Wednesday, December 2, 2015

Adding a Property Manager as Additional Insured

Adding a Property Manager as Additional Insured on the Owner’s Insurance Policy
One of the most important reasons landlords hire a property manager is to help limit exposure to and manage the inherent risk of owning rental property.  
Often, questions arise as to why it’s important to add the property manager as Additional Insured on the Homeowner’s or Property Owner’s insurance policy.  Some of the key questions are addressed below.   

Why should I list my Property Manager as Additional Insured on my Insurance Policy?
Experienced and well informed management firms are increasingly requiring the property owner to add the Property Management Company as Additional Insured on the owner policy.  While often overlooked out of convenience or misinformation, it is a very important element of an overall risk management strategy not only for the property management company but also for the property owner. 

What does “Additional Insured” mean?
The Additional Insured verbiage on a homeowner’s policy simply means that the coverage is extended not only to the owner of the property but also to the listed agent or Management Company.  Some insurance agents and property managers will confuse “Additional Insured” with “Additional Interest”.  They sound similar but are vastly different.  “Additional Interest” does not extend coverage but will simply notify the property manager of policy renewals, cancellations, or policy changes.   Another common misconception is that the Additional Insured verbiage will provide the property management firm with a financial interest in the property.  Unlike a mortgage holder, the property management company does not have, or want, a financial interest in the property but nevertheless has a very insurable interest from a premises liability standpoint such as personal injury on the premises.  

Why is adding the Property Manager as Additional Insured important to the property owner?
When a property manager is hired they take on almost all of the responsibilities as if they were the homeowner.  As such, if something were to go wrong, such as personal injury, the Property Manager is often the target, in place of the owner, of any resultant litigation. 
For this reason, almost all reputable property management firms have a strong indemnification and hold harmless clause as part of their management agreement.  If the management company is properly listed as Additional Insured, the coverage will automatically be extended to both parties as needed. 
In the worst of cases, if a major litigation claim takes place, it is likely that both Property Manager and Owner would be named as co-defendants.  Having the owner policy extended to both, would create a unified defense, with one insurance company defending both, streamlining the defense process and significantly reducing total legal expenses for all for which the owner (or the insurance company) is ultimately responsible.   

Why is the Additional Insured endorsement on the owner’s policy important to the Management Company?
Most Property Management firms carry General Liability Insurance as well as Professional Liability insurance which will offer protection from a financial loss caused by a mistake or wrongful act by the Management Firm.  However, these policies don’t provide protection against matters concerning the home itself.  This leaves the property manager vulnerable to claims regarding someone injuring themselves at the property, burglary, fire, water leaks, etc.   When coverage is effectively extended to the Property Manager through the Additional Insured endorsement, the problem is solved.
Without the Additional Insured endorsement, the management company could be left to fend for itself and then seek reimbursement from the owner directly (or their insurance) for any losses under the indemnification clause.  Needless to say, this alternative would be exponentially more expensive and time consuming for all. 

Are Insurance Companies willing to add the property manager to the owner’s policy as Additional Insured?
Most of the larger insurance companies understand that doing so is in their customer’s best interest and will add the property management firm upon request for little or no additional cost.   However, some of the smaller or specialized companies view adding a third party to the policy as taking on additional risk and refuse to do so.   While there may be some merit to their viewpoint, it can be argued that using a professional management company will reduce overall risk and that since the owner is indemnifying the management company, they would eventually be faced with a payout on behalf of their customer.   Accordingly, their total cost of a payout could be significantly reduced if they are in control of the claim from the beginning. 
Helpful Tips for Setting Up Insurance For Your Rental Property:
·        Make sure that your Insurance Agent understands that you are requesting the Property Management Firm be added as “Additional Insured”, not merely “Additional Interest”.
·        Ask if there is an additional charge for the “Additional Insured” endorsement.  If there is you may want to shop around but remember that the overall cost effectiveness of your policy may still be better even with an additional fee.
·        Ask your Insurance Agent if there are any other products their companies offer that may be useful to you, i.e., lost rent protection, upgraded commercial policy, etc. 
·        If your property management company is contending that an Additional Insured endorsement on your policy is not important, carefully question their rationale and be sure you’ve contemplated the risk.
If we can answer any further questions please contact the T-Square Properties Office at 425.485.1800 or
Disclaimer:  It is always recommended that you seek the advice of a local attorney to more about real estate laws and how they can impact you and your property.

