Multi family-protecting your investment

[Gary Schiefelbein]

I know this site mainly focuses on how to buy investment properties, but I thought I would touch on a subject that may help someone down the road avoid a potentially expensive pitfall through the proper insurance coverage. Yes I know insurance is a boring topic, a necessary evil, no one wants to think about it until its needed, but making sure you have the right coverage will protect all your hard work you put into building your real estate empire. I know I sound like an insurance agent, probably because I am one. 

Many of you that own multi unit complexes have a BOP Policy that bundles liability, property coverage etc... If you take a look at your insurance policy there should be a coverage called building ordinance of law.  Basically that is coverage that an insurance company provides in the event you have a covered loss to part of your property and when you go to rebuild you have additional costs due to bringing the property up to current city or county codes.  Like upgraded electrical, heating, ventilating, air conditioning, plumbing, ADA, etc...

Where this comes into play is if say a tenant of one apartment unit sets his unit on fire, burns it up and now you have to go in to rebuild his unit.  City comes in and says when you rebuild, you have to bring it up to current codes, which you think is no big deal, its just one unit. What could and has happened is that they aren't just going to require you to bring the one unit up to code, but the entire complex because of that one unit fire. Now the money starts racking up.  

On some policies this is an optional coverage, on others the standard policy starts at $10,000, but can be increased.  Most people don't really think about this coverage, because most people are trying to get the cheapest insurance they can buy.  Its worth the few minutes it will take to pull out your policy and see what kind of coverage you have for building ordinance of law.  Don't just rely on your agent to verify, because many agents don't fully understand the significance of that coverage, or better yet don't understand the potential risk/cost that could be incurred by you if you don't have the proper coverage. 

Hopefully this little piece of information will help someone avoid a crippling future expense.

Thanks 

Gary