Rental Property Investor · Plainview, NY · Member since 2015 · 123 posts · 28 votes
My investment property had a fire and burned down... To be more exact, only half of the house caught fire and the other half got the water and smoke damage from the firemen and all that.
The place is uninhabitable; tenants were not home when it happened thankfully and moved out the next morning.
Now, I am awaiting for the adjuster to assess the damages. It has been 3 weeks but they keep saying that it is a fire /frozen pipes season and takes up to a month.
I bought the house for cash 54k back in Nov 2017 so do not have any recurring payments on the house right now other than taxes/ins.
I am looking for someone who has gone through a similar experience and to give me some heads up what to expect.
My insurance is, I guess, very straight forward type of a deal - 94 replacement cost, 8k rental loss.
Contractor · La Mirada, CA · Member since 2015 · 66 posts · 48 votes
8y
You need to have a restoration contractor give you an estimate because the insurance adjuster is going to lowball the heck out of that number. Most of them will do that for you for free hoping that they get the job.
You can take the cash value amount, you will not get the recoverable depreciation but you could just sell the house/land to some other investor and walk away. If the fire was bad enough you will probably get more money then you paid for the house. Here in California on a 1200 square-foot house it’s almost impossible to have a “good fire” (that’s what we call it) that is less than $100K in damages if it’s a complete gut to the studs, with even minimal structural damage would be over $100k.
San Antonio, TX · Member since 2009 · 3k+ posts · 1k+ votes
8y
@David K. Yikes! Sorry to hear. Yes, you'll have to keep on top of things with your insurance company. If you plan to rebuild, you'll have to start working in costs. Or think about selling all together. Good luck!
Contractor · La Mirada, CA · Member since 2015 · 66 posts · 48 votes
8y
You need to have a restoration contractor give you an estimate because the insurance adjuster is going to lowball the heck out of that number. Most of them will do that for you for free hoping that they get the job.
You can take the cash value amount, you will not get the recoverable depreciation but you could just sell the house/land to some other investor and walk away. If the fire was bad enough you will probably get more money then you paid for the house. Here in California on a 1200 square-foot house it’s almost impossible to have a “good fire” (that’s what we call it) that is less than $100K in damages if it’s a complete gut to the studs, with even minimal structural damage would be over $100k.
Rental Property Investor · Plainview, NY · Member since 2015 · 123 posts · 28 votes
8y
@Jason White, I can only dream of the scenario where i recoup more money than I had paid for the house in the first place - that would be an easy resolution for me - just get the money; sell to another investor as-is and walk away. I am going to get a contractor inspect the property ASAP - thanks for the tip!
I imagine that restoring a house from fire/water/smoke damage is not that trivial and then finding an investor that would be willing to buy an "after-fire" asset will not be easy as well.
@Sam Shueh, I hope you are wrong re the insurance :) I have been dealing only with one ins company for all my investments and hopefully they will see the value to continue doing business with me
Not knowing what area your property is in, I would not consider rebuilding in a C- area as your could easily replicate your purchase for much less.
We had a house burn down in a small town a couple of years ago and were paid the full value of the policy within a month. Turned out to be one of my better deals
I have never had an issue with insurance wanting to do business with me since. Have added scores of new properties with same same insurer since as well as changed insurers with my residence
I have no idea where or what Lufkin is to be totally honest with you. This is obviously a small town but the sale prices range a great deal for a small community to my surprise. Based on the purchase price and rent, I have been assuming that this must be C type of area. Purchase was 54k, rent was 700. But only within a 2-mile radius there are plenty of 100k+ houses that are also all rentals.
I am just afraid that they won't give me that much bc technically the house is still standing - only the back of it was impacted by the fire. The firemen came from the front and damaged the rest of the house with water. And the smoke obviously did its own damage. So according to my PM, the house is totally uninhabitable, but that may not be what the insurance assesses.
Mine was just the kitchen and water damage in other area but the cost to rebuild exceeded the policy amount. This will more than likely be the case with you property as well
In Lufkin, that price point could be a B/C area, but you still are not going to want to rebuild as it would be cost prohibitive
Be diligent with your insurance company to get the adjuster out there
Do you think it is possible to counter the insurance offer if I have a breakdown from the contractor that is higher cost than what insurance is willing to pay?
Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
8y
The outcome will depend on if you have cash value or replacement coverage. They will come up with an estimate to do the repairs. My experience has been that the insurance companies use the same tools to do estimates that contractors do. Exactimate or some such. If they're off, its because they tend to use slightly lower materials and labor costs. You can argue with these, especially if you have a contractor to back up higher rates.
They they determine the depreciation based on expected lifetimes and how long things have been in use. I've mostly dealt with roofs. This is the "cash value". They will usually issue a check for that amount, less your deductible, right away (more or less). Then, if you hire someone to do the work, they will also pay you an additional amount to bring the total up to the replacement cost. So, if you decide not to rebuild, you'll get the cash value less deductible only. Basically, your actual loss will be made up to you.
Sounds like this is free and clear, which is great. If lenders are involved, the checks are made out to them, too. You have to get them involved. Sometimes they will just endorse a check. Sometimes they make you endorse it and then hold onto the money and pay contractors directly.
