By Kris Joy
For multifamily property owners, tenant-related damage is a familiar risk. Requiring residents to carry liability coverage can help protect the property but verifying that coverage across hundreds or thousands of tenants can be difficult. When documentation is missing, or a claim falls outside traditional coverage, the property owner can be left absorbing the cost.
One Denver-based multifamily property owner found a different way to approach that risk by using an 831(b) Plan to create a customized protection plan around its tenant assurance program.
The company owns eight apartment complexes with approximately 1,560 units and $10 million in annual gross revenue. The company, owned by three siblings, was looking to reduce risk while positioning itself for future growth in the multifamily market.
The Challenge of Managing Tenant Risk
The company required tenants to provide proof of liability insurance before moving in. But with a large and constantly changing tenant base, enforcing that requirement was time-consuming. In some cases, tenants were allowed to move in before providing proof of coverage.
That left the company with a risk it couldn’t easily address.
When tenant-related damage occurred, the company either absorbed the cost through operating revenue or turned to its traditional insurance. The company also faced another concern, as frequent claims could contribute to higher insurance premiums.
For a growing multifamily owner, those costs can affect more than a single property. They can reduce cash flow, complicate risk management, and make it harder to predict the financial impact of future claims.
Dustin Carlson, CPCU, president of SRA 831(b) Admin, sees this as a common challenge for multifamily owners managing a constantly changing tenant base.
“Multifamily owners aren’t just managing buildings. They’re managing a constantly changing set of risks tied to tenants, properties, and operations,” Carlson said. “The goal is to identify those exposures early, before they become expensive surprises, and build a financial strategy that helps address them. An 831(b) Plan can provide the safety net needed to plug the gaps not covered by traditional insurance and can provide property owners with peace of mind.”
What Is an 831(b) Plan?
An 831(b) Plan is a risk management strategy that allows businesses to use tax-deferred funds to prepare for risks that may be underinsured or not covered by traditional insurance. It gives a business another way to prepare for specific risks while working alongside its existing insurance coverage.
For property owners, this can be especially useful when traditional insurance doesn’t fully address recurring or specialized risks.
An 831(b) Plan isn’t meant to replace traditional insurance. Instead, it can add another layer of risk financing for specific exposures a business has identified as part of its broader risk management strategy.
Building a Tenant Assurance Solution
SRA worked with the Denver company to build a customized Protection Plan under an 831(b) Plan, incorporating its Tenant Assurance program for the multifamily rental industry.
The program gives property owners the option to provide tenants with accidental damage waiver (ADW) coverage and contents protection. ADW can help address certain incidents involving tenant-caused damage to the property or other tenants’ belongings, while contents coverage provides specified protection for occupants.
For the company, the structure created a more consistent way to address tenant-related risks without relying as heavily on a process that required every tenant to maintain and document outside liability coverage.
SRA and the company’s attorneys also structured ownership of the Protection Plan to mirror the ownership of the property company, aligning the business structure with the company’s broader risk-management strategy.
“An effective risk strategy should fit the way a business actually operates,” Carlson said. “For a multifamily owner, that means creating a structure that can adapt as the portfolio grows and address tenant-related risks more consistently across the business.”
Turning Risk Management into a Growth Strategy
The value of that approach goes beyond claims.
The company’s Tenant Assurance program created a framework for addressing additional risks through its Protection Plan as the business grows. The added tenant benefits could also give the company another way to stand out, helping attract new residents and support retention.
That approach matters for real estate owners facing rising costs, insurance pressures, and complex property risks.
Instead of treating risk management as a cost that only matters after a loss, property owners can make risk financing part of the broader business strategy.
“Real estate owners have to think beyond the next claim,” Carlson said. “The bigger question is whether the business has a repeatable way to finance risks today while staying flexible as new risks emerge.”
For multifamily owners, an 831(b) Plan can provide a way to address specific uninsured or underinsured risks while taking a more proactive approach to financial preparedness. The right structure depends on the business, its risks, and careful legal, tax, and insurance planning.
Real estate owners considering an 831(b) Plan can explore SRA 831(b) Admin’s educational resources and case studies to better understand how this risk-management strategy may fit their business.
