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How to Spot Troublesome Tenants Before They Move In

A well-documented and consistently used screening process can help you select better tenants. Residential landlords dream of renting to the right tenants—conscientious individuals or families who care for their rental property, notify the landlord of maintenance issues and pay rent without causing problems. But if you’re in the business of owning or managing residential rental property, you know that tenants don’t show up with a neon sign flashing either “I’m the ideal tenant” or “I’m going to cause trouble in the building and for neighbors.” In fact, a person or family can appear to be a good tenant at first blush and then show signs of trouble after they move in. Four Types of Troublesome Tenants There are four types of tenants who cause the most trouble for residential property owners and managers: The Destroyer. This is the tenant who damages property. This type of renter can cost hundreds, if not thousands, of dollars in repairs, legal fees and eviction costs. The Rule Breaker/Ignorer. These tenants don’t seem to care too much about the rules that tenants must follow when renting a house or apartment. The Tardy Player. This tenant doesn’t pay rent on time. He or she also does not answer calls, phone messages or emails. But they must think they’re better late than never, as they tend to pay the rent late (rather than on time). The Non-Payer. This renter stops adhering to the terms of the lease, including failing to pay the rent on time. They fail to pay, even after numerous knocks on  the door, missed phone calls, ignored messages and disregarded email messages. Tenant Screening Many residential property owners/managers have a tenant screening process. This screening can minimize the odds that a troublesome renter gets a foot in the door and causes a costly situation for you. If you do not have a documented screening process, make it a priority to create one. Using one can heighten your chances of spotting bad tenants. To better assess any tenant’s risk, residential landlords can look at three key items of information before offering a lease. Use all reasonable means needed to discover whether the potential renter: Earns the income they say they make (which is ideally no less than two-and-a-half times  the rental price). Has a good credit history. Has a good rental history that can be verified by previous landlords. Additional Considerations Besides using a screening process, keep an eye out for other warning signs. For an informal-but-also-informative process, try using these three questions to spot an irresponsible tenant before you offer a lease: Does the prospective tenant have trouble with questions on the application? A solid prospect typically can fill out an application in the rental office with only routine effort. They may need to verify contact information for previous landlords or double-check their credit score. But if they leave multiple spots on your application blank or seem unwilling to fill out the application after the initial showing, they may be trying to hide something, or they just may be disorganized and unprepared. Similarly, if a prospective renter cannot give you clear, straightforward answers to routine questions or if they grow defensive and evasive, that is also something to consider. Prospective renters might merely be nervous and unsure of how to answer, or they could have something in their history they don’t want you to know. Are they rushing to rent? A potential renter who is clamoring to move into a rental unit in less than a week could have a troublesome issue such as: Eviction from a previous rental property (or having been served a cure-or-quit notice). Inability to pay rent at their current residence, leading to desertion. A plan to leave a current residence without notice. A lease ran out and the tenant didn’t make living arrangements ahead of time. A disorganized, ill-prepared prospect is unlikely to be a reliable tenant. Is the prospective tenant complaining, demanding and haggling at every turn? Prospective renters tend to show best behavior during initial showings and meetings to impress a future landlord. But some display “not-so-best” behavior, such as: Being overly negative (especially if they only have negative comments about all their previous landlords). Making demands before they’ve signed a lease. Relentlessly pushing for a reduced rent price. These signs point to a tenant who is likely to make excuses instead of timely rent payments. Verify rental history with at least one previous landlord for another side of the story. What’s more, in both formal and informal screening of prospective tenants, consider what your “gut” is telling you. My own experience as property owner, attorney and insurance professional verifies that besides getting the right information, paying attention to your professional instinct helps minimize tenant risk. A robust, thorough screening process can keep troubled tenants from the doorstep. But even with the best process, you might still bat below 1.000. In  that case, the best-case scenario is that a “bad tenant” will be a little messy, a little loud and a little late on rent payments. The worst-case scenario is, well, much worse. Tenant risk is not diminishing. In fact, it’s growing with the market. Between 2006 and 2016, the number of single-family homes available for rent increased by nearly 4 million, lifting the total to 18.2 million  in the U.S., according to the Joint Center for Housing Studies of Harvard University. Tenants’ unpaid rent and property damage can stick you as the property owner or manager with high costs, even after the tenant vacates, fails to renew or is evicted. In that case, consider protecting against property damage and financial loss—and not just with a standard rental deposit and lease terms. One lesser known but emerging option for today’s residential owners and property managers is rent default insurance. When purchased in advance of a lease, it reimburses for loss of rental income and certain eviction costs in the event a tenant defaults.

