Protect Against Collisions and More If you drive a car in the United States, liability insurance must cover it. This type of policy pays for medical and property damage resulting from a vehicular accident. You can also purchase comprehensive and collision insurance to cover other costs. These additional coverages help protect the value of your car should it be damaged. If you are calculating how much it will cost to buy a car, you need to take into consideration the cost of insurance as well. In this article, we’ll review the basics of car insurance and the best auto insurance companies in America, including costs, pros and cons. This is a brief introduction to automobile coverage. Liability Coverage When an accident occurs, liability insurance covers you, household members and authorized drivers for the costs associated with property damage and bodily injury. It covers the cost to repair or replace property damage that you caused. [youmaylike] You are also covered if you cause the bodily harm or death to someone else while you are driving the car. This includes medical expenses, loss of income and specified legal defense costs. Collision Insurance If you are involved in a collision, this type of insurance will help pay for repairing or replacing your vehicle. If the collision is your fault, the coverage may extend to other damaged vehicles involved in the accident. States do not mandate that you buy collision insurance, but your lender or car dealer will if you finance or lease the car. Policies offer a range of deductibles, which is how much you’ll have to pay for repairs before the insurance kicks in. Larger deductibles lower the policy premiums but expose you to more out-of-pocket expenses if a collision occurs. Comprehensive Insurance Comprehensive insurance covers damage to your car that occurs for reasons other than a collision, including theft, fire, vandalism, weather and natural disasters. This coverage is often required if you finance your automobile. You can add riders to this insurance to provide coverage of additional costs, including auto towing, glass repair, daily rental while your car is in the shop and emergency roadside service. As with collision insurance, you can set the deductible on your comprehensive insurance policy to cut your premium costs. Gap Insurance If your car is severely damaged in an accident or other incident, you might find that your comprehensive and collision damage won’t provide enough coverage to pay off the amount you owe on the vehicle. Many policies pay only the fair market value of a totaled car, which might be only 80% of the amount you owe. You can buy additional insurance to plug this gap and ensure you can pay off the car loan in full if the vehicle is destroyed or stolen. Normally, car leases require you to buy gap insurance. If you pay cash or pay off your loan, you can save money by avoiding or dropping gap insurance when no longer needed. Top Five Auto Insurers These five insurers all offer full coverage policies and many additional services. Amica Amica is a superstar among car insurers, winning accolades from Consumer Reports and J.D. Powers. It’s known for handling the claims process smoothly. The average annual cost for full coverage: is $1,360. Pros You can have your car repaired at any body shop, without restrictions. Offers a premium package which, for an additional cost, provides full glass coverage, rental coverage, good driving rewards and identity fraud monitoring. Superior financial stability rating from A.M. Best. Cons Missing some discounts, such as military, low-mileage and prepay discounts. Must speak on the phone to get a quote. Sparse website when it comes to customer education. State Farm State Farm is the country’s largest multi-line insurance company. It excels in customer service and regularly garners high marks from customers. The average annual cost for full coverage: is $1,337. Pros Superior financial stability rating from A.M. Best. Excellent online quote tool, getting customers a quote in as little as five minutes. Easy claim handling and top service from its more than 18,000 agents and its easy-to-use mobile app. Cons Doesn’t offer coverage for new car replacements or uninsured motorists. Missing prepayment and automatic payment discounts. The Hartford While only 11th in size, The Hartford is big when it comes to policy options. It offers rates based on your actual driving as well as full replacement of new cars when destroyed shortly after purchase. Average annual cost for full coverage: N/A. Pros Solid benefits, including superior roadside assistance and towing programs. High marks from customers for their purchase experiences. One of the few insurers with mechanical breakdown coverage for out-of-warranty repairs. Cons Mediocre service interaction according to J.D. Power surveys. Sparse online learning materials. Geico Geico is the second-largest U.S. car insurer. It is a favorite among tech-savvy geeks who appreciate the insurer’s mobile app and excellent online service. The average annual cost for full coverage: is $1,627. Pros Geico offers plenty of ways to save, such as multi-vehicle, driving history and vehicle safety equipment discounts. Special savings for active and retired military members and federal employees. Full-featured mobile app for getting quotes, buying insurance, managing your policy, submitting claims, summoning roadside assistance and making payments. Cons Human help may be in short supply, as just about everything is handled online. No gap insurance is offered. USAA No insurer matches USAA for service to military members. Unfortunately, it's only available to active service members, their families and retired veterans. Average annual cost for full coverage: $896. Pros Superior financial stability rating from A.M. Best. Top-ranked purchase experience score from J.D. Power. Cons Missing gap coverage. Doesn’t offer interior vehicle coverage or new car replacement coverage. Limited availability. The Right One for You Competition in the insurance industry helps drive down prices and prompts insurers to offer money-saving features. For example, your carrier might reward you for a safe driving record and for having a long-term relationship with the insurer. The right insurer for you is highly rated for service, offers the exact coverage you want and does so at an unbeatable price. You should always gather multiple quotes before selecting an insurer, and make sure you get credit for all applicable discounts.
