Whether you’re buying a home for your family for the first time or you’re adding a 10th property to your rental real estate portfolio, you’ll need to calculate all your expenses and potential income carefully to determine the upside of this financial move. Real estate is almost always a good investment, but you can make the investment much better by thoroughly pursuing due diligence and exercising more control over the financial variables in front of you.
If you take out a mortgage, most of your monthly payments will come from paying the principal and interest of the loan. You’ll also be responsible for property taxes, which is a variable you have almost no control over.
Another variable in this equation you’ll need to consider is the cost of home insurance. You might be purchasing home insurance to protect all your personal possessions, to protect the value of your property in case it’s ever damaged or destroyed, or simply to comply with the bank’s rules and regulations.
Whatever the case, there are some strategies you can use to save money on home insurance without sacrificing your level of protection.
The Best Home Insurance Tips
These tips are some of the most effective for reducing what you pay in home insurance.
- Shop around. First, make sure you shop around. Too often, prospective homebuyers choose the first insurance company they come across, in a desperate effort to save time and streamline the decision. But different insurance companies have very different methods of underwriting and premium calculation, so you can sometimes save a ton of money simply by switching providers. If you already have a home insurance policy in place, take the time to get comparable quotes from different providers; you might be surprised at how much you’re overpaying. A small discount of even a few dollars each month can eventually add up to massive savings.
- Read and understand your policy. Next, take the time to read and fully understand your insurance policy. Don’t assume that you know what your policy does and doesn’t cover; in some cases, your home insurance policy won’t cover the damage or destruction of your home due to specific types of natural disasters. If you notice any shortfalls in your policy, contact your insurance company or insurance agent to add a rider or expand your coverage. If there’s anything you don’t understand, ask questions and get to know the policy better.
- Bundle your policies. In many cases, you can save money by bundling your policies together. If you need a home insurance policy, you probably also need a car insurance policy and other types of insurance. Most insurance companies will extend you a discount if you purchase multiple different types of policies with them at the same time.
- Ask about potential discounts. Many insurance companies offer discounts to certain types of customers, based on their history, finances, and other qualifications. You might be able to get a reduction on your home insurance by taking simple steps like installing a security system. If there aren’t any discounts available, your insurance agent may recommend making tweaks to your existing policy so that you can save money on premiums.
- Raise your deductible (with caution). In the insurance world, a deductible is the amount of money you’re responsible for if you have to make a claim. For example, if you have a deductible of $5,000, and your house suffers $25,000 of damage, you’ll need to pay $5,000, while the insurance company will pay the remaining $20,000. If you raise your deductible, you’ll have much lower monthly premiums. Just make sure you do this with caution, and that you’re prepared to pay the full deductible if your house diver suffers significant damage.
- Protect your property however you can. Don’t rely exclusively on insurance to protect your home. Make specific upgrades that protect your property from theft, damage, and other forms of destruction. That could include installing a security system, protecting it against specific natural disasters, or keeping your most valuable possessions in a safe place.
- Increase your credit score. Did you know that you could qualify for lower monthly premiums on your home insurance if you have a higher credit score? Even if this isn’t in the cards for you, it pays to keep your credit score as high as possible as a real estate investor.
- Don’t make small claims. Your home insurance policy exists to protect you, but you should exercise caution when making a claim. Each claim you make is going to increase your risk profile, which in turn, will increase your rates. You’re usually better off paying for small things out of pocket and reserving claims for only the most catastrophic disasters.
- Avoid upgrades that increase risk. When making upgrades or additions to your home, avoid updates that could increase risk at your property. For example, installing a swimming pool could increase your liability risk, thereby increasing your home insurance rates.
- Make adjustments when necessary. The home insurance policy you need today may not be the same one you need 10 years from now. Accordingly, it’s important to periodically review your home insurance policy and make adjustments when necessary. That could mean getting more coverage, reducing your coverage, or changing certain variables like your deductible. Talk to your insurance agent for more information.
Additional Tips to Protect Your Real Estate Assets
There are some additional tips that can help you protect your real estate assets without spending an exorbitant amount of money in the process:
- Diversify your portfolio. If possible, diversify your real estate portfolio. If you have many different properties and you’re actively managing all of them, a single incident at a single property is never going to bankrupt you – even if you don’t have a strong insurance policy in place.
- Hire a property manager. A property management company can take care of managing your property on your behalf, mitigating some liability issues. They can also make sure your property remains in good condition – and that tenants pay for any damage they cause.
- Create contracts carefully. When creating and signing contracts for new tenants, pay attention to the verbiage. Make sure your tenants are responsible for any damage they cause.
If you need help establishing a new rental property, or if you’re in the market for a new house in Katy, Texas, Green Residential can help. We have all the real estate agents and property managers you need to make the right decisions and get up and running. Contact us for a free consultation today!