By BreAnn Stephenson
At ALPS we see multiple property claim submissions each day. Some of the losses described within those submissions aren’t avoidable, like hail damage. However, many losses we see are preventable, and to our dismay, those types of losses, if with a few subtle variations, happen over and over again. So, is there any silver lining?
Yes! Because of the data we’ve collected, we can anticipate the types of property losses you might experience this year and hopefully help you avoid them altogether! Let’s explore six of the most common property losses we see and what you can do to avoid them in 2018. (And hopefully, every year after that!)
Note: This is the first part of a two-part article series. Below, we address the first three common preventable property losses we see. We look forward to sharing the other three preventable common property losses with you in the next article!
Common Loss #1 – Fire
Not only are fire losses in the top six of most common losses we see, but they are also the most damaging. Both the United States Fire Administration (USFA) and the Insurance Information Institute (III) report the average house fire causes approximately $40,000 damage. The losses we’ve seen in ALPS would support this average, but also bear in mind that many times a fire results in a total loss. The average replacement cost for an investment property is typically around $80,000, but properties in certain parts of the country could range from $150,000 to one million.
If a fire can be contained to the area of origin, you are very lucky indeed. However, in addition to the materials fires burn, the resulting smoke and soot can also damage your property or its contents, leaving odors that may not be possible to remediate without complete replacement of the damaged item. Think of soot-damaged sheetrock or the odor of smoke in textiles, for example.
In the News
Some of 2017’s top news stories had to do with apartment complex fires that ended very tragically with multiple losses of life.
Take, for example, a fire that occurred just after Christmas when a small child was playing with the burners on the kitchen stove. Tragically, at least 12 people died when the fire spread to other units.
Earlier in the year in Oakland, California, 36 residents of the “Ghost Ship” lost their lives during what was supposed to be an evening of fun – a dance party on the 2nd floor. Because of the excessive amounts of kindling formed by the walls, made of various pieces of wood and other art cobbled together along with a faulty electrical system that included a series of power strips and extension cords strung together, the warehouse was an environment destined for a fire. If building codes would have been adhered to, a tragedy like this may have never happened. (Read more HERE.)
Types of Preventable Fires We See Often
The type of preventable fires we tend to see most often are cooking fires. Statistics from the National Fire Protection Association agree that cooking is the leading cause of home fires. Many times, cooking fires start either from a grease fire that gets out of control or from unattended cooking. Someone can be easily distracted by the T.V. or when folding laundry in the other room, for example.
Another common type of preventable fire we see at investment properties are heating fires. These can result from someone using a space heater improperly or a person taking shelter in a vacant property starting a fire to keep warm.
How to Stay Fire-Free in 2018
- Test Smoke Alarms Monthly to be sure they are working.
- Keep Fire Extinguishers in the Home and make sure your tenants know how to properly use them.
- Install Fire Suppression Products like StoveTop FireStop that can help extinguish cooking fires and prevent a larger fire from occurring.
- Layer your security to make sure “uninvited guests” can’t enter the home.
- Make the property look as lived in as possible until it is sold or occupied; abandoned homes invite mischief and theft.
- Recruit the neighbors to be on the lookout for any unfamiliar faces in the neighborhood and call the police if necessary.
Common Loss #2 – Water
As the saying goes, “if I had a dollar for every time… I might be very rich.” Water losses, most often caused by burst pipes during winter freezes, are also one of the top six most common preventable losses we see. If the leak is discovered quickly, damage can be minimized, but if the water runs for several days before discovery, these losses can be just as severe and costly as a fire loss. Data we’ve collected over five years shows that the average water loss for an investment property ranges from around six to $16,000 in damages. The clean-up is messy and it can take a significant amount of time to restore a property back to an inhabitable or sell-able condition.
In the News
Just at the start of the year, we are already seeing reports of large water losses pop up in the news. One such loss just four days into the new year involved the house where Bill Murray’s 1993 classic “Groundhog Day” was filmed. The current owner, operating the house as a bed and breakfast, is now looking at water damage of $10,000 or more.
Thawing out pipes can also lead to a fire if you’re not careful. One such fire happened just in the first few days of the year in a Hutchinson, KS home. Thankfully everyone made it out of the house safely and the home did have working smoke detectors, but this family will now be looking for an alternative place to live while they look ahead to a lengthy repair process. One quick tip: DO NOT use a blow torch to thaw out a frozen pipe!
A renter in Bend, Oregon is now facing a $120,000 lawsuit for failing to keep the heat maintained in his rental. After a cold snap last January, the pipes froze, causing more than $100,000 worth of damage.
