First Multi-family Burned Down in Four Months. Help!

Multi-Family and Apartment Investing
9yFollow

First Multi-family Burned Down in Four Months. Help!

Albert D.
Investor · Germantown, TN · Member since 2015 · 86 posts · 26 votes

What the chance!  The worst wildfire in Gatlinburg, TN in a decade somehow found way to my apartment buildings in downtown (near town center).  Luckily all tenants were evacuated by police the night before and no one was injured.  However, most of them lost all their personal belongings and furniture to the fire.  I provided $1,000 each to all eight families to help them push through this tough period.  Hopefully they can find new places to live soon.

I'm now working with bank and insurance company to work out mortgage and insurance.  Also start thinking about options to rebuild.  Anybody has any experience in these matter please share your thoughts.  Any thoughts are welcome.  It'll be even more helpful if you can help answer these questions:

1. What to watch out for when going through the insurance claim process?  

2. What are the main steps and the timeline should I expect of insurance claim?

3. I'm covered by property damage and business income.  Do I need to make separate claims?

4. How should I think about rebuild?

5. Can I build condos instead of apartments on the same site?  What's the pros of cons building condos vs. apts?

Here are some pictures of the leftover of my properties.

4Reply
29 views

Most Popular Reply

Account Closed
Rental Property Investor · Friendswood, TX · Member since 2010 · 663 posts · 508 votes
9y

@Albert D.

We have had a fire on an apartment ( but this particular one was too small versus the deductible) , a home catch fire while under contract, house burn down (part of a mobile home park ) while under contract, hurricane on apartments while under contract, hail storm roof and siding replacement on a house, and i also contracted the repairs of a commercial storefront that had a car go through it. Talking with other property owners, i have seen other insurance issues too. It seems generally speaking, the property owner can come out better ahead of the catastrophe than before.  r 


Not an expert but here is what I would suggest . Don't sign any contracts! Im assuming there will shortly be a slew of contractors coming through promising this that etc trying to get all these insurance jobs, don't do that on a whim. Document everything! Pictures , videos, everything.  Find out if you need to do something to prevent further damage , I'm assuming its trashed but say if its salvageable  like tapping the roof if there is a hole ( so no rain gets in ).  If these were hosed down by a fire department thats going to have its own damage. Get specific info for needing to file your business income insurance so you can keep the mortgage paid  but the provisions on this will vary and what they need etc.  Talk to your insurance company as you are doing and they will advise.  I think they will connect you with an adjuster to estimate the damages.  You may need to supplement this with your own stuff to figure out cost of repair.  If it goes to rebuild, there will be other issues potentially. I have heard where its a total loss and people just used the proceeds to pay the mortgage but then still were able to salvage a portion of the property.  


You are going to want to get with your zoning department regarding rebuilding and what your options are.  Sometimes uses are grandfather but they stipulate if 50% more of a structure is burned you have to rebuild to todays standard. Insurance companies commonly have a provision for this.  Go through your policy as well .  If its repair, the insurance company may need to structure your payments to you but since you have a lien holder, you may have to work with them on a withdrawal basis( so they know the $$ goes towards their asset repair) . 


Some insurance stuff may be state specific but sounds like you are already on the right track.  If there was a lot of housing damaged in the area, there will be a shortage of housing and the quicker the turn, the quicker you can offer replacement housing for those that need it. 


Your lease should stipulate that tenants should carry rental insurance .  This can go in depth a lot more but thats a quick crash course on some things to do.  Good luck.  

8Reply
See this reply in the discussion

51 Replies

Jump to latestLatest
  • Chris Harrington
    Investor · Overland Park, KS · Member since 2014 · 19 posts · 27 votes
    9y

    @Albert D. Do you have replacement coverage or ACV - Actual Cash Value?  Most investors go with ACV and thats fine when the claim is small.  Lousy when its totaled.  How do I know? It happened to me about 5 years ago.  Collected one months rent on an 8 plex and then an electrical fire destroyed the property.  Fire dept didn't help either; there was 3 ft of standing water in the basement before they were  finished.  Learned the hard way that ACV is near worthless.  Paid $180k for the property and got a check for $80k. Replacement costs at the time were north of $600k. Ins also provided code coverage up to $50k but they  fought tooth and nail to not pay a dime above and beyond the area where the fire started even though they totaled the property.  