Wednesday, January 22, 2014

A New Breed of Rental Home Investor

How Institutional Investors May Affect the Rental Home Market

Although largely undetected, many of you may have heard through the media of new investors with almost unlimited cash reserves that are buying up the remaining distressed single-family properties by the hundreds in areas of the country that were hit hardest by the foreclosure crisis, namely, Texas, Florida, Arizona, Georgia, California, Nevada, and our very own Washington State.   Unlike traditional rental home investors these investors are not experienced landlords.  Instead they are publically traded Wall Street firms that have amassed Billions of dollars of investment funds from their clients to execute a carefully thought out acquisition and rental strategy.  Among the largest players are:  Blackstone, American Residential Properties, Silver Bay Realty Trust, Starwood Property Trust, and Tricon Capital Group. 
Their strategy is quite simple and not different than those of any small scale investor of the past.  They purchase homes (with cash) that are distressed and undervalued.  They improve the property with carpet, paint, appliances and then rent these out at market rates.  Their return will come in two parts:  Rental operations and capital appreciation when they eventually sell.  
Because of the scale of their operations it is important to understand how this changing dynamic is likely to affect the market place.  Like any major change there are pros and cons.  Let’s take a look at some of these.

  • The huge appetite they have for acquiring homes has quickly and significantly decreased the backlog of distressed properties which will help stabilize and sustain the market recovery.
  • The increased supply of rental homes made available will help fill an increased demand for quality rental properties.
  • Because the institutional buyers are so well capitalized it will be likely that the properties owned by them will be well kept and relatively free of deferred maintenance.
  • Because the funds control Billions of dollars, the liquidity for buying distressed properties has increased dramatically over the previously troubled levels.   
  • The pressure of meeting their home purchase goals and dwindling supply has forced the competing institutions to bid up the price for distressed properties thereby lowering their outlook for an acceptable return on the property.  Based on purchase records in the Puget Sound area, it appears that in many cases they are paying more than market price for their acquisitions.  This may also have the effect of creating a run-up in price (mini-bubble) that is not sustainable in the long run.
  • The institutional purchasers are banking on the idea that they can keep their operating expenses low and recognize some economies of scale by managing the properties on a large scale national basis using call centers throughout the world with finely tuned policies and procedures.  This one-size-fits-all approach may prove troublesome as effective property management is a very hands-on, boots on the ground, localized process that doesn’t lend itself easily to large absentee scalability.
  • Increased supply of rental homes will drive down rental prices.  In markets such as Las Vegas and Phoenix, where they have been acquiring longer and more aggressively have seen significant drops in market rents which will of course compress the yields for all investors and eventually translate to lower home values.
  •  Smaller investors are being squeezed out of new acquisitions.  It’s difficult for the traditional, experienced landlord buyers to find good opportunities when they are competing against institutional purchasers with quick cash and a dulled price sensitivity.  Of course, this is the free market competition at work and good for the economy provided they are making rational decisions.  However, as we’ve seen with other publicly traded companies, judgment can be clouded when trying to gain a healthy return on the Client’s money conflicts with managers trying to meet corporate mandates and objectives.
  • Eventually, to close the loop on their business plan the institutional owners will need to sell off their properties at, ideally, a highly appreciated price.  When they all see the top of the market at hand, there will likely be a large supply of for-sale homes hitting the market all at around the same time.  In many ways, the institutions business plan success will be most defined by how well they execute their exit strategy.  
We’ll continue to watch the shifting dynamics of the rental home market with great interest as it continues to evolve.   

Feel Free to contact T-Square Properties if you’d like to discuss your Rental Property Investments with our professionals.  Since 1996, T-Square Properties is a full service property management firm which manages over $140 Million of assets for investor clients in the greater Seattle area that are seeking a professional management strategy that will maximize their overall return. 
e-mail contact:   phone:   425-485-1800

Thursday, August 23, 2012

What is in store for the Seattle Area Rental Market in Late 2012 and 2013?

What is in store for the Seattle Area Rental Market in Late 2012 and 2013?

There is little doubt that there is a significant shift taking place in the rental market in recent months. To fully assess what is taking place in this shift it is important to first explore the dynamics of the housing market in general.

