Risk #2: 

A Loophole in Your Insurance Coverage Will Cause You to Lose Everything

This is many real estate investors’ worst nightmare. Somehow, the spe­cific event that damages or destroys a building is somehow not covered by a policy. To protect yourself:

• Make appointments with several real estate agents. Have them review your policies and tell you where you are not covered. Of course, they will try to sell you all kinds of new coverage and new policies, but that might be a good thing. In their efforts to sell something to you, they might uncover areas where your coverage is weak.

• Make a list of worst-case scenarios. If a tornado struck, would you be covered not only for the loss of the building, but for loss of life, too? If a flood destroyed your tenants’ cars in the underground garage beneath your building, can you be sued for their replacement value? Do some doomsday thinking and try to consider any eventuality. You just might discover a loophole that is exposing you to an unanticipated risk.

 

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