Investor · Huntington beach, CA · Member since 2014 · 99 posts · 17 votes
Hello everyone,
I just wanted to share some of the difficulties I am encountering in obtaining home insurance estimates. I've e-mailed about 10 different insurance agents last Sunday and only 1 got back to me. She promised to send me an e-mail with some options, but I never got anything. Everyone else I've reached out to (home inspectors, gardeners, bankers) have gotten back to me within 24 hours, but I'm not getting anywhere with insurance agents. Do RE investors have a bad rap with insurance agents? What's going on here? Any advice on how I can get insurance agents to do business with me?
I guess I'll have to. The challenge is that they are two hours ahead of me and I have a full time 7-4 job on the west coast. I'll have to give them a call on my break and hope they answer and then hope the conversation doesn't take more than a few minutes.
Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
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If often does take more than a few minutes, unfortunately. They need quite a bit of information about the property to give you a quote. If you're just looking for a ball park range, that's hard to do. There are a lot of factors that influence insurance cost, including the history of a specific house.
If you're just trying to estimate returns from a rental, use the 50% rule as a starting point. 50% of gross income goes to vacancy, expenses and capital. The other half is for your debt service and cash flow. Its not perfect, but it will get you close enough on a property to see if its worth digging deeper.
Investor · Willow Spring, NC · Member since 2013 · 788 posts · 285 votes
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Go to your local REIA, find out who people are using. Many times you will find an agent there that works with investors. Or connect with a national company that works with investors. http://www.nreinsurance.com/
Investor · Colorado Springs, CO · Member since 2013 · 643 posts · 280 votes
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@Carlos O. Make a few phone calls. See who calls you back promptly. It is likely that after you've had a good conversation on the phone you can follow-up via email to sort through the details.
I've found an insurance broker here in Colorado that handles all of my properties. Typically insurance agents are locked into the company they represent, whereas an insurance broker can deal with many different insurance companies to find the right policy. My guy has been able to shop my policies to different providers and give me plenty of options. I feel like I'm getting very competitive prices, but can still get an agent I know on the phone/ email to sort through details.
Whether you go with an agent or broker, it is great to have a long-term relationship with someone so you don't have explain yourself and your investment properties for 20 minutes every time you call in.
@Carlos O. Make a few phone calls. See who calls you back promptly. It is likely that after you've had a good conversation on the phone you can follow-up via email to sort through the details.
I've found an insurance broker here in Colorado that handles all of my properties. Typically insurance agents are locked into the company they represent, whereas an insurance broker can deal with many different insurance companies to find the right policy. My guy has been able to shop my policies to different providers and give me plenty of options. I feel like I'm getting very competitive prices, but can still get an agent I know on the phone/ email to sort through details.
Whether you go with an agent or broker, it is great to have a long-term relationship with someone so you don't have explain yourself and your investment properties for 20 minutes every time you call in.
Mike
I didn't even know there were insurance brokers out there. I'll take a look into them. Hopefully I'll have better luck.
Investor · Colorado Springs, CO · Member since 2013 · 643 posts · 280 votes
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@Carlos O. I am not an expert in this area, but I suspect there are both insurance agents (tied to one company) and insurance brokers (shop different companies) all over. Either way you probably need to find one in the state where your property is located. You might even be able to find some BP members in the state where your property is located and ask them for referrals.
Investor · Huntington beach, CA · Member since 2014 · 99 posts · 17 votes
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So I got my first home insurance quote and to be honest, I don't know jack about insurance as I've never owned a home before. This is for a 600 sq ft. home in Kansas City MO. It includes an umbrella policy in addition to the home insurance. The premium is $741. I understand that the prices are different from place to place. But for those that invest in similar areas and have some experience, is there something that obviously sticks out as bad on the quote?
I'm still going to go learn what all these items really mean to make sure I don't under purchase insurance or get ripped. However, I still don't have other insurance rates to compare it to, so even if it's good insurance, I'm not sure if $741 is a fair price for what I'm getting. As always, any feedback would be appreciated.
Real Estate Investor · Kansas City, MO · Member since 2011 · 43 posts · 9 votes
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Based on a $125k home built in 1948, I'm guessing you have replacement cost coverage. If you're looking to optimize cash flow, you could consider going with cash value (basically your purchase price, I think they can adjust it if you put a bunch of rehab money in as well).
I personally prefer to do this as I think opportunities are relatively abundant and cash flow + the potential work of finding a new opportunity should a total loss occur outweighs the potential boon that would be a new property/big check.
Investor · Colorado Springs, CO · Member since 2013 · 643 posts · 280 votes
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@Carlos O. I won't comment on whether your coverage is adequate or not. I'm still trying to figure that part out. But I would recommend you get a few quotes, as rates can vary.
Investor · Colorado Springs, CO · Member since 2013 · 643 posts · 280 votes
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@Brandon Laughridge I asked an insurance guy a while ago about insuring for cash value and he was confused. Is this common? Are there certain companies that are willing to do it? I'm buying relatively cheap real estate and when the companies run the numbers they are insuring it for three times the money I have put into it.
Real Estate Investor · Kansas City, MO · Member since 2011 · 43 posts · 9 votes
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@Michael Wentzel The company I use offers the option and I'm paying lower premiums than the OP mentioned for what sounds like a similar sort of property (also in KC).
Registered Nurse (ICU) · San Jose, CA · Member since 2014 · 496 posts · 332 votes
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These 2 contacts helped me. They have a lot of experience with investors. I think one is in Ohio and the other in Indiana. But both will be able to help. They were referred to me by other investors. I plan to use derek because he's cheaper. But both were great.