After four straight months of improving housing sales both at the national and regional levels, it is in our opinion, safe to say that there is gradual housing recovery underway. The fact that it is a slow recovery likely will mean that it is sustainable for the long run. A desirable quality….that is unless you were hoping to liquidate your investment properties soon.

In recent months, there has been a noticeable increase in investor interest to purchase distressed properties. The increased competition for these homes has significantly reduced supply of the bank owned “bargains” in the Seattle area and driving up prices accordingly. Zelman Associates’ August 2012 Single Family Rental Survey indicates this new breed of investor is looking for a 15% unleveraged return on Investment with an anticipated holding period of 5-7 years….a far cry from the “flipper” investors of years past.

All of these signs point to a long, gradual, and sustainable growth in the housing sector. For some, it may feel like a slow crawl back from the major price crash of 2006-2010, for other it creates opportunity and gives way to a new breed of long term investor and homeowner.

According to the US Census Bureau Q2-2012 report, Homeownership rates continue to decline in the U.S. and Regionally. This is especially pronounced with the 35 and under age group. We believe that this is partially caused by shifting cultural attitudes with the younger generation’s quest for less permanency and more mobility in their career, home, and personal lives. The allure of the “American Dream” seems less emphasized. We expect the home ownership rates to continue to decline to perhaps as low as 60%. This is likely a natural and healthy rate absent any of the past artificial government stimulus to encourage home buying for all.

Zellman Associates’ research indicates that renter demand for quality rental homes is up 30% from just a year ago. With growing demand for quality rental homes and a now dwindling supply, we expect rental rates to continue to outpace home price appreciation in the short term. Of course, in the long run, this will again tip the scales to make home buying more financially attractive than renting. Eventually the equilibrium between cost of ownership and cost of renting will be realized.

The Seattle Market also has some added optimism to factor in. The long-term employment prospects for the area are positive for higher paying quality jobs. This should provide significant net migration into the Puget Sound area.

It is a combination of these factors that lead us to the following view of the Seattle rental market over the coming months: Demand for quality rentals will remain strong, driving rental rates up moderately. Some “reluctant landlords” will take advantage of a stronger sales market to unload their burden while others will see value in keeping their home as a longer term rental investment. The more sophisticated and cash flush, new breed of investor will also be staking their claim by purchasing high performing properties. The allure of renting will continue to increase as the up-and-comers strive for more flexibility in their lifestyle. This will leave more homes in the hands of investors and less owner occupied homes.

We are seeing early signs of this shift now. Whether it becomes the new normal, remains to be seen. In any case, it is a dynamic and opportune time to be involved in any aspect of residential real estate.

Wednesday, September 22, 2010

REO Rentals: The Overlooked Variable to Solving the Housing Crisis in the United States

Until recently, little or no consideration has been given to government policies that would promote renting as an alternative to homeownership to help solve the mounting problem of an oversupply of homes in the United States. However, a recent report written by Danilo Pelletiere for the Federal Reserve Board seems to provide a very strong case where the Fed would be remiss if it did not take note.

At the Crux of the matter is a gross overbuilding of housing over the last three decades fueled by easy credit to both builders and consumers. The Census Bureau has estimated that there are 131 million housing units in the country, but only 112 million households to fill these homes. This figure would imply that, at any given point in time, there are 19 million vacant homes (14.5% vacancy rate) out there… a daunting number that is at the heart of the housing crisis and neighborhood instability.

In his report, Pelltiere states that “Unlike agricultural commodities, which can be easily removed from the market to help stabilize prices, removing vacant homes-either proactively or through neglect….not only destroys the housing but can detract from the value of neighboring properties, leading to further price instability.” The key to neighborhood stabilization is to keep occupants living in the communities as much as possible.

There are a number of ways to accomplish increased occupancy of homes. Many resources have been thrown at loan modifications and other loss mitigation programs with mixed results at best. Renting back to the home borrower in exchange for the deed has also been a large focal point with only minimal results.
Because of the low success rates of these programs, there should be options to selling a property in an already flooded market. By offering vacant properties as rentals rather than for sale, perhaps young adults living at home would find the prospects of renting appealing, thus creating new households.