    The business income replacement is typically 12 months based on whatever leases you had in place at the time of the damage.  My ins company sent me a check for 12 months for the rent. Don't accept anything less then what your policy provides.

    Good luck and so sorry to hear about the fire.

    1Reply
  • Reed Schlesinger
    Atlanta, GA · Member since 2016 · 36 posts · 17 votes
    9y

    Glad to hear no one was heart. I can't imagine how the families must feel hopefully they can get situated close by soon. I am not sure how insurance etc would work with all that but seems like an overwhelming process. Best of Luck and report back with things that you 

    0Reply
  • Albert D.
    OP
    Investor · Germantown, TN · Member since 2015 · 86 posts · 26 votes
    9y

    @Chris Harrington, @Derek Lacy, @Michael H.,

    The policy is not an easy read.  I tried reading the whole thing the second time tonight.  Not fun.  But here is what I got.

    Total loss or not: 

    Adjusters' initial assessment was both buildings at "total loss".

    ACV or replacement cost: 

    The policy provides options: I can make a claim based on ACV instead of replacement cost.  In the event I elect to have loss or damage settled on an ACV basis, I may still make a claim on a replacement cost basis as long as I notify the insurance company within 180 days after the loss or damage.  

    Not sure how ACV is determined.  But if it is based on my actual purchase price, then I'll go with the replacement cost basis as it is higher than my purchase price.

    Value of Covered Property (Loss Payment): 

    Here is how the insurance company determines the value of the total loss (in my case).  The key variables are replacement cost (RC) without deduction for depreciation (e.g., $100,000), 80% of the RC (i.e., $80,000), Limit of insurance (e.g., $75,000), and ACV (e.g., $70,000).    

    If Limit is above 80% of RC, then insurance company will pay RC ($100,000);

    If Limit is below 80% of RC, then insurance company will pay the greater of ACV (e.g., $70,000) and actual loss times the ratio of Limit over the 80% of  RC ( e.g., total loss of $75,000 * Limit $75,000/80%of RC $80,000=$70,312).  At total loss, insurance Loss Payment should be $70,312, the greater of ACV ($70,000) and the $70,312.

    In my case, the Limit is almost identical as the 80% RC, within $100 difference.  I'm not sure how they will treat that.  Possibly, they'll try to push it to $70,312 vs. the $100,000.  :)

    0Reply
  • Albert D.
    OP
    Investor · Germantown, TN · Member since 2015 · 86 posts · 26 votes
    9y

    @Michael H.,

    The Company did state a replacement value (e.g., $100,000) in a letter to me couple of weeks ago, in which they requested mandated improvement of property and increase of coverage.

    I increased the coverage Limit (e.g., $75,000) in early Nov and the effective day was backdated to end of July (over 90 days) by the company/agent.  

    So here is the question:

    In the event of a Total Loss, should the insurance company make loss payment up to the insured Limit ($75,000) or the Stated Value ($100,000) in TN?  Note that the Stated Value is not in the official policy but in a separate letter, which was issued to me by mail from the insurance company.  The letter was the result of an inspection conducted by the insurance company.  In the letter, the company cited the replacement value of $100,000 as reason why I need to increase coverage limit.  The final limit I increased my coverage is close to 80% of this stated replacement value.

    0Reply
  • Brie SchmidtBusiness Member
    Moderator
    Real Estate Broker · Chicago, IL · Member since 2013 · 6k+ posts · 5k+ votes
    9y
    Originally posted by @Albert D.:

    What the chance!  The worst wildfire in Gatlinburg, TN in a decade somehow found way to my apartment buildings in downtown (near town center).  Luckily all tenants were evacuated by police the night before and no one was injured.  However, most of them lost all their personal belongings and furniture to the fire.  I provided $1,000 each to all eight families to help them push through this tough period.  Hopefully they can find new places to live soon.

    I'm now working with bank and insurance company to work out mortgage and insurance.  Also start thinking about options to rebuild.  Anybody has any experience in these matter please share your thoughts.  Any thoughts are welcome.  It'll be even more helpful if you can help answer these questions:

    1. What to watch out for when going through the insurance claim process?  

    2. What are the main steps and the timeline should I expect of insurance claim?

    3. I'm covered by property damage and business income.  Do I need to make separate claims?

    4. How should I think about rebuild?

    5. Can I build condos instead of apartments on the same site?  What's the pros of cons building condos vs. apts?

    Here are some pictures of the leftover of my properties.

