A Tale of Two Houses

In my last blog post, I talked about a deal that I was working on.  In my market, the deal would have been pretty good for the market.  Apparently not so good for other markets.  So, I was unable to find the money needed and the seller would not help out.  I told the seller to let me know if he changes his mind, but otherwise the deal is dead.  So, moving on...

I found another deal that seems to be excellent.  You can take a look at it here.  The thing about this deal is that it is outside of my known market, and that makes it scary.  The cashflow is nice, and would set me up for good things in the future.  I am always looking for feedback on my deals, so please feel free to visit and let me know what you think!

I have been busy trying to find a good property manager and a good realtor in the area.  I think I may have found both now, but the property manager will not give advice about different purchases and the realtor only wants to give that advice (about the specific properties) as my buyer's agent.  At least for the first deal I am doing, I do not want to use a buyer's agent as that would probably be an expense the seller would not be willing to pay for (it's a FSBO).  Anyone found this to be the case when first starting out?  I am guessing that the realtor is doing this because she has no experience with me and wants to protect herself from personal liability.  Is this common, or should I be looking at another agent?

I will say that I am luckier than some who are starting out like me: no cash, no experience.  My dad has said that he would provide the down payment for this deal to get me started.  That will make things much easier, and pretty much launch my investing career.  In a few short years, I should be able to make my own down payments.

Now it's time for a knowledge check!  In this, I write down knowledge that I am pretty sure I have down, and then I open it up for others to correct me if I am wrong.  I figure this way readers can learn right along with me, and I can be absolutely sure that what I am saying is how it really works.  This week's will be about insurance and property management:

When it comes to finding a property manager, one of the things to consider is their policy regarding insurance.  I have seen a lot of companies that want you to add them as "additional insured" on your policy.  I read a fair amount about this practice, and after what I have read, I would say this benefits neither party.  It sounds like it would be a good idea for the property manager, but I would say it is not.  If a dispute ever comes up between you and the property manager that requires a lawsuit, your insurer will see the property manager listed as "additional insured" and will pay to defend both sides, but will not pay out on damages.  From the insurer's standpoint, both are listed on the policy, and therefore a payout from one to the other would open the insurer up to a lot of insurance fraud situations.  Also, would you list your general contractor as "additional insured" on your policy?  I wouldn't.  Why?  Besides the point mentioned above, your contractor has insurance.  They have it to protect them.  Same with your property management company.  They have insurance to protect them.  Why do they need yours?

Now, you should be willing to add them as "additional interest".  What's the difference?  Well, "additional interest" would allow the property management company to be notified if changes were made to your policy.  Why would they need that, you might ask?  The property manager has an interest in you keeping insurance.  If any dispute ever came up, they would need to know that you have something backing you up in the event that you end up owing funds to the property management company from that dispute.  In general, they need to be sure that you are able to pay for all liabilities that are caused by you.  Since they are an agent for you (the owner), they are taking a risk by doing business on your behalf.  Something you do could cause them to get sued, so they need to know that you can back that suit up financially if necessary.

Which brings me to my last point.  The property management company also needs to be willing to provide you with the same courtesy.  They need to list you as an "additional interest" on their insurance.  If they are not willing to do that, then find a new one.  You need to know what insurance they have at all times, so that if something they do gets you sued, you can turn around and sue them and get your money back.  Of course, it isn't quite as clear cut as that when it comes to lawsuits, but that is how things work theoretically.  In real life, be ready for anything.

So, now that I have imparted my understanding of the situation, what's yours?  Leave me a comment letting me know if what I have written is knowledge or if it is misunderstanding.  I look forward to learning.