This was the cash purchase back in Nov 2017 - no lenders involved. My insurance policy does include the replacement cost and also the loss of rental cost. So, I am hoping that it is an easy resolution.
But, will I be allowed to walk away with, say they paid full restoration cost, the money and not rebuild? Or will they then readjust? Basically, will the money come with the clause that I am required to rebuild?
Downers Grove, IL · Member since 2017 · 366 posts · 165 votes
8y
If you have a mortgage on the property, not repairing might not be an option, and than there is ordinance compliance, that could create issues with leaving the property abandoned, may require rebuild or site clean up.
Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
8y
If you don't rebuild you will only get the actual cash value, not the full replacement cost. They will give you one check right away for the actual cash value, which is what they determine to be the costs of repairs, less the depreciation.
Here's an example for a roof, like the claims I've dealt with. They look at the damage and determine the entire roof needs replaced and determine that will costs $15K. They then say the roof is 10 years old out of a 25 year lifetime, so 40% of its life has been used up. That makes depreciation $6K (40% of $15K). And say your deductible is $1500. So they would give you a check for $15K - $6K (depreciation) - $1.5K (deductible) = $7.5K. If you do nothing, that's all you will get. If you do get the roof repaired, they would give you an additional check for the depreciation, bringing your total to $13.5K, which is the replacement cost less your deductible. If the roofer does the job for less than $15K, your second check would be for the roofer's actual costs, less the $7.5K they already gave you less your deductible. If the roofer charges more, you would submit a supplement to the claim to try to get the additional money. If the roofer wants more, its best to submit that supplement before doing the job and then agreeing on the price based on what the insurance will cover.
Charlotte, NC · Member since 2018 · 10 posts · 6 votes
8y
@David Khalfin Please read up about the concept of a Public Adjuster. A Public Adjuster would negotiate on your behalf with your insurance company. You may come out ahead even after the Public Adjuster takes a known percentage of the settlement with your insurance company. Plus the Public Adjuster would be able to answer all your questions and you could move forward in a more informed manner. You need someone knowledgeable on your side who can represent your side well. In New York you may find it easy to find a Public Adjuster with a great reputation.
Meanwhile, to get a few answers to the question, "But what if you'd rather buy another house somewhere else?" try this website, insure.dotcom /home-insurance /buying-instead-of-rebuilding-after-disaster dot html .
Investor · San Francisco, CA · Member since 2017 · 41 posts · 20 votes
8y
Hi! I had something similar happen with me. I got the house insured, the very next day, tenants burnt it down. The whole insurance claim thing took like 2 months. I had replacement cost, but not rent coverage. My insurance was way excess of what the house was worth. I bought the house turnkey in Buffalo, N.Y.. The insurance paid 100k. I got the rest of the frame demolished. I got the asbestos and everything done. It all put me back about 24k. I tried selling the plot but it isn't worth crap. I stopped paying taxes on it after it. I have a couple more months till the tax sale happens. Here I am, fingers crossed, waiting for the sale and hoping no one magically "falls" on my driveway or footpath and sues.
Minneapolis, MN · Member since 2017 · 353 posts · 223 votes
8y
If you bought the place for $54k-there is no way it is in an area that would support rebuilding. Just take the cash, unload the land if you can and move on to something else.
Rental Property Investor · Plainview, NY · Member since 2015 · 123 posts · 28 votes
8y
thank you @Ramesh M. - this is a good article although I feel like it is geared towards the home owners that lost the house to the fire. Will see if this applies also to the investors.
I definitely will not rush with any decisions; will probably need to speak to RE lawyer once I have some info on the proposed settlement.
@Account Closed, sorry to hear that! What would have happened if you decided to take the check but not rebuild - would they still give it to you?
Rental Property Investor · Plainview, NY · Member since 2015 · 123 posts · 28 votes
8y
@James W., it is a viable solution to the problem as long as they give me enough. Hopefully I do not lose on something that I just purchased 4 months ago. I might have to find some creative way out
Minneapolis, MN · Member since 2017 · 353 posts · 223 votes
8y
@David K. If you can get houses in that price range, I don't think it would make sense to build a new home with the money even if you get enough to do so. If homes are selling for that price level, that area doesn't support new construction in the area as it would cost much less to buy than build. You would be better off taking your money and buying another property than building a new one.
Rental Property Investor · Plainview, NY · Member since 2015 · 123 posts · 28 votes
8y
@James W., can this be the case that they give me a full assessed amount if I do decide to rehab, but give me less money if I walk away? They might force me into rebuilding - that is what i am afraid of the most
Minneapolis, MN · Member since 2017 · 353 posts · 223 votes
8y
I don't have experience working with insurance on something like this, but I don't think they will be able to give you more or less depending on if you plan to rebuild or not. If they were to force you into rebuilding for some reason, it might be your best path, but I am thinking it is more likely they will cut you a check and you will be better off taking the money to buy something else.
Until you get the check, it is all speculation now though.
Rental Property Investor · San Jose, CA · Member since 2015 · 401 posts · 221 votes
8y
You are lucky that your house burn down. The insurance company will give you more money than your house worth. Get a good public adjuster if you can find one.
After that, you can either rebuild and have a new house, or just sale the land and go buy a bigger house or a duplex.