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Single-Family Rental Industry is Growing Up

Single-family rental inventory is accessible to a broader pool of buyers. Wall Street-backed institutional investors have largely curtailed their acquisition of single- family rentals in recent years, but strong demand from medium-sized investors on Main Street and mom-and-pop investors on Wisteria Lane—the stereotypical suburban street made famous on the television show “Desperate Housewives”—is continuing to buoy this growing marketplace. “I’ve actually seen interest increase every year since about 2012 (when) the early adopters were coming in and buying properties in all kinds of markets,” said Marco Santarelli, owner of Norada Real Estate Investments, a Southern California-based company that helps investors find, purchase and manage turnkey single-family rental properties in more than 20 markets across the country. Santarelli said his company mostly works with busy professionals who want to create wealth and passive income through real estate investing. Hedge Funds No Longer House Hunting Meanwhile, institutional investors have largely faded from the picture when it comes to large-scale acquisitions, according to Santarelli, who noted that in the last six months he has not heard of any institutional investors picking up inventory in the markets where his company operates. “I do hear from local providers when (institutional investors) are in town buying, but I haven’t heard much lately,” said Santarelli, a 15-year veteran of the single-family rental market. “I haven’t heard anyone saying the hedge funds are back in town and they’re buying everything.” An analysis of public record sales data from ATTOM Data Solutions shows that 3.5% of single-family homes and condos sold so far in 2019 were purchased by investors buying 10 or more properties a year, down from 6% in 2018 and down from a peak of 8.4% in 2013. Institutional buyers such as Blackstone-backed Invitation Homes and American Homes 4 Rent purchased tens of thousands of foreclosure homes at or near the bottom of the housing downturn, converting those properties into rentals. Earlier this year, Blackstone sold more than $1 billion of its shares in Invitation Homes, which still owns more than 80,000 rental homes across the country. American Homes 4 Rent owned more than 52,000 single-family rental homes in 22 markets across the country as of June 2019, but in 2018 its total portfolio of homes grew by less than 1,500. Another wave of institutional buyers, including Amherst, Cerberus, Front Yard Residential, Pretium and Tricon American Homes, have continued to acquire substantial numbers of single-family rentals in recent years, but these outfits are still not acquiring at the volume of the first-wave institutional investors, as evidenced by the ATTOM data. Six-Month Waiting List for Single-Family Rentals Despite the receding wave of institutional investor acquisitions, the single-family rental marketplace has continued to expand, thanks in large part to the individual investors that Norada and other turnkey rental home providers target. Waiting lists as long as six months for prospective buyers of turnkey rental properties demonstrate this strong demand, according to Santarelli. “The challenge we have today is that there are a lot of investors interested in buying, and in a lot of the markets we and the local providers are having trouble finding inventory,” he said. “The easy pickings are gone. Now to find deals you have to market and farm areas.” Sellers Turning to Alternative SFR Marketplaces Online single-family rental platforms such as Roofstock and Renters Warehouse have also launched in recent years, giving individual investors another channel of access to turnkey single-family rental inventory, which often cannot be found on retail housing marketplaces such as Zillow and Realtor.com. Given the constraints of selling single-family rentals through traditional retail marketplaces, some sellers have also turned to alternative marketplaces, including online auction platforms that list thousands of single-family homes. Many of these homes are  turnkey, income-producing opportunities that are also financeable. Rental Market Still Strong Alabama-based real estate investor Jared Garfield said a combination of strong demand for rentals and low supply has kept the rental market strong, even with the home sales slowdown that occurred when mortgage rates rose in late 2018 and early 2019. “Our rental vacancy rates are typically around 3%. If our property manager has 300 properties, we know that nine of them will be vacant at any time because the lease is up,” said Garfield, owner of ROI Turnkey, a company that buys, rehabs and resells rental-ready investment properties. “There’s been no building for 10, 12 years, so there is a shortage of supply. As long as there is a shortage of supply, it’s hard to see a downside for housing.” The strength of the U.S. rental