House Fire: What should i do while its being rebuilt?

Question

Hello All,

Learning RE investor here, own multiple rentals, but acquired them while in the military and bought to live in, not bought as rentals firstly, but turned them into rentals when i would move to my next duty station.

Currently one of the rentals (Town House) i own recently burned down due to a kitchen fire. The fire didn't start in my unit, but it quickly was uncontrolled due to high winds coming off the mountains that day, taking out 51 townhouses before they got the fire under control. I had insurance on the property, so im covered in that aspect, because they are rebuilding my unit as part of a mass rebuild project jointly with the HOA insurance. So currently im paying mortgage and hoa on a property that is gone and im curious if there is something i should be looking into to make my situation better before its rebuilt.

I purchased the rental in 2009 when i was stationed in that area and due to the condition of it i got a really good deal on it did most of the repairs myself over time.....

Before the fire i was paying $280/month mortgage and $225/month hoa. Rent was earning me $950/month and was paying 12% on property management since i live 3/4 of the country away...

Last month i owed 34k on the loan still, but the last comparable property in the same property area sold for 139k prior to the fire, with the townhouse being rebuilt new here within the next year, i expect the value to increase with the updates in the rebuild...

Just wanted to get some input on situation, im financially able to cover this $505/month easily, but i feel like there is something i could be doing to offset this and figured the creative minds on here would help me out.

Jason Bott · Answer

@William Huston a few comments;

-If you had landlord policy, you should have had Loss or Rents coverage.  That would pay for your rental income while the property is being rebuilt.

-If you had a landlord policy, but did not have this coverage, than your insurance agent made a mistake and you could claim this loss under his E&O

-If you had it insured as a Homeowners policy (owner occupied), and had it rented, the insurance carrier could have denied the claim.

Did you have it insured any other way?

Michael Norris · Answer

If you have a landlord policy you should be able to claim Loss of Rent while the unit is being rebuilt up to the limit listed on your policy.

William Huston · Answer

The insurance on this property has been more so a torn in my side than anything, i bought the property when i was active duty in the military, had a normal insurance policy on the house, when i moved out and rented it i called USAA and asked them to give me coverage to rent the property to a family member, because at the time i had a family member living with me and they were taking over the property and paying me rent. I assumed they would have setup the insurance accordingly, but when the house fire occurred i found out that the agent didn't convert it to a landlord policy like i asked, but instead left it as is, but added personal property coverage and added appliance coverage. I saw a slight increase in my policy and just looking it over seeing appliance coverage and internal property coverage.. i assumed it was correct... turned out it wasnt and initially they declined my claim, but i hired a lawyer and kept track of the info like the person i talked to, date, time and such and they managed to go back and find the recording of the conversation and then accepted my claim, but they truly fought me tooth and nail on the amount. They refused to pay rental loss coverage, because it was not brought up in the conversation by word, and also at that time i found out that the central a/c that was on the property was never permitted correctly, so they refused to cover that cost even tho i had copies of a so called permit and bill of sale.

I bought the house in 2009, the a/c was a 1995 dated unit, inspection never noticed a lack of permit, the house was only permitted for central heat only, apparently in 1995 someone swapped out the central heat for a central a/c with heat. Then i bought the property and had a a/c company come replace it when it gave me issues shortly after moving in and the contractor never got an actual real permit. He gave me a fake copy and took my money and now with me dealing with the insurance the company is no longer in business. Just a very bad experience all around, so im just happy the insurance is covering the replacement of the property with internals built to same spec as original and im just gonna move on from there..

Joe Splitrock · Answer

@William Huston I am assuming the insurance company has settled with you, so you have money for the rebuild. Assuming you are settled, I would put the property on the MLS for sale as new construction as soon as possible. You probably need to wait until cleanup maybe stick framing, but should be able to sell prior to completion. Now is the time to cash out of this property.

In the mean time, you need to talk to your accountant about the tax ramifications. You need to understand what you can claim while it is uninhabitable and how the insurance money is handled versus rehab expenses.

Paying the HOA while the property is burned to the ground really sucks. I will add it as another reason I don't invest in properties with HOA.

Michael Lee · Answer

Hello and welcome to this site William!  I have a couple of suggestions to offer you.  You could try to get your unit rented or get another unit that has a positive cash flow that you desire.  You could also fill any time you might have to continue your education even if it's just reading a book.  I normally only say yes to SFH's under certain conditions but you sounded like you have a few units which you need to lower any vacancy fear.Y ou could look at investing into commercial sized complexes where the value reflects the income instead of sales comps.  They are a little harder to get into but has less competition and itt's not retail buyers.

You might have to form a partnership to do that but as long as you keep control it can be a better thing and you can have several units at the same address.  There is a partnership called Tenants In Common that allows each partner to own a different percentage of the ownership.  Just a thought.  Good luck to you!

House Fire: What should i do while its being rebuilt?

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