There has been a surge of video content on how to invest or “get rich quick.” One timeless way to generate additional revenue is to invest in real estate. If you are able to afford a property and rent it out, you can substantially increase your passive income and overall wealth. Like any investment, there will always be risk. Risk of construction problems, real estate collapse, property tax increases, bad tenants, etc. However, real estate has been a staple in how to grow your portfolio and diversify your revenue stream for many years. 

If you choose to purchase a rental property, there are certain risks that come with ownership and additional risks resulting directly from renting it out. We will address those concerns and what you can do to properly protect your asset.

You’ve got financing approved for your home and you’re looking for insurance, what should I be looking for?

Through Mello, you can buy your rental property insurance instantly through our online platform. Some underwriting information you will need to purchase include: 

• Personal Information – Name, Date of Birth, Mailing Address, etc.
• Location – What is your legal/civic location of your new dwelling.
• Home details – Year built, square footage, type of heating and any updates done to the dwelling.
• Mortgage details – we will need your mortgage company name and address to provide them confirmation of insurance required to close your financing.
• Risk Information – Number of tenants/suites, years of insurance experience, any claims? Will the dwelling be occupied on the effective date?
• Billing information – the bank account or credit card do you want to charge the policy to.

What if it is not a home but a condo? Is that different?

Yes, there are different coverages required when you purchase a condo. We would recommend you purchasing our “Rented Condo” policy. In most condo bylaws, you are typically only responsible for the interior of the condo, and the condo association is responsible for the building, there are gaps in coverage where the responsibility overlaps. To avoid these gaps in coverage, your rented condo policy would include things like: 

• Loss Assessment Coverage – when condominium unit owners must pay for part of damage or other loss to the condo building’s shared property
• Contingent Coverage – this coverage is applicable if your condo association has not insured the building or failed to insure the building adequately.
• Deductible Buydown Coverage – if the condo association needs to put in a claim on the building for a substantial loss, they may assess the policy deductible amongst the condo unit owners. You would only need to pay your unit policy deductible to pay for the larger condo association deductible.
• Third Party Liability – if you are found negligent, you can be held liable for damages. This liability would help protect you from financial hardship in the event you are sued for damages. Up to the limit on your policy.
• Betterments and Improvements – the condo association (depending on your bylaws) may only be responsible to insure the building for the replacement value of the original construction. If you (or past owners) have made any significant upgrades to your unit, you may not be covered for those upgrades. Ie. Hardwood floors, granite countertops, jacuzzi tub, etc. Your condo unit policy will ensure those are covered in the event that an insurable loss occurs to the building.

Are there any other coverages I should be aware of with my rental property? 

• Rental Income Coverage – You are likely relying on the revenue from renting out the property to help pay for your mortgage payments. If the unit is uninhabitable due to an insurable loss, (ie. Fire, Flood, Sewer Backup, etc.) there may be months where you are unable to receive income from the unit as the tenant has moved out or gone somewhere else until the unit is liveable again. This coverage will help pay you lost rental income while the unit is vacant for the duration of the claim.
• Tenant Vandalism Coverage – Not many insurance companies provide this coverage, in fact they rely on you collecting a damage deposit to cover those losses yourself.
  What if those losses are too significant? At Mello, we offer Tenant Vandalism coverage. This coverage comes with a higher deductible as you will be able to protect yourself for those small losses with your damage deposit. However, for the large losses, you can purchase additional coverage with Mello to help protect you from those tenants gone rogue!
• Tenant Insurance Recommendation – Be sure to recommend your tenant to provide you with renters insurance prior to moving in. At Mello, we can provide your tenant with insurance in less than 3 minutes. This proof will give you peace of mind knowing that your tenant is reliable, protected and will have coverage if he does something negligent while residing in your property.

The property I bought has multiple units, is that something that is insurable? 

Units with more than 2 suites may require further underwriting approval or you may need to go to a more specialized insurance broker who can offer Commercial Insurance on the property. Ie: Apartment Complexes, Commercial Leases, Row Houses with more than 2 suites, etc.

Buying a property can have significant financial benefits; but they also come with financial risk. Make sure you understand those risks and protect yourself from those potential losses.