Insurance Agent · Riverside, IL · Member since 2014 · 7 posts · 2 votes
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Hi Carlos,
As an insurance professional I feel it's very important you speak with an agent/broker especially if you are unfamiliar with the subject to begin with. Ask them to explain the coverage and different options so you have a good basis of knowledge. This will help you compare quotes later. If you are buying a home and renting it out for example, there are policies specifically for landlords and have coverages which can provide for loss of rents in the event of a claim and your tenant is forced to live elsewhere.
Feel free to contact me if you have any other question
Based on a $125k home built in 1948, I'm guessing you have replacement cost coverage. If you're looking to optimize cash flow, you could consider going with cash value (basically your purchase price, I think they can adjust it if you put a bunch of rehab money in as well).
I personally prefer to do this as I think opportunities are relatively abundant and cash flow + the potential work of finding a new opportunity should a total loss occur outweighs the potential boon that would be a new property/big check.
I think you're right about the replacement cost coverage. The house is appraised by the tax assessor at around 60K. I'll follow up with this guy and see if I can get better rates by lowering the coverage amount.
Insurance Agent · Riverside, IL · Member since 2014 · 7 posts · 2 votes
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you need to be careful with cash value. First off a tax assessment is not a reconstruction cost of the home. It may only be worth 60k for tax purposes but to rebuild the home may cost 100k. In the event of a total loss you footing the bill for extra 40k. Also, depending on if you got a loan to purchase the property, the type of loan may require you to carry replacement cost.
you need to be careful with cash value. First off a tax assessment is not a reconstruction cost of the home. It may only be worth 60k for tax purposes but to rebuild the home may cost 100k. In the event of a total loss you footing the bill for extra 40k. Also, depending on if you got a loan to purchase the property, the type of loan may require you to carry replacement cost.
Good points. I will definitely have to consider what type of insurance my loan would require.
Investor · Huntington beach, CA · Member since 2014 · 99 posts · 17 votes
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So my other broker got back to me with a different estimate. I will share for reference. It came in quoted for $940, which is a huge difference from the previous quote. The latest one also has considerably less coverage. It's a DP-1 and only covers $50K and $300K for liability. The only thing that is does better is the medical payments per occurrence, 25K vs 1K.
@Jon O. Wouldn't the liability insurance cover the medical payments? Or does the liability only come into play if I get sued?
Investor · Singapore · Member since 2013 · 1k+ posts · 3k+ votes
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@Carlos O. You are based in LA and about to purchase a home 2000 miles away. You are unfamiliar with something as basic as homeowners insurance. I'm not ragging on you, just stating the facts. I think you need to do some more learning before you take the leap into owning out of state properties. Insurance is just one of many issues you will have to deal with. I'm not saying out of state investing is a bad idea, I do it myself. But you really need to understand a lot of things about home owning, renting, finance, etc to make it successful and it seems you have a ways to go yet. Don't jump the gun, You will get burned and probably turned off from REI which is not the desired result.
Be careful about obtaining an insurance policy written for Actual Cash Value VS Replacement Cost as you will NOT get much if something in fact goes wrong with the property and you have a claim.
I am a big believer of having a replacement cost value premium because you will be protected better.
Insurance Agent · Riverside, IL · Member since 2014 · 7 posts · 2 votes
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the dp-1 and dp-3 are very different, I would stay away from the dp-1 as you said, it covers less. The liability would not cover the medical per se, the injured party would have to prove some fault/negligence on your part which happened to get them injured for the liability to kick in for medical. Medical payments are often used for small claims, more so often as a "go away payment" or " good faith payment" to an injured party so they do not end up suing you. Medical coverage does not need any proof of wrongdoing on your part to kick in.
Investor · Huntington beach, CA · Member since 2014 · 99 posts · 17 votes
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Originally posted by @Account Closed:
@Carlos O. You are based in LA and about to purchase a home 2000 miles away. You are unfamiliar with something as basic as homeowners insurance. I'm not ragging on you, just stating the facts. I think you need to do some more learning before you take the leap into owning out of state properties. Insurance is just one of many issues you will have to deal with. I'm not saying out of state investing is a bad idea, I do it myself. But you really need to understand a lot of things about home owning, renting, finance, etc to make it successful and it seems you have a ways to go yet. Don't jump the gun, You will get burned and probably turned off from REI which is not the desired result.
At this point I feel like most of the stuff I'm reading is too general and not specific enough, so I've actually started the process of getting my hands dirty and yes, it's really helping me understand the investing process a lot better. The other thing helping me here is that I'm slowly building up a network of people there, just by going through the process of attempting to purchase a house.
There is a property that I'm hoping to acquire and while obviously the intent is to make money, it's also well within my financial ability to take some losses on it in case I make mistakes. So far, I've gotten solid estimates on rents, property taxes, repair costs, and property management fees. I understand your point of not jumping the gun, but going through this process is also a good way to learn.
Carlos, Jon makes some good points. One approach that is helpful for my clients is determining the cost per sq /ft to build in the area you are investing in. If it is $200 per sq/ft, then $125k is not far off. If it is $110, then you are over insuring and wasting $.
Once you have a good feel for sq/ft price, then you want to determine your risk tolerance. If you are more conservative and do not want to pay in $ at the time of a fire, then you will want to be insured close to the cost per sq/ft and have replacement cost coverage. If you are planning on the insurance not covering the total cost of the claim and keeping some of the premiums to yourself (self insuring), the lower building values and actual cash value is an option.
I find most investors do not realize the extra risk they take on when insuring on an actual cash value. Nothing wrong with this approach as long as you understand the outcome and plan accordingly. Some of my largest clients do this as the amount of $ saved on premiums over their entire portfolio will cover the amount of the claim that will not be covered.
@Account Closed thanks for the mention. It always helps to get a few options as my "hot" insurance carrier in WI & IL is 3x's the cost in IN. It just goes to show each marketplace is unique even when it comes the the same insurance company.