Mixed-use properties have become increasingly popular in recent years, making them a hot commodity for many real estate investors. Mixed-use properties will usually require more coverage than than a single-use property given the wider range of risks you will have with a building that is both residential and commercial.
What is a Mixed-Use Property?
A mixed-use property is a building that contains two or more different types of uses, such as residential, commercial, and/or industrial. A common scenario is an apartment building that has a mercantile such as a clinic or a beauty salon on the ground floor, and apartments on the upper floors. Another example of a mixed-use building is a multifamily complex with 4 units where you live in one unit, rent out two and you have your private practice in the 4th unit. Mixed-use buildings can be found anywhere throughout the country, but are more typical for suburban neighborhoods and city centers.
Insuring Your Mixed-Use Property
If you own property that has residential rental units and includes a business such as a, for example, a private clinic, a store or a salon, you need a commercial policy. At Honeycomb, we specialize in commercial landlord insurance. A commercial policy will provide both dwelling coverage for the structure of the building, and general liability coverage to protect you from potential lawsuits that may arise from the business that resides in the property.
The insurance consists of two main parts:
1. Property
This part of the insurance is all about the structure of the building and covering the costs of having to replace some or all of it due to a covered peril such as water damage or fire. The property part of the policy consists of a variety of different coverages, but the most significant one to pay attention to is the replacement cost. You need to make sure the replacement cost defined in the insurance policy will be enough to rebuild the property in it’s entirety. It’s important to note that replacement cost and actual cost value (market value) can differ. For example, your property might be valued at $100,000, but due to the increase in construction costs and inflation, it would cost $150,000 to rebuild it if was rendered a total loss. Even though most insurance claims are not for total loss (only around 3%), you want to make sure your insurance policy fully covers the cost of having to rebuild the structure if an accident were to happen.
2. Liability
Liability coverage is an important component of landlord insurance that protects property owners from legal and financial risks associated with their rental properties and the business residing within the property. If a tenant or a visitor is injured on the property, liability coverage can help cover medical expenses, legal fees, and other costs for the property owner. Additionally, liability coverage can also provide protection if a tenant causes damage to someone else's property or if a landlord is held responsible for injuries caused by their rental property.
Optional coverages
There are several extra coverages that you can add to a commercial landlord insurance policy. Depending on your needs, these are some of the most common additional coverages:
- Ordinance or Law ABC - a standard landlord insurance policy will cover the costs of rebuilding some or parts of a property to what it was, but if for example, you have to replace your electrical system as a result of a covered peril and your local municipality requires you to make a significant and costly upgrade, this would not be covered unless you have Ordinance or Law ABC
- Employee dishonesty - if you employ a property manager or a regular maintenance worker, this coverage protects you from financial losses such as employee theft or embezzlement
- Equipment breakdown - if the property has expensive equipment such as a central air conditioner or a boiler, this coverage would protect you from losses caused covered perils such as power surge due to a windstorm. It does not cover losses due to normal wear and tear.
- Hired or non-owned auto coverage - provides protection for vehicles that are rented, leased, or borrowed for business purposes, and provides liability coverage for individuals or businesses that use vehicles that they do not own. This coverage typically applies to situations where an employee uses their personal vehicle for business purposes, such as running errands or making deliveries.