market is evident in the latest homeownership and rental vacancy numbers from the U.S. Census Bureau. The nation’s homeownership rate dropped to 64.1% in the second quarter of 2019, its lowest level in nearly two years, while the average rental vacancy rate dropped to 6.8%, below the 10-year average of 8.1% and in stark contrast to the 9.6% average during the 2002-to-2007 housing boom, which was driven more by owner-occupant buyers than renters. Rental fundamentals are even stronger in some metro areas like Las Vegas. Homeownership rates there dropped to a nearly three-year low of 54.4% in the second quarter of 2019, while rental vacancy rates dropped to 4.8%, a new low as far back as at least 2015, according to the census bureau. Average rents for three-bedroom properties in Henderson, Nevada, have risen 5% annually over the last five years on average, according to an analysis of data from Collateral Analytics. That compares to average annual rent increase of 3% a year nationwide for three-bedroom properties over the same time period, according to data from the U.S. Department of Housing and Urban Development (HUD). “I like Henderson. It’s one of the safest cities in the country. It’s got one of the highest per capita incomes, one of the lowest number of people living under the poverty line, strong population growth,” said Santarelli. “The opportunities are out there; you just have to change where you’re looking,” he said. “You change the market, or you change

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Boston’s “Buried Treasures” Await Bold Investors

For investors willing to work for it, Beantown rewards are waiting. Two words will nearly always come up in any discussion covering Boston real estate: “tight” and “expensive.” Given a decade of population growth and a phenomenal jobs market based in high-demand, recession-resistant sectors like the life sciences that attract young professionals in droves, “tight” and “expensive” seem almost inadequate descriptors by today’s Beantown standards. But, thanks to a nearly unprecedented rate of growth across the board over the past decade, for investors willing to think creatively and to consider innovative assets, the Boston market has plenty of hidden treasures to leverage as part of a strong investment portfolio. “If you are an investor, Boston has a track record  for being one of the best long-term real estate investments in the nation,” said Marco Santarelli, founder and president of turnkey investment firm Norada Real Estate Investments. “Because of the large number of students and college and university faculty, it is a no-brainer for savvy, long-term investors to invest in a rental property in Boston.” Still, that strong demand can come with a price where housing affordability is concerned. In the current housing cycle, certain historic trends have not held true when it comes to how that affordability affects population demographics and demand. “Boston is a high-cost, relatively small market that has historically not grown rapidly because of our geographic barriers,” said Aaron Jodka, an economist and managing director of client services at Colliers International. “High cost-of-living and homeownership has historically caused younger residents to leave for more affordable living environments, but this housing cycle has flipped that.” Jodka cited a strong economy, new housing and a “phenomenal job market” for Boston’s current status as one of the few major metro areas currently  seeing the millennial  population expand within the city proper. This “flip” of historical norms in the Boston housing market has had far-reaching effects on the broader real estate market as well. Not only has the housing stock in the city changed dramatically, noted Jodka, there have been significant real estate-related policy changes as well. In a city where new construction lagged behind national rates and city planners referred to urbanization “as a trend, rather than a reality,” the current mayor recently launched an initiative intended to add as many as 70,000 housing units in the city proper by 2030. The move comes not a moment too soon, as much of the single-family residential inventory within the metro area and in the suburbs is holding steady near all-time high prices. “Median home prices in Boston rose to a new, all-time high of $475,000 in June of this year,” noted Auction.com chief economist Daren Blomquist. “Even though home prices have backed off that high in the last few months, they are still up from a year ago. The data shows a solid housing market in Boston, but one that is not necessarily easy pickings for real estate investors. However, when investors can find those distressed properties, impressive discounts are available.” Strong Home Sales Leave Conventional Strategies Cold For the real estate investor who is new to the Boston residential market and does not have an established source of leads on potential deals, the current climate in The