Get Informed before You Buy
Real estate is one of the most popular investments out there, and it’s easy to see why. It’s an easy to understand asset class that has low barriers to entry. Anyone with a spare bedroom and a desire to earn a few extra bucks can get started.
Here’s everything you’ll need to know about how to invest in real estate.
How to Get Started
The easiest way to start investing in real estate is to rent out excess space in your house. This can be done on a long-term basis — like getting a roommate who pays monthly rent — or something more short-term in nature. Websites like Airbnb make the latter easy, giving hosts the flexibility to rent out a room whenever they desire.
Some ambitious savers take this concept one step further and buy a house with many spare bedrooms. A single guy might buy a five-bedroom house with a mortgage payment of $1,500 per month. He then rents out the other four bedrooms for $500 per month each. Everyone wins; the landlord makes a nice return on his investment while the roommates get a cheap place to live.
The next type of real estate investing we’ll look at is the more traditional method, which is buying a house or a condo as an investment property. You can only rent out so many extra rooms, but there’s no limit to buying individual units.
Buying a Rental — What You Need to Do
A profitable real estate investment will be lucrative in two ways. You’ll make money each month when the tenant pays the rent, and the property will go up in value over time.
The first thing you’ll want to do when looking at a prospective rental house is figure out how much monthly income you’ll get. Your realtor will be able to help you estimate market rent for the property, but it’s still imperative you do your own research. Call around and see what other properties in the neighborhood rent for. Check online, too. Build yourself a margin of safety by estimating rent on the low side.
Remember there are numerous expenses associated with owning a rental property. Some of these costs include:
- Property taxes
- House insurance
- Appliance repair
- Yard maintenance
- Vacancy
- Property management
These costs can really add up, and it’s crucial you set aside cash to deal with these contingencies. The bank doesn’t care if you have to replace a leaky roof. They still expect the mortgage to be paid.
Keep these costs in mind when looking at a prospective property. Also, remember your own personal biases. You might insist on a galley kitchen or a bidet in the bathroom, but will tenants care?
One rule of thumb common in the industry is the “1% rule.” It goes like this:
Ensure You Collect at Least 1% of the Property’s Value in Rent Every Month
If you determine your prospective property will rent for $1,200 per month, it’s imperative you don’t spend more than $120,000 for it. On average, your fixed costs will be between 25% and 50% of gross rent. This leaves you with a net return of anywhere from 6% to 9% annually before paying any interest on the mortgage.
You’ll notice there are vast differences between rents for similarly-valued properties in the same city. Some investors are willing to accept much less monthly cash flow in exchange for what they feel is better price appreciation potential.
This is where real estate investing gets tricky. Speculating on a certain area of town can lead to nice profits if it improves. But it can also backfire, especially when combined with poor cash flow.
Overall, cash flow is king. If there’s one golden rule in real estate, that’s it.
