Risk Exposures of Property Managers and Investors

Colorado’s real estate market is booming and so are investors and property managers.  Owning and managing several properties may seem like the American Dream, but in reality, it is far more complicated with property maintenance, tenant screening, finding contractors, dealing with insurance, taxes, and budgeting.  In this December’s newsletter, I will be discussing how to protect your liability for your properties as well as the properties you manage for your investors. 

With all my years in experience, I have heard stories where property managers are underinsured or not insured at all.  I see a significant lack of insurance understanding in this industry particularly regarding the following exposures that require protection:

• Buying and selling your own real estate for yourself and others
• Managing your own real estate for yourself and others
• Adding the property manager as an additional insured

Buying and selling your own real estate for others:

Real Estate Agents should have different insurance policies to protect their business.

• Business Owner policy with general liability and cyber liability. It should also protect your business’ personal property. 
• Errors and Omissions or Professional Liability. It covers legal fees for lawsuits related to mistakes.
• Commercial Auto Insurance. If the vehicle’s title is under the real estate’s entity, it should be covered with a commercial auto policy. 

Managing your own real estate and for others:

Generally, being your own property manager is a good financial decision, but it also brings along additional responsibilities. Take a look at some of the risks you might face when you’re managing your own rental property.

• Advertising your property
• Determining rental rates
• Preparing the lease
• Tenant screening
• Collecting rent
• Maintenance
• Ongoing repairs
• Resolving issues with tenants
• Enforcing the lease
• Eviction when necessary
• Finding new tenants

When managing rental properties for other real estate investors, there is an increase in liability exposure.  Additionally, managers should also consider having a Property Managers liability policy and an Errors and Omission to protect against lawsuits from tenants.  Both policies should protect you when managing your own properties and when you manage other investor’s properties. 

Adding a Property Manager as Additional Insured on the Owner’s Insurance Policy

Whether you self-managed or manage properties for other investors, the property management company should be added as Additional Insured on the landlord’s policy.  The Additional Insured endorsement protects the management company against lawsuits arising directly from the property.  Some examples where the Property Manager would not be covered by their own insurance policies include:

• Theft or burglary
• Water leaks
• Fire or smoke damage
• Vandalism or damage by a tenant
• Damage caused by pets or service animals
• Injuries that occur on the property

Most experienced insurance agents would understand that adding the property management company as an Additional Insured is in their client’s best interest.  Regardless if the client owns and manages the property. 

There are some insurance companies that do charge a fee to add a Property Manager as an additional insured. However, not every company does this and every insurance company is different. If your insurance company charges for this service, ask them what they charge and then shop around.  If you would like to discuss more of this topic with another insurance agent, please contact me.  I work with several investors across Colorado and Wyoming.