Puritan City is not particularly welcoming. Blomquist noted investors are not presently “highly active” in Boston, where cash-sales volumes are well below national average at 19.8% and cash-buyer discounts are hovering around 8.9% in September (compared to nearly twice that just three years ago). He described flipping activity in the area as “tepid” as well, with home-flipping rates just over 3% in September. “Home flippers may  have been scared off by dwindling profits late last year, likely as a result of slowing home price appreciation,” Blomquist said. “However, flipping profits have started to pick back up again as mortgage rates have fallen, which may be good news for investors.” For investors hoping to acquire single-family residential properties in the Boston area, pickings are likely to remain slim through the end of the year, if not longer, when it comes to distressed properties. “Discounts are still sizable on bank-owned (REO) properties when those properties can be found. REO median prices were 36% lower than the market median in September,” Blomquist said, pointing out foreclosure-auction discounts are presently even greater, at 59%. However, only about 30 properties are being sold per month at those auctions. “The current market makes it tough to follow the tried-and-true investor mantra of buying low and selling high,” he said. Multifamily Represents a Viable Solution With the single-family residential market offering great rewards to the persistent—but presenting a difficult road for many investors—Boston’s multifamily sector is looking increasingly appealing. Boston led the country in year-over-year rent growth of 5.1% at the end of the summer according to the Yardi Matrix Multifamily National Report. The young professionals flocking to the area for high-paying jobs in a variety of attractive industry sectors are creating strong demand for luxury units located in areas of the city where owning a car is not necessary. “A lot of these new residents do not have cars and do not want them,” Blount said. “Fortunately, Boston is a transit-oriented city. Even in the inner suburbs, the communities that have access to reliable train lines are attracting those younger residents who don’t have an interest in owning cars.” Given that the city has the seventh-highest percentage of pedestrian commuters in the country and boasts the nickname “America’s Walking City,” Boston is a perfect fit—at least in terms of lifestyle preferences—for its younger residents. Many of these individuals attended school in the city and remained after graduation as part of the city’s growing millennial workforce. “We probably have the highest number of universities and colleges in the country on a per-square-foot basis,” said Blount. Anecdotal or not, the fact is that Boston is home to nearly three dozen colleges and universities supporting more than 82,000 jobs statewide and contributing nearly $5 billion to the Boston economy. As more

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Transformative Lending

Matt Rodak’s perfect timing creates wealth and opportunities while enhancing communities. Matt Rodak, founder and CEO of Fund That Flip, decided to be a real estate investor before he was old enough to drive. Even as a young teen, the appeal of generating wealth while building up a local community was compelling. “I started a landscaping company in high school and ended up doing a lot of work for real estate investors who were buying houses and fixing them up to flip or keep as rental properties,” Rodak said. “It gave me a very early exposure to the idea that you could take really distressed, unattractive properties in neighborhoods, fix them up to be some of the some of the nicest houses on the block and ultimately create nice homes for  people to live in.” Less than a decade later, Rodak’s company would be at the forefront of supporting the growth of the entire flipping sector. Around the age of 16, Rodak became enamored with the idea that individual property transformations could improve and uplift an entire community. Nearly as quickly, he realized this type of transformation required a special type of vision. “I admired real estate investors’ ability to see something no one else could see in that distressed asset and then turn the asset into something that created value for both themselves and the community,” he said. “I thought to myself, ‘That’s what I want to do when I grow up.’” The young man sold his landscaping business when he graduated from high school and used the proceeds to pay for college, planning to use a degree in finance to get into real estate development. Fortunately for real estate investors today, the housing crash of the mid-2000s derailed those plans. Rodak went into commercial property insurance instead. That first job allowed him to “cut his teeth” on risk assessment, pricing for risk and complex deals. It also ultimately gave him his own vision for the real estate investing industry