9 Hidden Costs When Buying a House
When purchasing a home, there are hidden requests that you should be aware of. Take a look at them:
- Closing costs: These are fees associated with finalizing the purchase of a property and may include appraisal fees, attorney fees, title insurance, loan origination fees, and more. Closing costs typically range from 2% to 5% of the home's purchase price.
- Home inspection costs: Before purchasing a house, it's wise to get a professional home inspection to assess its condition.
- Property taxes: Property taxes are ongoing expenses that homeowners must pay regularly.
- Homeowners association (HOA) fees: If you're purchasing a property in a community with an HOA, you may be required to pay monthly or annual HOA fees.
- Insurance premiums: Homeowners insurance is essential to protect your investment.
- Maintenance and repairs: Owning a house means you'll be responsible for its upkeep and repairs. Budget for ongoing maintenance costs, such as landscaping, HVAC system servicing, plumbing, and general repairs.
- Utilities: When moving into a new house, you'll need to consider the cost of utilities such as electricity, water, gas, and internet services.
- Moving expenses: While not directly related to the house itself, moving expenses can be substantial.
- Home renovations and customization: If you plan to make changes to the house, such as remodeling the kitchen or bathroom, adding new flooring, or repainting, these costs can quickly add up.
Financing
Unless you’re swimming in cash, you’ll have to put a mortgage on your property. Financing a rental property is a little more complicated than a regular single-family home, but not overly so.
Your local bank might not be keen to lend against rental properties. You can either do a little research and see which lenders are more friendly to landlords, or take the easy way out and use a mortgage broker. A broker deals with dozens of different lenders, and they will know which ones to use for a rental property.
You’ll want to have a down payment of at least 20% of the value of the property. If you don’t, private mortgage insurance will be required. This product comes with a premium of between 0.5% and 1% of the value of the home each year.
I’d recommend putting at least 20% down. It’s good to have a buffer zone in case you want to sell the property, and you’ll have a much tougher time getting financing without a decent down payment.
Running a Rental Property
Purchasing a property is only half the battle. Buying a rental is like committing to your own small business. It’s not a whole lot of work, but things still need to get done.
The first step is finding a tenant. This is not to be taken lightly; choosing the wrong renter can easily cost you thousands of dollars in lost rent or damages.
There are some easy steps you can take to minimize your tenant risk, however. These tasks will take a few hours and cost a little money, but they’re well worth it.
First, take the time to talk to them. Ask a lot of questions about where they work, where they come from, and so on. Most people love to talk about themselves, so this won’t be an issue.
Next, get your tenant to fill out a detailed application form. There are hundreds posted online; nobody will ever know if you steal one for your personal use. The more information you can gather, the better.
You’ll want to independently verify the information on the application. Call a former landlord and ask questions. Don’t just ask for a reference, make sure the information is accurate. For example, don’t ask, “Did Tenant rent from you?” Instead, say, “How long did Tenant rent your property?” Repeat with personal references and employers until you feel comfortable.
If any inconsistencies spring up at this point, many landlords will drop the potential tenant right there. They believe small lies can easily mushroom into bigger things.
You can use other sources to gain more information about a prospect, too. Many landlords run credit reports. Some require a criminal records check. Social media profiles are also an excellent source of information.
Once you choose a tenant, you’ll need to invest a little bit of effort into keeping them happy. Most renters will be great. They’ll faithfully pay their rent on time and only complain when something legitimately needs to be fixed. But you’ll still need to prepare for the worst. You’ll need to know both tenant and landlord rights, especially when things get rough. The easy way to do this is just Google “landlord tenant laws [your state].” Find the applicable state law and read all of it.
The easy way to get around all this is to use a property management company. They do all this for you. The only problem is a property manager will charge you a fee for this. This can really cut into your profits.
The Bottom Line
Don’t let all this scare you off. Investing in real estate is a smart way to leverage a relatively small amount of money into a sizable investment. It’s not a hard business to understand, either. There are millions of investors making serious money from investing in real estate. There’s no reason why you can’t join them.