    Sorry this happened to you.  I STRONGLY SUGGEST getting a public adjuster involved.  They work on your behalf with the insurance company.  I had a 4 unit first last year and wasn't happy with the original payout and my public adjuster got me 150% more than the original offer  I can't imagine not using one.  

    Our fire was March 2016, the first offer was in April, in May we approved the offer with the public adjuster.  I got the first part of the check (the city withholds 25% until the work is done) in June or July.  We torn down the property which took till October and we got the final payout in November

    As far as the rebuild, it would depend on what the zoning allows for.  

    Podcast Guest on Show #132
    Second City Real Estate4.821 Reviews
    WebsiteView Page
    0Reply
  • Brie SchmidtBusiness Member
    Moderator
    Real Estate Broker · Chicago, IL · Member since 2013 · 6k+ posts · 5k+ votes
    9y

    Sorry this happened to you. I STRONGLY SUGGEST getting a public adjuster involved. They work on your behalf with the insurance company. I had a 4 unit first last year and wasn't happy with the original payout and my public adjuster got me 150% more than the original offer I can't imagine not using one.

    Our fire was March 2016, the first offer was in April, in May we approved the offer with the public adjuster. I got the first part of the check (the city withholds 25% until the work is done) in June or July. We torn down the property which took till October and we got the final payout in November

    As far as the rebuild, it would depend on what the zoning allows for.

    Podcast Guest on Show #132
    Second City Real Estate4.821 Reviews
    WebsiteView Page
    1Reply
  • Brie SchmidtBusiness Member
    Moderator
    Real Estate Broker · Chicago, IL · Member since 2013 · 6k+ posts · 5k+ votes
    9y

    From my experience, you will get up to the policy limit.  They may cover additional things like debris removal above and beyond the policy limit, but that is it. 

    Podcast Guest on Show #132
    Second City Real Estate4.821 Reviews
    WebsiteView Page
    0Reply
  • Anthony Wienke
    Missoula, MT · Member since 2016 · 163 posts · 55 votes
    9y

    This is why I personally believe in making it a policy that all tenants have renters insurance as part of their rental agreement.

    It only costs about 18 dollars a month and if worse case scenario (fire, flood, theft) happens, the tenants are not left out in the cold and/or holding you the owner liable. It also makes me feel good that my tenants will be taken care of if something goes wrong.

    They can snicker and complain all they want about it but you can bet they'll be scrambling to find that claims phone number when the s%!& hits the fan lol.

    Any who, im sorry for the loss of the building and the hardships your tenants are going through. Hope it all works out for you and them.

    0Reply
  • Albert D.
    OP
    Investor · Germantown, TN · Member since 2015 · 86 posts · 26 votes
    9y

    @Brie Schmidt,

    Thanks Brie.  Just got a call from insurance adjuster.  They'll pay property loss to the limit.  I think that's as high as they can go.  No need for public adjuster here, right?  They'll send checks in the next 10 business days.  My bank's name will be on the checks too.  Sounds like I can use all fund for rebuilding then pay bank off after completion and whatever left belongs to me.  I'm impressed with the speed insurance company moves on my case.  I know there are over 1,600 structures destroyed in Gatlinburg areas right now.

    On debris, when can you claim the extra cost for removing that on top of the limit?

    I'm also send leases to adjuster for the business income loss claim.  We'll start with six months.  I understand it is not final.  But not sure how it goes.  Do we extend if rebuild goes beyond six months?  I'm almost certain that'll be the case given the amount of rebuild going on at the same time, shortage of labor and city resources.

    0Reply
  • Albert D.
    OP
    Investor · Germantown, TN · Member since 2015 · 86 posts · 26 votes
    9y

    To all who care about the tenants,

    Here is a quick update.  We gave each tenant $1,000 and refunded Dec rents to whoever prepaid already.  This will help them on personal property loss.  They can also claim with their own carriers if they have renter's insurance.  We will be able to accommodate most of them to another property I own, about 5-minutes drive from this one.  They are very appreciative to what we did for them and already asking to move back in once it is rebuilt.  