and led him to found Fund That Flip. The technology, real estate and financial services firm is dedicated to creating new opportunities for investors seeking to deploy their capital in real estate and investors seeking to access capital to fund renovations of their own. Transforming the Lending Experience Rodak first realized there was a need for change in the real estate lending space when he bought his first investment property. “In 2011 and 2012, banks were originating very few, if any, loans on investment properties,” he said. “Credit was pretty tight because of the Great Recession, and if you wanted to borrow money, you had to go to private or hard-money lenders. That process was very long and frustrating, with extensive application paperwork. That meant faxing [paperwork] to the underwriter and long wait times while they evaluated your deal. After days or even weeks, you would hear back in many cases that your application had been rejected because the company did not like the street where your house was located, for example. Often, the deal would collapse simply due to the length of time between application and response. It was incredibly exasperating. After experiencing that frustration firsthand, I felt that there had to be a better way.” Rodak expedited development for the Fund That Flip platform after learning that the 2012 JOBS (Jumpstart Our Business Startups) Act was going to pass into law. “I’m a big believer that you have to be a little bit lucky with your timing when you are starting a business,” he said. “I realized the JOBS Act would be transformative for the industry because it made it possible to lend on real estate deals in a way that would lift all boats, so to speak. Our core mission was and has always been to help clients create wealth and improve communities, with our vehicle being real estate. We just had to have the technology, the platform and the legal framework to do it. By the time the legislation passed, we had those pieces of the puzzle, so we were ready to get busy building Fund That Flip from the ground up.” Opportunity on All Sides Fund That Flip quickly emerged as one of the best portals for investment opportunities in the real estate sector. Officially launched in 2014, by 2019 the company appeared on the Inc. 5000 list of fastest-growing companies in America at No. 42 nationwide, No. 4. in the category “real estate companies” and No. 5 in New York. Thanks to Rodak’s deep empathy for investors on both sides of the real estate-lending equation, his platform was and remains dedicated to expediency, affordability, transparency and diversification. Rodak said that Fund That Flip serves accredited and institutional investors by providing them access  to investing in short-term loans and potential to make 9-10 percent annualized returns. “On the flip side, we serve our active investors who borrow for rehab projects as their reliable source of funding, a partner who is transparent, easy to use and allows them to scale their businesses profitably. On the borrower side, they can buy more properties and restore more communities. On the lender side, they are able to invest in communities around the country without necessarily having to lift a hammer or be physically present in those communities,” Rodak added. Fund That Flip’s investment platform is structured to make the entire process of making capital available as welcoming as possible. Investors considering lending capital can use the platform to review opportunities for their capital all over the country. “There is no such thing as a national real estate market. This is a hyper- localized business,” Rodak said. “From a pure diversification standpoint, it just makes sense to have exposure to multiple markets. For example, investors with capital in Cleveland might also want to invest in Jacksonville rather than overweighting their portfolio with loans only in one market. With our platform, they can easily diversify by geographic region, or any of the other data points. It is a simple

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Tips for Controlling Your Insurance Costs in 2020

Following the trends of 2017 and 2018 (which saw five of the 15 costliest catastrophes in history), 2019 continued to see property and liability rates rise—and more stringent underwriting requirements. Some insurers’ once-strong appetites for risk in the habitational insurance market are waning. Investors with properties in catastrophe-prone areas are likely to continue to feel rate pressure into 2020, particularly those in areas susceptible to windstorms, flooding and fire. So, how do you control your insurance costs without jeopardizing coverage? If you experience increases in your property rates or are just looking for ways to maximize the ROI of your property portfolio, consider some of the following ways to control your insurance costs: Shop Around Shop your rates with multiple carriers. Work with an independent agent that is contracted