How many months of loss of rents should I carry?

Carry 18 to 24 months on an LA apartment building, not the 12 your lender asks for. A rebuild here runs 18 to 24 months once you count permits, plan check and code upgrades, and a rent-regulated building adds tenant relocation and right-of-return on top of that.

The calculation

Units times monthly rent times months. A 9 unit building at $2,100 a month is about $227,000 a year, so $340,000 to $454,000 covers 18 to 24 months. Ask for that as a limit, or ask for an actual loss sustained form with a long enough period of restoration instead of a hard dollar cap.

Why rent regulation matters here

Of the last 131 LA apartment buildings I reviewed that changed hands, 71 were under the city's rent stabilization ordinance and 44 under AB 1482. Displaced tenants have a right to return at their old rent, and the building cannot be re-let at market while it sits empty. Slower income recovery means more months of coverage, not fewer.

What owners get wrong

• Using current collected rent instead of the rent roll plus recoverable expenses.
• Forgetting the extended period of indemnity, which covers the ramp back to full occupancy after the building reopens.
• Letting the limit sit unchanged for five years while rents moved.

Questions owners ask me about loss of rents

• How do you calculate loss of rent insurance?
  Units times monthly rent times the number of months you want covered. Nine units at $2,100 a month is about $227,000 for twelve months, and about $454,000 for twenty-four.
• Is loss of rents the same as business income?
  On a commercial apartment policy it is the rental value form of business income. On a residential landlord policy it is usually called fair rental value. Same idea, different form and usually very different limits.
• Does loss of rents cover a tenant who stops paying?
  No. It only pays rent you lose because a covered property loss made units unrentable. Non-payment, vacancy and eviction are not covered by it.
• What does actual loss sustained mean?
  The carrier pays the rent you actually lose rather than a set dollar limit, usually with a time cap such as twelve or twenty-four months. On an LA building, check that the time cap is long enough before you take comfort from the words.