The Idea Session

“What’s Hot, What’s not,” that’s the title that was given to a group participation session at the Dallas meeting devoted to new trends, new ideas, and problem areas. This was an opportunity for the group to interact and exchange information on their perception of market changes. This article gives a brief overview of some of the ideas discussed during the session.

Insurance Costs:

One of the concerns expressed during the session was the issue of rapidly escalating insurance costs on rental property. For example, a Texas apartment project with less than 100 units had an annual premium jump from $6,000 to $22,000. At the same time, the owner’s deductible went from $1,000 to $100,000. The group agreed that this was not an isolated case.

Possible reasons for the dramatic increases suggested by the group were: September 11th related claims; decline in value of stocks owned by insurance companies, and unusually high floods damage claims. In addition, an emerging problem for insurance companies is a rash of outlandish jury awards against property owners for claims of health problems related to the building containing MOLD. One attendee stated that some attorneys have a new credo for making money suing property owners with claims for mold related health issues. The attorneys’ new credo is “Mold is gold!”

Suggested solutions to the rising costs of insurance included having property owners become risk managers. Hire safety consultant to assess risks associated with a given property. Create a detailed plan to mitigate risks. Offer the resulting professional reports and efforts to mitigate risks to insurance company to solicit lower premiums. Often the cost of the consultants can be recovered by the first year’s reduction in premiums.

With this higher cost in mind, we will all be evaluating rental income property in a new light. We will need to be using new cost figures for insurance expense. That means that, at a “ten cap,” the $15,500 jump in premium in the above example could reduce the value of that property by $155,000. That does not even take into account the impact of the incredible increase in exposure the owner has with the $99,000 increase in his deductible.

Flight to Safety:

Another trend observed by the group was increasing emphasis on personal safety. For example, there has been a sharp growth in gated residential communities. Older neighborhoods are finding ways to convert to gated communities.

Smart developers and property owners are taking advantage by catering to this demand. Apartment owners are installing separate security systems in each apartment unit. Office building owners are offering separate security systems for each office. There are security companies offering to install these systems for as low as $25 per unit plus a monthly service fee. The service fee is billed to the tenant as an additional utility bill.

Some apartment owners are offering deeply discounted rents to police officers who are able to park their police cruiser in the apartment parking lot at night. The parked police car has proven to be a deterrent to thieves.

Getting Rid of the Bad Guys:

The security discussion led to ideas for eliminating the drug dealers in our rental properties. One idea advanced was installing inexpensive video cameras to view various locations in the complex. The cameras display the activities on a monitor in the rental office. The bad guys soon know that the signs on the building touting “24-hour Video Surveillance” are for real. The entire 24-hour day is recorded on videotape. One tape for each day. With the full cooperation of the local police, the bad guys are prosecuted using the tape as evidence. It has worked in the toughest parts of Los Angeles. Of course, the bad guys just move to another complex that does not have video surveillance, but at least they have moved out of your complex!

Comments are closed.