Protecting Your Investment
Higher rental yields, longer leases and tax benefits are some of the many reasons commercial properties can make for appealing investments. But, as with any asset, there are risks.
Many investors are taking a closer look at commercial property investments as the residential property market changes across the country. If you’ve taken the leap or you’re thinking about jumping into the commercial property market, here’s a quick guide to some insurance and risk management considerations.
1. Identify property risks
All commercial properties carry inherent fire, safety, theft and public liability risks, but your risk exposure may be higher if you purchase an older, unrenovated building.
An experienced insurance broker can help you identify risks on your property, as well as affordable risk mitigation solutions. To get a good insurance premium rate – let alone acceptance – you need quality control and detection systems within the property for example a sprinkler system would be good, rather than having to wait for the fire brigade to turn up in the event of a fire.
2. Choose the right tenant
The tenants you choose also have a big impact on the risk to your investment. If you have a tenant who has various flammable products inside the business, they will present a much higher risk to an insurance company than a business who is storing non-flammable items e.g. bricks.
3. Protect against damage or total loss
Loss or damage to your building could cripple you financially if you’re underinsured compared to current standards.
For example, say a fire breaks out and razes your 20-year-old building to the ground. The local council may say when you rebuild it that you have to put in water tanks, you need specific toilets, and you need so many car parking spaces. If you’ve only insured it for its $2 million value, but it might cost $3 million to rebuild, you’ve lost your asset, you’ve lost your yields, and you’re short $1 million. All of a sudden you’re a lot worse off.
4. Protect your revenue
If the building has a mortgage on it, who pays the mortgage if the building burns to the ground or is damaged and out of action for an extended period of time? Even if it hasn’t got a mortgage and you’re using it for income, how long can you survive without that income?
How long you should insure that income will depend on how long it would take to both rebuild the building and obtain a new tenant. You might rebuild it in 12 months, however it might take another six months to get a tenant.
5. Understand your liability exposure
When it comes to public liability on the premises, both you and your tenant have responsibilities – so it’s important to know what yours are and maintain the premises accordingly.
As the property owner, you can be liable for any bodily injury or property damage that arises from the ownership of the property which may include a slip and fall or a balcony giving way. The tenant on the other hand would likely be held responsible for a slip and fall that involved something being left on the floor, such as a stock item.
6. Talk to an expert
While owning a commercial property definitely has its perks, your investment can be fraught with risk if you adopt a ‘she’ll be right’ attitude. That’s why it’s important to seek the assistance of an experienced insurance broker.
Important note – the information provided here is general advice only and has been prepared without taking in account your objectives, financial situation or needs. Steadfast Group Ltd (ABN 98 073 659 677, AFSL 254928). Original Article:https://www.steadfast.com.au/well-covered/business-edge/2018/08/commercial-property-investment—starters-guide