance.
When purchasing Homeowners insurance get at least two or three quotes from different companies.
Homeowners insurance is for your home, second home, and 2-4 unit residential income property.
Building insurance covers anything that is a permanent part of the building. Think, if you turned the house upside down and shook it, anything that doesn’t falls out. The stuff that is loose is considered contents/personal property which can be covered by adding personal property coverage. Building insurance covers your house if it is damaged or destroyed. Double check with your insurance agent if you have accessory structures, such as detached garages, guest houses, solar panels, storage sheds, and pools, to make sure that they are covered in your policy.
How much building insurance coverage do I need?
Building insurance is calculated as a price per square foot to rebuild your property. To figure out your replacement value – take the square footage of your home and multiply it by your estimated $/sqft replacement cost. $200/sqft-$300/sqft should be sufficient price per square foot for standard residential construction. Luxury homes might require a higher price per squarefoot to rebuild.
You own a 2,200 sqft home.
2,200 sqft *$250/sqft = $550,000 replacement cost
This car crashed on Fountain Avenue and damaged the brick wall of the house. Insurance covered the damage and fixed it.
Liability insurance is legal protection and covers you if someone is hurt on your property and they file a lawsuit against you. The reason they are hurt doesn’t even have to be your fault (it can be their fault! I have heard of a robber getting hurt while trying to steal and suing the owner), as long as it happened on your property they can sue you. Liability insurance will pay all your legal fees, and pay out the judgment or settlement if you lose. Common examples of lawsuits might be: your dog gets loose and bites someone, or someone slips and falls. Liability insurance should be at least $300,00-$500,000. However if you have a very large amount of equity in your home (if you bought it all cash or have owned it for many years and have almost paid it off) Liability should match your equity. It’s never wrong to up your Liability to the $1M Range, this should be plenty of protection. Keep in mind that the more coverage the higher your annual premium.
Personal Property Coverage (Optional)
Personal property is anything you would pack up and take with you if you moved (clothes, furniture, kitchen items, sporting goods, electronics, rugs, tools, etc.). To determine how much coverage you need, you will need to estimate the cost to replace all of your belongs with new ones.
If you have really expensive things, like antiques, fine art, and jewelry, you will need to get extra or special coverage because standard coverage excludes these costly items.
For your personal property create list of all the big ticket items and keep it with your records. If you don’t feel like making a list, you can take pictures or a video, starting on the outside of your home, and going inside every room, closet to create a record of the contents. If you ever need to file a claim they are going to ask what was lost and needs to be replaced and it is helpful to have some documentation.
Loss of Use Coverage (Optional)
if your home is damaged or destroyed, you may not be able to live in your home until it is fixed or replaced. Loss of use pays for you to live somewhere else while your house is being fixed. If your home was destroyed, it can take a year or two to rebuild. This is optional coverage but recommended, 12 months is the minimum coverage, I’d get 24 months which is best.
Medical Payments Coverage (Optional)
Medical Payments is an optional coverage, but nice to have if someone gets hurt at your property. Medical Payment will pay their health insurance deductible, or pay for a doctor visit, or an ambulance ride to the hospital. Typical coverage is $5,000.
Deductibles can range between $1,000-$3,000 for normal size homes and $5,000-$10,000 for multi million dollar homes. The higher the deductible, the lower your insurance annual premium. You want to balance the amount of the deductible with the amount of money you have in savings that you are comfortable either: fixing a problem yourself, or paying the deductible in order to make a claim.
Let’s say you have a broken toilet that costs $500- that is definitely not worth claiming with a $1,000 deductible because the deductible is larger than the repair. Lets say you have a $2,000 problem- you then have to weigh the advantage of having insurance cover $1,000 of the repair versus having your insurance premium go up next year. If you have very little or no cash, you may want as low a deductible as possible to protect yourself against an unexpected expense. Whereas if you have quite a bit of cash, you can choose to set the deductible higher, and only use insurance for medium to large problems and cover all the smaller stuff yourself.
Sometimes you can get insurance discounts on your home insurance, if the property has a sprinkler system, burglar alarm, or you bundle your auto insurance and home insurance with the same company.
WHAT’S NOT COVERED by Homeowners insurance
Floods (also mudslide) and Earthquakes are notincluded. Normal wear and tear on the property that requires routine maintenance is not covered. Pest damage from termites, rats, or other critters is excluded. Damage caused from Foundation settlement is excluded.
Certificate of Insurance
Lenders require buyers to have insurance when they get a loan. The lender will want a certificate of insurance from your insurance agent before they will fund the loan- so make sure you get a few quotes and choose your insurance policy before its time to close.