INSURANCE: PROTECTING YOUR COMMUNITY FROM RISK
Our investments need protection from identifiable and hidden risks/events which inevitably occur. For the past decade, insurance companies have required your completing a questionnaire to assist them in their analysis of how risky a property you have! Insurance underwriters then analyze those risks (or require mitigation) to determine the probability of the risk actually occurring. As businesspeople, we intuitively negotiate the shoals of push-pull receiving income-paying out expenses, no different a business concept as insurance companies! They are in the business of “taking on” risks after we pay them a premium but really resist paying out on claims.
Having insurance for the crazy unknown event(s) which create devastating/unrecoverable financial loss is a necessary cost of doing MHC business! As the only MHC Owner who sustained an insured loss in the Nisqually earthquake, I am a testimonial for the need of that certain kind of insurance called DIC: Difference in Conditions. Darned glad I had it, or I would have lost one of my communities.
We do our own examination of risks in the everyday management and operation of our manufactured housing communities. For this article, the below are a few suggestions to mitigate some keys risks you might have as property owners of this unique real estate investment class:
PETS: In the recent past, a large cause of insurance company litigation personal injury settlements were from dog bite claims. RHA has a Pet Form (referred to in last month’s CURRENT article) which you should use as an addendum to your R&Rs. You and your Tenants will be best served with strict adherence to provisions - dogs on leashes, weight/size limitation, license, and vaccination requirements, and required registration of all pets.
ROADWAYS: Your R&Rs should state that streets are for the conveyance of vehicles, but walkers have the right of way. Speed signs must be posted at regular intervals, and if you have speedbumps, there is special paint making them more visible thus preventing pedestrian slip and falls. Depending on width of streets and leased-space size, discourage on-street parking for quick and safe emergency vehicle traffic.
COMMON AREAS: You should always have and use sand and ice melt for those common area walkways (by mailboxes, clubhouse, office and laundry room entrance, steep sidewalks etc.) Office/Information Center entrance steps should have nonskid material or carpet. Have adequate locks on all storage areas.
RECREATION AREAS: All recreation areas should be posted with rules stating that users do so at their own risk (consult with your legal counsel prior to posting.) The land surrounding playground equipment should have 4-5 inches of washed pea gravel, engineered wood fiber playground chips, or rubber mulch. Insurance companies do not like playground trampolines and never allow residents to install them in their yards. Playground equipment should be reviewed weekly for any potential points of injury such as protrusions, bolts, worn seats on swings or chains in which little fingers can be caught. Swimming pools must be fenced, posted with Rules and locked during non-use times. Remove any diving boards. If a pre-swimming shower rinse area is provided, the floors should be well drained and kept immaculately with a non-slip/skid material and discourage soap product use. Horseshoe areas should not be too close to hard surfaces to prevent bouncing and injury.
FIRE HAZARDS: This is a newer concern for all insurance carriers. Clear brush and examine/remove any potential fuel from the community to reduce your exposure. Do not allow Residents to have an open burn area. Your R&Rs should require use of backyard BBQs is allowed only with the presence of a charges water hose. Have an onsite inspection and meeting with your local fire department and follow any directive you are given. Flush your fire hydrants frequently. Post instructions in your laundry room for dryer lint traps to be cleaned after each use. If you have gas driers, the heater areas should be periodically cleaned to prevent accumulation of dust or lint.
COMPLAINT and INSPECTION LOGS: Insurance carriers suggest that you use a written Tenant complaint log and provide an example of how you have addressed an item/issue quickly prior to a loss. Document the onsite manager’s frequent examination of the condition of the property. Include in your Property log what management/ownership has done to mitigate a condition that was noticed then addressed.
CRIME: In MHC leasing, we REALLY lease a SAFE lifestyle! Common area lighting must be present from dusk to dawn. Walking through your property at this time is always an instructive way to discover dark blind spots, and other issues. We keep lights off in common area buildings after hours, so lights on translates to someone inside. Always conduct background checks on employees and (obviously) applicants for tenancy. Periodically do an online check for any sex offenders who may have quietly slipped into your community. NEVER accept cash payments for any rental charges; scanning checks for direct deposit daily is recommended to minimize road exposure of Managers, which also allows them to focus on matters at your property.
The above are just a few suggestions for addressing some of the identifiable risks we might face as MHC Owners. Refinancing your property with a fixed rate loan is another way to eliminate risks associated with economic markets. RHA membership assists in mitigating risks associated with legal and legislative matters, and some members might think of it as a type of insurance!
Joel Erlitz has owned and operated MHCs in the four Northwestern States over the last 40+ years. He was appointed twice by Governors to represent MHCs of Washington on State funded task forces. He has been active in State politics as they related to MHCs and has provided expert testimony on issues relating to management, ownership, appraisal and lending practices for land-lease communities. If you have any questions about this article, please contact Mr. Erlitz Jserlitz@comcast.net.