Types of Preventable Water Losses We See Often
Without question, the most common type of water loss we see are those resulting from a burst pipe. These losses tend to occur during extreme cold snaps, but especially when an owner, property manager or tenant fails to take preventive measures to protect this type of loss from occurring. Many losses we see in vacant properties occur when the heat is either set too low, turned off or is disrupted when the electricity goes out during a storm. Other water losses have occurred when the occupant has left the residence for an extended period of time and an extreme weather event happens while they are away. In recent years, Arctic vertices have pushed freezing temps further south, damaging properties simply not equipped to handle that type of cold.
How to Prevent a Burst Pipe in 2018
- Insulate pipes on exterior walls, crawl spaces and the attic. (Remember, insulation does not create heat.)
- Open cabinet doors to allow heat to circulate to un-insulated pipes under sinks and appliances.
- Let warm water drip overnight, especially for faucets on outside walls.
- Set the thermostat to no lower than 55 degrees Fahrenheit – may need to be higher for properties in more northern locations or when colder temperatures hit.
- Ask your property manager, a friend or neighbor to check the house daily during cold snaps to make sure it’s still warm.
- Shut off the water at the street and drain the plumbing system (i.e. winterize it).
Common Loss #3 – Theft
Theft is the most common type of loss we see at investment properties. Properties under renovation or properties on the market for sale tend to be a thief’s favorite because they both have relatively low traffic and contain valuables such as new appliances, HVAC systems, construction materials and tools. Did you know that the average theft loss for an investment property is four times the national average per break in? Statistically, the average break-in in an investment property totals around $8,000 while the average break-in on an owner-occupied property generally totals around $2,000.
In the News
This short write-up in mid-December about tools stolen from a house under renovation is something that feels like it happens every day of the week. Often times the value of the tools stolen is way more than this $1,000 reported HERE. Many times, theft picks up during the holiday season when more people are traveling to see relatives or are likely to have gifts in the house.
Copper is one of the hottest items when it comes to theft and getting to that copper plumbing can cause thousands of dollars in damage to your walls. Along with the copper, thieves often steal sinks, toilets, cabinetry, and HVAC systems. This New Jersey thief found a sliding glass door to be an easy point of entry: “Berkeley Police Investigating Copper Theft.”
How to Prevent a Theft at Your Investment in 2018
You may wonder if theft really is preventable. Because some of the areas popular for investing can experience higher crime rates (Areas of Detroit, for example), it may feel as though theft or vandalism are just part and parcel of your life as an investor. However, that is simply not true! There are steps you can take to make your property less appealing to thieves and vandals:
- Make thieves and vandals believe the house is being lived in – you don’t want to be the easiest target on the block.
- Make sure the property is properly secured – lock doors and windows and reinforce them with sturdy hardware.
- Consider reinforcing your exterior doors with Door Armor to keep the bad guys out.
- Enlist your neighbors to be a second (or third or fourth!) set of eyes and ears on your property.
- Have the neighbors call the police if they notice any unfamiliar or suspicious faces in the neighborhood.
- Keep the yard cut and clean and trim back trees and shrubs that may block views of the house and provide thieves places to hide.
- A well-lit exterior may discourage thieves from approaching your house at night – just be sure they are placed high enough where it’s not easy to disable them.
- When appropriate and required, board up your property with plywood, a cage system, steel or plexiglass shields.
- Use an alarm system with monitoring – if someone does break in, they may turn around and leave just as quickly.
Won’t Insurance Cover These Losses?
The quick answer is…maybe. While insurance is an important part of your risk mitigation plan, it typically doesn’t cover every type of loss, and each policy is different. Fire is typically covered in most standard policies. However, both Water and Theft are perils that are typically only covered under the Special Form policy format, so it is wise to check with your agent if you are unsure if you have either of these coverages. Even if your insurance does help you cover one of these three types of losses, you may prefer to avoid the following expenses or hardships by taking the proactive steps above. You can avoid:
- Stress and loss of sleep
- Having to pay a deductible
- Having to pay additional interest to a lender
- Lost profits due to an extended renovation schedule
- An injury to a tenant, their family or a guest at your property
- A lawsuit
- The loss of your investment
As we’ve discussed, some of the most common losses and damage we see to investment properties are also the most preventable. With a little planning and effort on your part 2018 may just be your best yet!
(Wondering what the other three most preventable losses for 2018 are? Read the second installment in “Most Preventable Property Losses for 2018, Part 2”!)