After a year of canceled travel, many are eagerly planning post-pandemic trips, and nearly 33% of upcoming travelers are willing to splurge on a “dream” vacation (VRBO). If you own a vacation rental property, this statistic might spark a victorious “yes!” as accommodations will be in greater demand.
So, let’s dive into investment property insurance to make sure you’re prepared and protected for your future tenants. The reality is, there are various types of investment properties, and each require specialized care. Whether you own a vacation home with an influx of renters, or a multi-plex unit that houses steady occupants, we want to support a successful and safe business endeavor.
What is Investment Property Insurance?
This is a policy that provides property and liability coverage to those who own a rental unit(s). Your biggest risks will revolve around the unpredictability of property ownership, tenant interaction, and an income that relies on the well-being of the property and the integrity of your tenants. This means your policy requires both a personal and business approach, as you and the investment will need protection.
Which Type(s) of Property do You Own?
Long-Term Properties – These are homes that are leased on a yearly basis. The advantage of this type of investment is a steady flow of income and stability. It’s important to remember that even though this may have once been your home, a homeowner’s policy will not be sufficient coverage. A homeowner’s policy is personal and strictly intended to protect the residing homeowner, family and home belongings. Once you begin using your property as a rental, you are taking on business risks, and will need to define it as a business so that carriers don’t deny your claims.
Short-Term Properties – This essentially points to an Airbnb, Vrbo, and other vacation rentals. Often occupied by weeks or days, this type of investment does not always provide steady revenue, but it does welcome high volume occupants, which in turn, heightens income. Interestingly, the US represents 20% of all vacation rental companies in the world (Hostfully).
Insurance for these policies require a unique approach and must include coverage for regular guests. Nearly 50% of investment property owners plan on using the property both personally and as income (BuildUp). This means the property is constantly rotating between uses – as a retreat for the owner, a rental for various tenants, and waves of vacancy.
Vacant Properties – This investment is frequently associated with house flipping, but it could also mean you’re fixing damage, rendering the property unsafe to be occupied. This can certainly be a high pay off investment, worthy of all the resources you poured into it. It is important to remember that while it’s under construction, the property is inherently riskier, and you’re potentially losing rental income. Your policy will need to include thorough liability and income-loss coverages, in addition to coverage for the building itself.
4 Common Factors that Help Determine the Cost of Your Investment Property Policy
Always remember, no two properties are the same, and a trusted expert should always review and help you piece tougher a comprehensive policy. However, there are a few variables that help you gage the cost.
1. How is the property being used? Generally, short term is more expensive than long term.
2. How big is the property? Generally, higher replacement cost = higher premium.
3. How risky is the tenant? Student and Fraternity/Sorority tenants are more expensive than family tenants.
4. Where is the property located? Certain geographical areas have more risks and natural disasters.
When you know the risks associated with your specific investment property, you will be able to determine the correct solutions. We are proud to offer coverage solutions through multiple carriers, including Vrbo’s preferred carrier, Proper Insurance, providing comprehensive coverage for the unique uses of your short-term rental.
Investment properties are incredible business opportunities. We want you to feel comfortable so that you can focus on being a great host. We’re always happy to take the time to answer any of your questions along the way.