Question
Is there such thing as ROI insurance?
I'd like to provide insurance for real estate investment deals we are brokering for clients. I was wondering if there is such thing as ROI insurance. We want to find insurance that will guarantee a return for a property (so say we show they will get 6% return per year, we'd like to get insurance that covers a 6% return if they were to not get it). We have historical data and analysis on the properties we'd like to provide this insurance for. Please let me know if it is a possibility.
8 months ago - 3 answers
Best Answer
Chosen by Asker
Yes you can do this, it's not even that unusual, but not at the numbers you are talking, there has to be some risk on the part of the 'insured' 6% cover for 6% income doesn't do that. You might come up with a deal that guarantees 3-4% on an expected 6% but that's about it. Assuming that you're talking about rental properties .... 2 main things you have to protect against: A lack of tennants and a general drop in rental rates (usually linked to property prices) The first part is easy, there are lots of insurers who'll give you rental cover, last I heard the standard cover was 75% of market rate after an agreed period. The second part is a little more exotic, one way is to find a taker and agree a top/tail spread on market rates... if rates (in general) go up, you lose and pay a certain amount (don't forget your clients will see an increase in rental income too so this isn't as bad as it sounds) likewise if rates drop by more than a certain % you 'win' and the reduction in your clients income is offset by the payout. In this example you might try to get something outside a +/- 2% spread (with a 4% collar). That's a very very short version and there are other ways... this isn't something you can do on the back of the envelope, every penny that goes on insurance reduces the underlying ROI and you have to determine the cover v price cut off point that makes it attractive.... and to be honest there's only so much work I do for free :) Contact one of the big brokers AON, Marsh, Willis etc, this is a little out of your local 'Bob's Auto and Life' league (as the previous answers illustrate!). Tell them what you want to do and see what they say. To be honest in the current enviroment I think you'll struggle to get takers at a price your clients want to pay, especially as you'll need some fair volumes to make this kind of thing worth doing,,,but hey you never know. Good luck
by RAY
8 months ago
Asker's Rating: 