Risk Exposures for Property Managers and Investors

Property managers face a variety of risks as their property portfolio increases.  With any business exposure, there are strategies to avoid potential lawsuits.  I would consider the following three strategies for property managers:

• Risk Selection: What type of properties would you like to manage?   Are you interested in HOA’s (condo associations) or just residential single-family homes?   Is your expertise more in Commercial buildings and business owners?   
• Risk Management: Is your property management company proactive with regular risk inspections to prevent substantial physical damage.  Are they allowing pets that can cause damage to the property?  
• Risk Transfer: This is a highly recommended strategy as it involves transferring the liability to a third party such as an insurance company.   This can be for business policies, residential property policies or even vendor/contractor’s policies. 

We will discuss how you could protect your property management business with a Risk Transfer strategy.  My personal experience has found that property managers can be underinsured or carry no insurance.  

I have personally noticed, a significant lack of insurance understanding in this industry, particularly regarding the following exposures:  

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

Buying and selling your own real estate for yourself or for other parties involved:

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

• Business Owner policy with general liability. It should also protect your business's personal property.  The GL policy for the Real Estate business can cover bodily injury claims made against you or property damage to a home/property.  Cyber liability is also recommended to protect your customers’ personal information.
• Errors and Omissions or Professional Liability. It covers legal fees for lawsuits related to unintentional mistakes made by your showing of property or omittance in a contract.
• 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 for yourself or for other parties involved: 

Generally, being your own property manager is a good financial decision, but it also brings along additional responsibilities and liabilities.  Below you fill find some of the potential risks when managing your own rental properties:

• Advertising your property
• Determining rental rates
• Preparing the lease
• Tenant screening
• Collecting rent
• Maintenance
• Ongoing repairs
• Discrimination claims against you
• 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 as well as, when you manage other properties for others.   

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

Whether you self-manage 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 understand that adding the property management company as an Additional Insured is in their client’s best interest.   Some carriers have a fee to add an additional insured to your property.   Most of the time, I am able to waive the fee and it’s part of the high-end service that I can offer my investors. 

 If you would like to discuss more of these topics, feel free to contact me.  I work with both residential and commercial investors throughout Colorado, Wyoming and Arizona.