with several carriers and programs and who understands your unique needs as an investor. This allows your property to be considered by several different carriers that may have a very different approach to the risk in question. Carefully review the differences between the cost options presented to you, as cheaper is not always better. Know what is and is not covered and what you are giving up for a lower rate. Never jeopardize coverage and peace of mind to save a few bucks. Be sure you know what type of loss settlement method you will be subject to in the event of a loss—replacement cost or actual cash value. Replacement cost can mean a 20% to 25% higher rate, but it gives you the opportunity to recover depreciation. Consider your plan for the property in the event of a total loss. If you would choose not to rebuild, you would be overpaying with replacement cost coverage. Just be sure you are adhering to any requirements from your lending institution. Deductibles Consider a higher deductible. Have you ever considered your deductible to be self-insurance? That’s exactly what it is, and the more you self-insure, the lower your insurance rate. Increasing your property deductible from $1,000 to $5,000 could save you as much as 25%. For a good gauge on the deductible you may be comfortable with, consider the minimum claim you would turn in, then double it. Look also at opportunities to increase the deductible on certain perils, such as wind/hail or water damage, especially if you have past claims for these types of losses. Carefully consider what claims you file. A property claim (regardless of size) can increase your premium for as much as five years following a loss. This means you may pay more in increased premiums over time than you would by just paying out-of-pocket for a $500 or $1,000 loss. Mitigate Losses Make your property more resistant to a loss. By properly managing your investment properties, you may be able to avoid preventable losses and demonstrate to your insurer that you are serious about risk management. Many carriers will provide credits on their rates for working hardwired smoke detectors, central station burglar alarms and sprinkler systems. Install carbon monoxide detectors and fire extinguishers. Upgrade old electrical systems, furnace and HVACs. Be sure that you or your property manager regularly visit the property to perform routine inspections and maintenance. Provide your agent with as much ammunition as you can to assist in reducing costs. Renters Insurance Require all tenants to carry renters insurance. Many rental property owners have a clause in their lease requiring the tenant to carry renters insurance. While this is a plus for your tenant, it also helps you save money in the long run. Tenants do negligent things. Having a renters policy in force allows a tenant-caused loss to  be paid for by the insurance company representing the negligent party. This will assist in stabilizing your property rates long-term. Don’t Cut Corners Although property damage represents more controllable or “known” expenses, do not skimp on liability coverage, where potential losses are unknown. Carry as much as you can afford with a minimum of $1,000,000 per occurrence and $2,000,000 aggregate annually. Lower limits save little money and can leave you and your business dangerously exposed in the event of a serious liability suit. If your policy has co-insurance, don’t be tempted to insure your property to a lower value to save on the premium. This can come back to bite you in a loss. Additional Coverages Cyber crimes like social engineering, hacking and wire fraud increasingly target small and midsize businesses. As a landlord, property manager or lender, you are exposed to cyber risk every time you send or receive an email, collect rent online, use an online tenant screening tool or engage in nearly any cyber activity. Cyber insurance can provide coverage for the cost to respond and recover from a data breach, including business interruption. Following the 9/11 attacks, insurers increasingly began excluding acts  of terrorism from a standard commercial insurance policy. Many are  now offering this coverage as a standalone policy, primarily for property damage and business interruption. If you own many properties in a concentrated geographic area, terrorism coverage may be a consideration  for you. Depending on the location of your rental properties, consider additional endorsements for excluded natural disasters. Flooding is the No. 1 natural disaster risk in the United States—and the risk is increasing. Earthquakes and sinkholes are also excluded perils you may consider getting a separate policy for, though that coverage is not always available in all states. Now is the time to work with your agent and take all necessary measures you can to control your insurance costs. Do not wait until your renewal is a few days out, and you are blindsided with a large increase in premium and no time to shop.

