Here’s what you need to know.
If you are a real estate investor, you may be unwilling or unable to make the down payment required by the banks. For this reason, you would rather deal with alternative private creditors who, in exchange for a lower down payment, charge you a higher interest rate. Did you know that this way of financing your investments can have a significant impact on your insurance?
Assurance Multi-Risques has some advice to help you avoid unpleasant surprises.
How 2nd chance creditors can impact your insurance
Your insurer considers the private or alternative creditors you have chosen to deal with to be 2nd chance creditors. In the real estate market, this doesn’t necessarily mean that you have bad credit.
However, if you choose this strategy, we strongly recommend that you notify your insurer immediately. If your insurer doesn’t ask you the name of your creditor and the interest rate for your building’s mortgage, remind them! You will then see if the insurance company agrees to cover you or if you will have to find a new insurer for your income property.
You should know that there is a good chance that your insurer will refuse your application for insurance if you choose this type of financing with a 2nd chance creditor and that you will have to look for a new insurance company. It isn’t always easy to find an insurer that accepts this type of application, even if it has nothing to do with a bad credit rating.
Tips for insuring your income property with a private creditor
- Don’t wait until the last minute. Good planning when looking for an insurance company will definitely save you money.
- If you, as an investor, are looking at older income properties for renovation, make sure you have the renovation dates and accurate information about the property. If you choose to refinance your building with a regular creditor rather than a 2nd chance creditor, it will make the transaction much easier!
- Don’t merely entrust your insurer with coverage for your income property financed by 2nd chance. Show your good faith by entrusting them with your car and other property insurance. This will give them confidence and should make your task easier.
- Don’t misrepresent your situation
- Accept that the insurance premium will be higher than the premium for a building with a regular creditor. This is the principle of supply and demand.
- Renovate your income property. This will benefit you in the short, medium and long term and will help you avoid making claims. Good claims management will reduce your premium over time and help you avoid many problems with your tenants. You will also avoid issues of non-renewal of your building’s insurance due to frequent claims.
An independent insurance broker can help you in even the most complicated situations. Avoid unpleasant surprises and unnecessary wait times on the phone. A broker can search for an insurer on your behalf and save you time and money. Think about it!