Insurance and Commercial Real Estate

One of the least considered, but perhaps mostproperty owners to carry a sufficient amount of
important aspects of successful real estateliability insurance to protect themselves and their
investment is insurance against losses. Evenpersonal assets. It may also help to have your
though the market for residential real estate hasinsurance professional "walk" the property with
begun to cool, commercial real estate investmentyou to point out potential hazards before they
opportunities abound. Commercial properties havebecome law suits.
additional risks that need to be mitigated and inHazard insurance provides protection in the event
today's litigious society, it is important forof damage from fire, accidents, theft, and
investors to take the steps necessary to protectvandalism. Depending upon where you live, you
themselves and their investments.might want to look into adding protection from
As the housing market begins to cool off, thestorms and natural disasters. All owners of real
investment risk of real estate has increasedestate should have this insurance and again, if a
somewhat. Residential and commercial real estateloan is involved, the lender will require you to
investors can no longer rely on a continuallypurchase it and name them as an additional
increasing market to bail them out of mediocre orinsured.
bad purchases. The only real insurance you haveEnvironmental insurance is a new form of risk
here is to study investment analysis further andmanagement that is gaining in popularity with
to really check your market before committinglenders. Instead of performing Phase 1 and Phase
funds to a transaction.2 environmental studies, more lenders are opting
There are other risks in commercial real estatefor insurance against this type of loss. Because
that you can mitigate through third partylender liability is limited in current law, the focus is
insurance policies. The most common form is titleon paying the outstanding loan balance or the cost
insurance. Most real estate professionalsof clean up, whichever is less. A word of caution
recommend that buyers obtain title insurance onhere: Make the lender get the insurance (you'll still
any property they purchase and if a loan ishave to pay for it) … it's not your job to
involved, the lender will make it a condition ofunderstand the intricacies of environmental
obtaining the loan. The purpose of title insurance ispollution and its risks.
to protect the buyer in the event that problemsIn addition to these basic forms of real estate
are found with the title after the close. Eveninsurance there are other types of coverage that
though all sales of real estate include a titleyou may wish to consider. For instance, those
search, it is a good idea for the buyer toproperties located in or near flood zones may
purchase separate title insurance as an extrawish to purchase flood insurance, while those in
measure of protection against mistakes in theearthquake prone regions may want to consider
search. This extra insurance will help protect thethe purchase of additional earthquake insurance.
buyer in the event of any undiscovered liens,And in the wake of 9/11, there is even the
disputes over property lines, or other mattersopportunity to purchase terrorism insurance!
affecting title.In the final analysis, each real estate investor has
Another common, but important form ofto look at his or her own level of risk tolerance
insurance for investment property is liabilityand what might actually affect the real estate
insurance. This provides the investor protectioninvestment. From there, with the help of an
from liability in the event an individual is injuredexperienced commercial hazard insurance broker,
while on the property. It is all too common foryou can then purchase the right mix of insurance
individual property owners to be sued forneeded to adequately address and mitigate those
seemingly frivolous reasons, so it is vital for allrisks.