Last updated on March 16th, 2019 at 10:58 pm

Last Updated on March 16, 2019 by

Most of my discussions in person or on line deal with making money and much of that through investing in Residential Rental Property.

While making money is very important and actually essential to this discussion, it’s ultimately what you put into the bank that counts. If you are making large sums at renting property for example or in any other business venture, assessing risk is part of the planning process.

Risk Mitigation

Risk mitigation is not always a focus of a new business or existing business enterprise. Years ago, while businesses could be sued for something that happened at the workplace or on the front sidewalk. With the advent of the internet, many interest groups and attorneys trolling for business are encouraging people to sue for everything.

You can be sued by anyone at anytime for any reason, the law simply does not prevent the filing of a suit. While many are just harassment, it will cost you just to rid yourself of a harassment law suit. Winning in court is expensive. Most suits are handled out of court. The plaintiff is just paid to go away. This has happened in my business live as well. I was confronted twice with frivolous suits against my company. The company attorney put it to me like this: It will cost $X to go to court and you will win. Or it will cost you $x to pay them off. In most cases the amount is the same.

The difference between being right and going to court is your time which has value. While your attorney believes you can win and you probably can, you never know. So you pay.

Your insurance should cover most risks

But wait, why should you pay? Should your insurance pay? Oh! insurance. That is right, you should be covered for these types of things. That is part of assessing risk and taking steps to mitigate. You need a business insurance policy usually called an umbrella policy that covers liability for all types of things.

Your insurance agent can recommend the types of coverage you need based upon your business. If you are exposed to the public e.g. a restaurant, you need insurance in the event someone falls or sues for food poisoning. If you are an internet business, your risks are different but not always less than a brick and mortar business.

Specifically for residential rental property, you need at the start a landlords policy on your property. These types of policies not only protect against risk e.g. fire but they can also provide loss of income in the event that the property is damaged and you can not rent it.

If you have multiple properties you can obtain an unbrella policy that can manage risk over all properties. In this case the umbrella covers things common to all e.g. slip and fall etc. The insurance policy for each building would defer to the umbrella for liability issues. This approach will reduce your cost for insurance.

Buying the right insurance policy

Buying the right insurance policy is a start to mitigating risk. You need to be sure that your properties have smoke and if there is gas, carbon monoxide detectors. If you are renting two story units, explain to the tenant that they can buy ladders for escape. The ladders come in a package that can be slipped under the bed.

Be sure that your property is in good repair particularly those parts that can affect the general public e.g. sidewalk. Take a good look at the exterior of your property and be sure there are no trip and fall hazards. Encourage tenants at the start to be watchful and be aware of personal security.

Many people believe that they are not responsible for anything

Unfortunately with the culture changing, many people believe that they are not responsible for their own behavior and they will blame any accident on the landlord or other party with deep pockets. Encourage or require your tenants to obtain renters insurance. Tell them that their own property is not insured for a break in, flood etc. Your insurance covers the building only.

Ask your property manager to meet the neighbors and as them to report any problems with the tenant. The last thing you need is a suit from a neighbor who claims that your tenant is breaching the peace. For those properties that I have actually been to, I do this myself.

Finally, do not risk losing your property either. Pay your mortgage on time every month. Set up an automatic deduction from your checking account. You can not afford to lose this income.