Property Insurance

Property insurance pays for damage to a building from fire, storms, theft and other covered events. Landlord policies usually add liability coverage and loss of rents. The premium is a fixed operating expense in the NOI that sits under the cap rate.

The example property budgets $2,500 a year. Premiums vary widely by location, construction and claims history, and in some coastal and wildfire regions they have risen fast enough to move cap rates on their own. A higher premium lowers NOI one for one.

Get a quote on the actual property before relying on the seller's figure. An older policy with a low premium may not renew at the same price, and a buyer's lender may require coverage the seller never carried, such as flood or a higher liability limit.