… or Townhomes, or Patio Homes with a Master Insurance Policy

There are many great opportunities for investors when it comes to rental condominiums, but some investors don’t realize that condos can be a complicated minefield if you don’t understand what you’re doing. In this article, I am going to limit my discussion exclusively to the special insurance issues that sometimes arise with condominiums.

There are organizations across the country that mentor and advise residential property investors. One large group out of Texas provides coaching for new investors. The first piece of advice they give is, “Never invest in rental condominiums.” This is not a suggestion or a guideline – NO! In order to participate in this group, you must agree not to invest in any rental condominiums. Perhaps this is a bit extreme, but it illustrates that rental condos are sometimes very complicated and involved. By eliminating this category, this group can focus on and limit their coaching to the basic single-family residential house. Here are just a few of the issues:

Water Leaks – Did you know that when water leaks into your condo from another unit, in over 90% of all cases, you must file a claim on your own insurance or pay for all repairs yourself? This includes water coming into your unit through the ceiling from a unit above, or under the wall from an adjacent unit. You might think that the owner of that other unit where the water originated must take care of your problem, but that is not correct. From thousands of cases that went to court, we know that the other owner is not responsible unless he/she did something that was “legally negligent” to cause the problem. A cracked toilet tank, a broken washing machine hose, a leaking icemaker line, or a leaking shower pan or bathtub drain are all examples of problems where the owner is not negligent and therefore not responsible for your repair costs.

Construction Defects – In a large, multistory condominium complex in Westbrook Village, most of the units had a balcony area. The builder included a slight tilt or slope on each balcony to control rainwater. The only problem was the balcony floor sloped toward the condo unit, not away from it. When it rained, the rainwater came into the unit instead of pouring off the outside edge of the balcony. It is important to know that design flaws and construction errors are not covered by either the owner’s individual insurance policy or the condominium association’s master policy. In this case, the association brought legal action against the builder and repairs were eventually made at no cost to the condo owners. Note that this process took several years to complete.

Frozen Pipes – YES! Frozen pipes are a problem in the Phoenix Metro Area about every 2 or 3 years. In an actual case on McCormick Ranch (Scottsdale), there was a sudden cold snap and pipes inside the ceiling of the top floor of a condo complex froze. As the pipes thawed, water poured into the originating unit, as well as adjacent units and multiple units downstairs. The unit owner was a “winter visitor” and not in town at the time. Just turning the water off was a challenge. Important: All insurance companies require that “the heat must be turned on” in order for a frozen pipe claim to be covered by insurance. In this actual case, the insurance company, State Farm, decided that if just one unit in the building had the heat on, they would cover the entire claim. Caution: not every insurance company would be that generous.

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by CLARK SANCHEZ, an Arizona insurance agent for over 41 years. Also a Vendor-Affiliate with AZREIA for over 19 years. Clark will answer all of your insurance questions at rental@clarksanchez.com or (602) 803-2179