    2Reply
  • Michael H.
    Investor · Kansas City, MO · Member since 2016 · 130 posts · 64 votes
    9y
    Albert D. I highly recommend you do not get a PA. It's pointless at this time. The insurance company is not disputing anything and paying your limits. If there is discrepancies in the policy limit change then an attorney would be better if needed. When a place is totaled there is far far less the insurance company to dispute. The Department of Insurance is on your side and the law. The insurance companies aren't all bad as some would make you believe. Just because the policy says 12 months pay doesn't mean you get 12 months pay. It's the reasonable amount of time it take to rebuild. If me and the GC agree it would take 6 months to rebuild I always said 7 because it takes a month to get money from the lien holder, the plans to get going, city permits, etc. If it looks like it will take longer than the allotted amount of time just give them plenty of notice and a reason why and they'll be lenient. Don't wait until it's about to expire and then ask for more time adjusters hate that. Insurance companies will handle the debris differently. Most policies I worked had a max 10% of the policy limit for this. Again it doesn't mean you get all of it. It's UP TO. don't try to get too much extra because they're experienced to know inflated debris costs. We typically paid for it once demo was completed and passed and city ordinances. We paid it straight to the policy holder because the work was already done.
    1Reply
  • Brie SchmidtBusiness Member
    Moderator
    Real Estate Broker · Chicago, IL · Member since 2013 · 6k+ posts · 5k+ votes
    9y
    Originally posted by @Albert D.:

    @Brie Schmidt,

    Thanks Brie.  Just got a call from insurance adjuster.  They'll pay property loss to the limit.  I think that's as high as they can go.  No need for public adjuster here, right?  They'll send checks in the next 10 business days.  My bank's name will be on the checks too.  Sounds like I can use all fund for rebuilding then pay bank off after completion and whatever left belongs to me.  I'm impressed with the speed insurance company moves on my case.  I know there are over 1,600 structures destroyed in Gatlinburg areas right now.

    On debris, when can you claim the extra cost for removing that on top of the limit?

    I'm also send leases to adjuster for the business income loss claim.  We'll start with six months.  I understand it is not final.  But not sure how it goes.  Do we extend if rebuild goes beyond six months?  I'm almost certain that'll be the case given the amount of rebuild going on at the same time, shortage of labor and city resources.

     I posted that before I read about the policy limit, so yea there is no need.  

    For debris, it depends on your policy.  We had two fires this year, the first one paid for tarping and securing the property on top of the payout and the second was a garage and they covered debris removal on top of the limit. 

    I don't know about the business loss, We got 5 months I think because we were tearing it down

    Podcast Guest on Show #132
    Second City Real Estate4.821 Reviews
    WebsiteView Page
    0Reply
  • Michael H.
    Investor · Kansas City, MO · Member since 2016 · 130 posts · 64 votes
    9y
    Also if you want to rebuild bigger or better you will be able to do so. If you have an extended limit policy endorsement that doesn't mean you get to use it for bigger and better. It means if it takes additional money to rebuild what you had then it's available. If that endorsement is on your policy and you want bigger verify the costs to replace what you had BEFORE you start building if you expect to get any more money. Have your GC prepare the estimate to rebuild and have it available. I'm sure they can do this if they use Xactimate estimate software.
    0Reply
  • Albert D.
    OP
    Investor · Germantown, TN · Member since 2015 · 86 posts · 26 votes
    9y

    @Michael H.,

    Thank you both.  Very helpful.

    Yes, totally understand the 12 months is "up to".  Just wanted to make sure the six months is not final if we have to go beyond that.

    Yes, there is a limit on debris removal, $25,000 beyond the limit.  Also understood this is up to pending actual spending.  Appreciate you explanation on how this process works and timing.

    I asked the bigger and better question to my adjuster.  He said I can do whatever as it is my (and bank's) money.  But I do get it on the extended months qualifier.  Thanks for pointer on the Xactimate software.  Guess it is easy to learn how to use if GC doesn't used it before?

    1Reply
  • Albert D.
    OP
    Investor · Germantown, TN · Member since 2015 · 86 posts · 26 votes
    9y

    @Anthony Wienke,

    Great, great point.  Will be in my lease agreement going forward.

    0Reply
  • Anthony Wienke
    Missoula, MT · Member since 2016 · 163 posts · 55 votes
    9y

    @Albert D.

    I've stayed in apartments that had renters insurance as a policy before. I always thought that was a good idea when I rented my first place but certainly don't let me twist your decisions into making it mandatory.

    You may just realize that it could chase away some possible tenants.

    0Reply
  • Albert D.
    OP
    Investor · Germantown, TN · Member since 2015 · 86 posts · 26 votes
    9y

    @Anthony Wienke,

    Sure.  But after this incident, I do believe it should be mandate to protect the renters.  I may well give other incentives to help them enforce this policy.  It'll help them a great deal when they need it most.

