Managing Risk with Investment Property


Owning an investment property comes with certain responsibilities with the primary responsibility being to ensure that your tenant is living in a legally safe premise.  Secondly, you need to make sure that you are protected from the tenant and that your property is protected from disasters.

Even if you already own one or multiple investment properties, it’s a good idea to review the potential risks occasionally to make sure you are covered in the event of an accident or disaster.

Tenant Safety

Whether the following are required by law or not, it is a good idea to have these items in your property, to help protect your tenant from danger.

Smoke Alarms

Not only can smoke alarms provide your tenant with immediate warning of an impending fire, it can also provide them with more time to contact the fire brigade and possibly save your property from burning to the ground.  Battery powered smoke alarms can be bought and installed quite cheaply.  Mains powered alarms can also be installed with the benefit of not needing to replace batteries periodically (because it is hooked into your property’s power circuits) but it is more costly to do this.

Electrical Safety Switch

Accidents can happen with appliances and electricity can be a killer.  An electrical safety switch detects when electrical current surges past a certain level and then cuts all power to the property immediately.  This can mean the difference between life and death and can be installed for a couple of hundred dollars.

Types of Insurances

Insurance is the most important risk aversion technique to cover you for unexpected events.

Building Insurance

Building insurance should cover your property from damage caused by fire, earthquake and flooding caused by storms or blocked drains.  If you own an apartment or townhouse, check to see if your body corporate (owner’s corporation) already covers your building insurance as part of their fees.

When purchasing building insurance, make sure you know what is covered and what is not.  For example, in flood prone areas, some insurers will require you to take out extra insurance for this.

Building insurance can also protect you from legal liability if the tenant or other visitors to the property are injured for any reason.  If you’re building insurance does not cover this, make sure you purchase liability insurance separately because if you get sued, you could lose your property.

Contents Insurance

If your investment property is fully furnished, you may wish to take out content’s insurance.  Building insurance does not normally cover contents such as furniture, so contents insurance will protect you if furniture is stolen or damaged.

Landlord’s Insurance

Sometimes called tenants or renters insurance, this will protect you from the tenant causing deliberate damage or falling behind in rent.  One of the biggest deterrents for people investing in property is the concern that they will get a nasty tenant who does not look after the place or does not pay rent regularly.  This type of insurance will protect you from loss of rent and malicious damage.

Flood Insurance

As mentioned above, if you live near a river or major waterway, flood insurance may not be covered in your building insurance.  If this is the case, separate flood insurance should be taken out to mitigate this risk.

In January 2011, the Brisbane River (Queensland, Australia) broke its banks and flooded thousands of surrounding houses.  Many of these property owners were surprised when they learned they were not covered for this type of flooding.

Rental Bond or Deposit

The rental bond is normally payed by the tenant to protect the landlord from accidental damage by the tenant or loss of rent.  This can range from 4 weeks rent for residential properties or as much as 6 to 12 months rent for larger commercial or industrial premises.  The bond is normally held in escrow by an independent government body, bank account or agency so that it cannot be abused.

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