Real Estate Investing (REI) is by nature, a profession dependent upon relationships. Think about all the people your investor clients interact with in just one acquisition: sellers, the sellers’ agent, property inspectors, settlement agents, bankers, lawyers, the list goes on and on. Here we will focus on five key relationships that are crucial to your clients’ investing success. These ongoing relationships can either pave the way to investing bliss or some serious heartache.
1. The Property Manager
Many of the losses we see occur because of an “absentee” Property Manager (PM). If they stop monitoring your investor client’s vacant property a thief may walk away with some copper pipes and appliances. If the PM slacks on maintenance, it could be the start of a major mold issue. If your investor client manages their own properties, they might want to ask themselves, “Would I hire…me?”.
Heartache a Poor Property Manager Can Cause:
- Poor tenant selection – It’s important that a PM’s criteria for a renter isn’t just a breathing human being. Often the wrong tenant is more costly than losing a month’s rent to find a better fit.
- Loss of rental income – If a PM doesn’t rent the property to a qualified tenant, your investor client could experience an inconsistency in rents coming in, which could have a big impact on their ability to grow their real estate business.
- Injury to a tenant or guest – A PM’s performance of routine maintenance is crucial as it can prevent larger property losses and potentially prevent a serious injury or even death of a tenant or a guest.
- Property abandonment – If a Property Manager simply decides to forgo monitoring the property, the (bad) possibilities are endless. Simply put, your investor client could lose their entire investment.
4 Benefits of a Great Property Manager:
- Quality tenants – A good PM has a proven strategy to get the best renters with stable rents coming in.
- Fewer losses – Timely maintenance can keep larger losses and unnecessary injuries from occurring on the premises.
- Less money out of pocket for repairs – Fewer losses means fewer repairs, which ultimately lowers overall expenses.
- Good cashflow/profitable investment – Ultimately, a PM’s involvement should help maximize the profitability of an investment property.
2. Tenants
A tenant who takes care of the rental property as if it was their own is an investor’s dream. On the other hand, if a tenant doesn’t take pride in their place of residence, the amount of damage they can cause is shocking. Your investor clients need to have a thorough screening process to get a solid grasp on a renter’s character and rental history before they move in. Once again, it’s better to have the property vacant for another month than to place someone who does not meet qualifications.
Heartache a Problem Tenant Can Cause:
- Lost rental income – Promises don’t equal paying rent. Sometimes life happens, but investors should remember what the rental property is for: to produce a profit.
- Excessive cleanup in between renters – Even if consistent rent money is coming in, how well are the renters taking care of the property? An excessive amount of cleanup can slow down an investor’s ability to re-rent and could end up costing months’-worth of rent and additional repair costs that they may not be able to recoup from the tenant.
- Lawsuits – Lawsuits are not only costly, but they are also stressful and time-consuming. All too often we see lawsuits involving an alleged slip-and-fall filed shortly after a tenant has been served an eviction notice.
- Total loss of your investment – Evicted tenants may also try to get “revenge” by setting their former home on fire.
Benefits of Having Great Tenants:
- Consistent rents – This seems like a no-brainer, and it’s every real estate investor’s goal. Consistent, timely rents every month.
- Minimal cleanup between renters – The better a tenant takes care of a property during their stay, the less the investor will have to replace when they leave and the longer items in the house will last.
- Less stress – For most, real estate investing is not a passive event. However, having a good tenant can make an investor’s life a lot less difficult, take up less of their family/personal time, and they may just get a little more sleep too.
- More profitable investment – Consistent rent and fewer repairs are a winning cashflow combination. Great tenants are crucial in helping achieve that objective!
3. Contractors
Many investors assume their Premises Liability and Property Coverage will protect them if a contractor is injured while working on their property. Your clients should be aware that anyone hired to work on the property is excluded from standard ISO policies. For property damage, employee injuries, and workmanship negligence to be covered, the contractor must carry those insurance policies themselves. Hiring a skilled, reliable, licensed, and insured contractor is key to avoiding some major pitfalls during a renovation.
Heartache An Unreliable or Uninsured Contractor Can Cause:
- Delays in finishing the project – Time is money. Rehab work can be particularly tricky because there might be surprises behind those one-hundred-year-old walls. That stated, experienced contractors don’t make promises beyond their abilities to secure the job.
- Leaving the project unfinished – A nightmare scenario for sure, but we’ve seen instances where a change in GC becomes necessary, further delaying a rehab and potentially leaving the new contractor to fix the previous contractor’s mess.
- Liability lawsuits – Accidents happen, but if a contractor isn’t properly insured your investor client may become liable for on-the-job injuries, property damage, and other perils in connection with the project.
Benefits of Hiring Reliable & Insured Contractors:
- A smooth repair process – Construction is never 100% smooth, but hiring an experienced contractor can minimize delays and make problem-solving much easier.
- A profitable flip – Skilled contractors can maximize profits when they finish the job on time and without excessive surprise costs.
- Peace of mind – While your client may have to pay a little more for an appropriately insured contractor, an injury-free jobsite with no fear of potential lawsuits is always a good thing!
Do you have contractor clients in need of insurance? Check out GCGuard by REInsurePro– our general liability program for artisan and general contractors.
4. Neighbors
Your investor clients have everything to gain by establishing quality relationships with other property owners and residents in the area.
Benefits to Building Solid Relationships in The Property’s Neighborhood:
- More eyes on the investment – Your investor client is only one person, and even Property Managers cannot always be present. Less monitoring can open investment properties to increased risks, especially if they are vacant.
- Being alerted sooner if something goes wrong – The sooner your investor client knows about damage, the more they can do to prevent further loss from occurring.
- Helping avoid a loss – Neighbors may help alert your investor client to a hazardous condition on their property before the PM can or in case tenants don’t think to.
5. The Insurance Company
As an REInsurePro agent, you represent both the client and the insurer. It is your responsibility to help your clients understand and fulfill their role in this insurance relationship.
Heartache that Can Result if You Investor Client Doesn’t Maintain Good Standing with Their Insurer:
- Increased rates – If the investor client doesn’t protect their properties from avoidable losses, creating a high frequency of claims or severity, the cost to insure their properties is likely to increase.
- Loss of coverage – If the investor client doesn’t abide by the responsibilities set forth in the policy, their loss may not be covered when they otherwise would have coverage available. If your investor client has too many losses that are considered “avoidable,” the insurance company may choose to drop them as a client at renewal.
- Insurance fraud – The consequences of purposely misrepresenting facts about a property to the insurer can be as severe as jail time.
Benefits of Keeping a Cooperative Relationship with the Insurer:
- Stable rates – While insurers understand there are losses no one can plan for, like a severe weather event, keeping avoidable losses such as cooking fires, burst pipes, and the like to a minimum, will help keep rates more stable and affordable.
- Full use of coverage – By abiding by the responsibilities as set forth in the insurance policy and cooperating with the insurer in the investigation of a loss, your client will enjoy the benefits for which they’ve been paying their premium.
- Access to services that help avoid losses – Many insurance companies have departments dedicated to loss prevention. Investors should take full advantage of all the resources and education their insurer offers.
As an agent, your role extends beyond the transaction of binding coverage. You have the ability to cultivate lasting partnerships with your clients while acting as an advisor to help mitigate losses that may result from the relationships mentioned above. The REInsurePro blog hosts many loss prevention articles and checklists. Don’t be afraid to share these valuable resources with your investor clients, it can save them time, money, and headaches!
