Run Your Own Business In The USA? Hope You’re Insured

By Amanda Warren

The idea of owning and operating your own business has been romanticized by probably almost everyone who hasn’t actually tried it.  “Easier said than done” may be the best way to describe it unless all your customers are eager to pay you handsomely and in advance while accommodating your schedule.

Over the years, I’ve known several people who ran their own businesses owning and operating rental property.  It can be a great way to make the most out of your asset, but it’s definitely not for the faint-hearted.  Good references and prompt payments never guaranteed good tenants.  Sometimes it was those they least expected who caused the most problems.  Deposits sometimes weren’t enough to pay for necessary clean-up or repair work to make the space rentable again.

In fact, according to Money Crashers, among the 8 big issues with owning rental property, #2 on the list — right after having the start-up capital to get involved at all — is “Making Repairs.”

When it comes to being a landlord, two things in life are inevitable: death and repairs. Don’t even consider a property management business unless you’re sure that you can pay for repairs. Landlord and tenant laws require that you make serious repairs quickly. If you don’t, you could be held liable for additional damages.

The thing about repairs is they creep up on you suddenly and often cost a lot.

Of course, there are also stranger-than-fiction “horror stories” that resemble situations depicted in 1990 film thriller, Pacific Heights. The combination of repair management and tenant management  should get any business owner or would-be business owner motivated to search for cheap construction insurance to alleviate the stress beforehand and the potential damage afterward.

Case in point: a landlord friend of mine had hired different contractors to help him maintain his rental property as well as do repair and construction work.  He paid some of them “off the books” with cash looking for that “better deal.”  One employee left a not-quite-burned-out cigarette in the basement of a vacant 2-family building.  The work site was only occupied during the day but the fire didn’t start blazing until the middle of the night.  The building was in such poor shape that my friend didn’t have it insured for fire.  The damage was so extensive that chose to have it demolished instead of repaired.  Of course, he had to pay that out of his own pocket.  The employee still couldn’t understand why my friend didn’t want to hire him anymore.

Of course the nightmare could come in the form of tenants themselves. A landlady friend of mine had to evict a female tenant for non-payment.  This was not a quick and easy process at all.  The tenant’s deposit paid for the first month she lived there without paying.  This resulted in my friend wait until after that month had passed before she could go to the courthouse to file for an official eviction notice.  It took a week or so before the tenant was served.  She reacted by immediately calling the police and filing a report that my friend had physically assaulted her.  My friend was then served by the police with the charges.  I can’t remember if it was the police or someone else who advised her to get a lawyer to defend herself in court.  She decided instead to bring a stack of medical statements to court with her which proved that she was not physically able to assault anyone in the manner of which she was accused.

The court ruled in my friend’s favor, fortunately, and the tenant was told she would be arrested if she didn’t vacate within a few days.  On her last day, she flushed sanitary napkins down the toilet and did something similar to the kitchen sink.  My friend didn’t bother to file charges against her because she was advised that it was a long process and she’d probably never recoup her loss anyway.  That was on top of the 6-8 weeks the tenant lived there without paying rent.

Of course, owning rental property is just a small slice of potential entrepreneurship, but the same principles extend across nearly all endeavors. When dealing with insurance, you might think that there is little you can do to save money and you might choose (unwisely) to forgo it altogether. However, even though the entrepreneurial mindset is one of responsibility and investment in one’s own skills, it pays to understand that insuring your enterprise with outside experts who can navigate the laws and regulations of business in the U.S. needs to be an equally integral part of the desire for economic freedom.

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