    0Reply
  • Albert D.
    OP
    Investor · Germantown, TN · Member since 2015 · 86 posts · 26 votes
    9y

    To all,

    I did some digging on the TN VPL, Valued Policy Law, and found answer to my previous questions on the Loss Payment value the insurance company should pay in the event of a total loss by fire in TN.

    Here is the answer: In the situation described above, the loss payment should be the Limit of coverage as stated in the policy.  That's what the insurance company offered me this morning.  I was confused with the total replacement cost and the limit, as to which the Loss payment should equal.  Found some great articles on the Tennessee Insurance Litigation Blog.  Several lawyers/partners wrote about the cases on the VPL.  The consensus is the Limit should be the Loss Payment, no deductibles.  Some arguments around how to define "total loss".  Thought I shall this great resources with you all.

    1Reply
  • Boots Bonner
    Investor · Nashville, TN · Member since 2016 · 42 posts · 68 votes
    9y

    I assume your tenants know to contact the Dollywood Foundation - My People Fund. (Dolly Parton's foundation). They are providing $1,000 a month for 6 months to the families that are displaced by the fire....

    0Reply
  • Albert D.
    OP
    Investor · Germantown, TN · Member since 2015 · 86 posts · 26 votes
    9y
    Boots Bonner , Great info. I'll point them that way. That'll surely help!
    0Reply
  • Joe SplitrockPro Member
    Moderator
    Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
    9y

    @Albert D. others are addressing the insurance questions, so I will comment on 4 and 5.

    4. Rebuild should focus on best use of the land. Is there an opportunity to increase the number of units or make the units larger? For example changing a 4 unit to 6 unit will increase your units/income or changing them from 2 to 3 bedroom units will get more income per unit.

    5. The only difference between condos and apartments is ownership. Apartment buildings are regularly converted to condos, by just selling off the units individually and forming an association for the common areas. There is no difference in physical layout. Condos are only worth investigating if you are planning to sell the property.

    0Reply
  • Albert D.
    OP
    Investor · Germantown, TN · Member since 2015 · 86 posts · 26 votes
    9y

    @Joe Splitrock, @Account Closed

    That's right.  I think I'm pretty clear on the insurance piece but feel muddy on the rebuild.

    I was thinking about adding units and converting to condos.  Here are my questions to you experienced BPers:

    1. What steps need to be taken to convert apt to condos?  How long and how much?  What are the blocks I need to be aware of?  Currently I have one tax parcel number and dual-use of the land (R-2 and C-2).  Originally we had two stand-still four-plex buildings on the land.

    2. Is there any checklist, timeline, cost estimate on BP or somewhere that guides me through entire rebuild process (from demolish to rental ready)?  Any pitfalls I need to watch out for (e.g., contractor liens, etc.)?

    Many thanks,

    Albert

    0Reply
  • Account Closed
    Rental Property Investor · Friendswood, TX · Member since 2010 · 663 posts · 508 votes
    9y

    We have operated condos but I have not developed them. I have seen conversions from apartments that had a laundry list of things that needed to be done like fire sprinklers and you need to get the docs setup to operate the HOA structure. You may also risk getting a higher tax assessment on condos ( maybe not though). J Scott has a post about a build he did, that might be a good start for you if you have not seen it already.

    0Reply
  • Kishore P.
    Realtor · Farmington, MI · Member since 2016 · 126 posts · 69 votes
    9y

    @Albert D

    I know you and your renters have been through hell and back. When you have a moment, Would you consider summarizing your experience so we may learn from your experience.

    Here are a few questions that right off my head:

    • How? and What would you evaluate the insurance coverage, what specifically should you look for in the Insurance Contract?
    • Would you recommend collecting a premium from Renters to cover Renters Insurance?
    • What and how? do you propose as an Investor Plan and prepare for such an eventuality (FIRE/HURRICANE/TORNADO/FLOODING) In other words What would your Disaster Recovery Plan be?

    Kishore. P

    0Reply
  • Stephen Masek
    Investor · Mission Viejo, CA · Member since 2012 · 627 posts · 204 votes
    9y

    If you did not have asbestos and lead surveys, that will be needed and will affect the rebuild or demolition costs.   

    0Reply
Join the conversationCreate a free account to reply, vote on answers and follow this thread.
Log InJoin for Free