The primary obstacle to this plan is that much of the vacant home inventory is held by banks. Banks historically have not been in the property management business and seem to have little incentive to venture into this new arena. However, Pelltiere argues that “Policies to address these challenges should include stepped-up enforcement of bank-owned homes and technical assistance that focuses on being good local landlords.”

In addition, there are several high quality property management companies and associations that would gladly partner with banks, Fannie Mae, and Freddie Mac at local levels to help accomplish this objective. Last month, the National Association of Residential Property Managers (NARPM) proposed ideas to HUD Secretary Donovan to help increase the focus on rental strategies. We are hoping that this is seriously considered by the administration.

Pelltiere concludes his report well. “Renters are an integral part of most communities, and keeping rental properties occupied is as much a concern to the recovery of these places as maintaining homeowner occupancy,” he writes. “Plans and policies that accommodate just owners, whether directed at the recovery or instituted previously and for other purposes, will not help all the households that need assistance and will only delay a return to higher occupancy levels and housing market vitality.”

Tuesday, May 4, 2010

The State of the Seattle Area Residential Rental Market

Many of you may have seen the March article on MSN that ranked Seattle as the top declining rental market in the nation. The article stated a twelve month decline in Seattle rental rates of 13.7% which was quite alarming and a surprise to many of us in the industry.
While there have been some declines in rental rates over the past 18 months, we don’t believe that it approached the number stated on the MSN article. In fact, we are beginning to see the rental market firm up in many sectors including single family homes and individually owned condominiums.
The declines experienced in prior months were largely due to an over-supply of homes on the market from “would-be” sellers. Those that would have preferred to sell if there were enough buyers at the right price. As a next best alternative, many of these “would be” sellers became landlords by default. These newly minted landlords would sometimes needlessly drop their rental prices out of panic or just as a means of finding a quick Tenant. This phenomenon definitely added to the downward pressure on rents.
In recent months we have experienced a steady firming of the rental market and are again seeing some, albeit slight, year-over-year increases in rent renewals. We believe that this can be attributed to several factors:
• An increase in home sales has given potential home sellers more hope and incentive to keep their homes listed for sale instead of listing them for rent. This has worked to limit the over-supply of homes on the market and relieve some of the downward pressure.
• Since January of this year we have witnessed a significant increase in rental inquiries. We believe that as general economic conditions showed signs of improvement, many tenants that may have been “hunkering down” with family or roommates were now confident enough again to commit to their own home.
• As lay-off victims now begin to find new employment, there are simply many people on the move. Although we see many moving from the area to find new employment, we are also seeing many more moving into the area to take a new job. A significant number of these are seeking rental homes.
• Finally, it seems important to note that many potential home buyers of past years are questioning the conventional wisdom of homeownership as a wise financial decision. Even at today’s significantly decreased acquisition costs, a typical Seattle Metropolitan home will rent for around $1,000 per month less than the cost of owning it (interest, property taxes, insurance, maintenance, etc.). The increased demand for quality rentals from this sector is not to be ignored.
While we are, no doubt, still in a “renters market”, there is a stabilization force taking hold. Of course, all of the above factors will also create opportunities for some. For example, those tenants that have been renting for years and have escaped the hit on net worth that many home owners have experienced are now sensing the right time to finally buy a home for themselves. Also, rental home investors (especially those not needing financing) don’t have to look far to find bargains.
The trends will likely take many more twists and turns on the road to recovery but are once again beginning to show signs of predictability and stabilization.

Saturday, April 3, 2010

Featured Rental Home!

T-Square Properties

Featured Rental Home

Everett, WA-3 beds / 2 baths, $1395 / month

Turn of the Century charm with all the modern updates! Gorgeous home recently updated atop Rucker Hill. Gorgeous views of Mt. Baker and the Puget Sound This 1700 sq. ft. home is in immaculate condition with a large kitchen featuring stainless steel appliances, oak cabinets, lots of space and an breakfast nook. Enjoy the wood burning stove in the family room or the gorgeous view through the bay windows in the living room. Come home after a long day to soak in an old fashion claw foot bathtub. This home is one of a kind with a private deck and a full size utility/laundry room. For further details on this property and all our listings visit our website at, email us at or call us at (425) 485-1800!

Friday, November 20, 2009

Our New Blog!

Welcome to our new blog site! We are excited to be publishing a variety of information to provide insight to all our visitors regarding property management and T-Square Properties.

Visit often to check out our new postings.