Buying & Renting Multi-Family Homes

You’ve likely heard the financial rewards of flipping houses or purchasing multi-family properties to rent out. What you may not realize is that when you get involved in this business, it’s your responsibility to get the structure insured, regardless of whether you’ll be living there, too. Before you take out a loan, think about the following points.

What’s Different About Multi-Family Homes?

First, consider the size. Compared to a single-family home or property with individual units, a multi-family house has space for more than one kitchen and bathroom. Subsequently, the property goes through wear and tear from multiple tenants and the accident risk increases. Within these parameters, everything from a duplex to a townhouse or condominium complex may be considered a multi-family home.

In terms of insurance, a traditional homeowner’s policy is insufficient yet full commercial coverage could be overkill. To determine which policies to take out, ask yourself:

• Will you be living in the house? Treat the property as your own by taking out homeowner’s insurance that includes all potential perils.
• Is it strictly an investment property? If you’re purchasing the home to fix up and rent out, landlord insurance is a solid start. Also consider taking out a Business Owners Policy to factor in potential injuries and loss of rental income, in case you need to make repairs.
• Will it be a permanent or temporary rental? In one-off instances without permanent tenants, such as vacation season, your homeowner’s insurance may be enough. Yet to get coverage, you also need to live there.

How Does Landlord Insurance Work?

Also known as dwelling fire insurance, landlord policies cover everything used to service the property but excludes personal belongings. Aside from your own possessions, let your tenants know your policy will not cover their furniture, electronics and other personal items. Instead, they should take out renter’s insurance, which typically extends to the tenant’s own belongings and a handful of liability issues.

Because landlord insurance does not cover every issue, it’s imperative the property owner take out separate general liability coverage. By contrast, should you decide to live on the grounds, homeowner’s insurance extends to your possessions and any injuries.

Factors Affecting Coverage

Whether you opt for landlord or homeowner’s insurance, a carrier considering your multi-family home may have questions concerning:

• Building Codes: Be sure you know the age of the wiring and plumbing, how the home will be heated and its general construction, including firewalls, the presence of lead-based paint, asbestos and if you converted a single-family home into a multi-family.
• Risk Reduction Plans: Regardless of size, your multi-family home has many of the same risks as an apartment building. Be sure to discuss fire prevention strategies, including smoke detectors, sprinklers, extinguishers and hydrants. You may be expected to review and maintain all devices to continue coverage.
• The Grounds: Public areas, including clubhouses and playgrounds, add a few more liability risks to your property. Ensure your building has more than one entrance for tenants, otherwise a carrier may deny coverage over this risk.

Interested in landlord or homeowner’s insurance for a multi-family property? To discuss the benefits of each, give us a call at 203.439.2815 .