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Am I Covered or Not?

Make sure you understand what you’re buying and what it covers. If I pay an insurance premium, does that mean I’ll get paid if something goes wrong? That question is difficult for the average insurance agent as well as the typical insurance consumer  to answer. Understanding some insurance basics—such as covered loss, exclusions, underwriting and the difference between a bond and insurance—will help with the answer. Bond Versus Insurance Most consumers do not understand the difference between buying a bond and paying an insurance premium. The textbook definition of insurance is transferring the risk from the consumer to the insurance company, also known as the carrier. In the case of true insurance, the consumer is out only the premium and possibly a deductible. The carrier will pay the limit of the loss if the loss was a named peril in the policy. The easiest way to explain this is to use life insurance as an example. If you paid the premium and the policy is in force when you die, your beneficiary gets paid. Yes, in the case of life insurance, the named peril, pure and simple, is death!  Personal (your auto and home) and commercial (business, builder’s risk, E&O) coverage works the same way: You pay a premium and the carrier pays for covered losses if the loss was caused by a named peril. A named peril could be collision, fire, theft, flood, etc. Bonds do not work in the same way. Bonds are not a transfer of risk. After the purchaser buys a bond by paying the bond premium, the purchaser could be out way more than the premium that was paid. Bonds guarantee a payment of an obligation of the purchaser. However, the bonding company will seek reimbursement. To illustrate this concept, consider a bail bondsman. Let’s say you party too much and get arrested. The judge sets your bail at a million dollars. You have $1 million in home equity, so a bail bondsman pays about 10% of the $1 million to guarantee that you will show up for trial. When you skip out on your court date, the bail bondsman takes your equity. That is a pretty steep price to pay. In the real estate world, performance bonds might be used to guarantee work. By now, you can imagine that someone will go after that contractor’s other assets  to get paid back if the performance is below the contracted requirements. Covered Loss Before going any further, let’s be clear: insurance is never used for speculation. Losses in the insurance world are measurable and accidental in nature. If there is a 100% certainty that something bad will happen, it is uninsurable. So, what does insurance cover? Named perils, like theft, fire, flood, etc. A covered loss is simply a loss covered by a named peril. Both commercial and personal policies state named perils. There is not one policy covering all known perils like fire, theft, flood and wind. Typically, a homeowner’s policy covers fire and storm damage; however, those policies exclude wind, flood damage and earth movement, also known as earthquake coverage. If you live in California, consider buying a separate flood and earthquake policy if you have lots of equity in your property. Likewise, if you own mortgaged property in Florida you must have a wind policy for the next hurricane and possibly a flood policy. Here’s why. Remember Hurricane Sandy? Coney Island was hit hard. Some people bought wind policies. When their roof tops were blown off, that loss was covered in the wind policy. What the residents did not expect was the storm surge that washed over the top of their walls and swept away their home and belongings. Only a flood policy covers mud slides and any water movement above the ground surface. Exclusions and Underwriting Combining exclusions and underwriting is easy. Lenders underwrite loans. Insurance agents and brokers underwrite risks. To properly underwrite insurance, the agent/broker should require you to disclose any material information about your business. Often an insurance company will deny a claim because the applicant or agent never disclosed the information to the company. If the applicant overdiscloses everything about the property/business, that is not necessarily a bad thing. The underwriting file  will be provided to the carrier. Here are the  possible outcomes: An issue disclosed to the insurance carrier is listed as an exclusion and not covered. The issue is covered by an endorsement/rider (a modification to the base policy) and possibly subject to additional premium. The carrier assumes the risk based on everything in the underwriting file. Basically, knowledge and information are power. Insurance is an actuarial science and has never been “rocket science.” The truth is in the numbers. Consumers, agents/brokers and carriers should all follow the rules of proper disclosure. The best advice: Buy the best insurance you can afford and hope to never use it!

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