Rental property insurance claim

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Rental property insurance claim

Jose Cervantes
Rental Property Investor · Kansas City, MO · Member since 2020 · 3 posts · 3 votes

Hello everyone

My name is Jose, I am a newer landlord in the Midwest. I have recently lost a triplex to a fire and it’s a new experience for me. None of my tenants were hurt thankfully and I am working on moving them into my other units. My question to anyone whose had a similar citation happened would be what if the best option for the insurance claim? I’m not entirely sure what my options are, rebuild, pay mortgage and keep the remainder ?

Im just looking for advice on what would be my best option do leverage my insurance payout.

I’d appreciate any advice. Thank you.

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Carol Kilpatrick
Member since 2021 · 12 posts · 8 votes
5y

Hi Jose, first, so sorry you are going thru this. Here are some thoughts and feel free to pm me for more.

  1. -What was the origin and cause of loss, did the insurance company retain an origin and cause expert or is a well-known cause. Important because of 1) you want to be able to purchase insurance again and this will be on your record for three to fire years, so secure docs stating what happened and 2) Subrogation - if origin and cause is determined and money collected, not only may you get your deductible back, you're more likely to make it thru underwriting 
  2. -40% burned is a lot if not just smoke damage - check with the building department in your jurisdiction, if it costs 50% or more to rebuild, they are likely to require a teardown and rebuild due to safety code
  3. - Are you in an Agreed Value State - so where there is a fire and nothing to build on, i.e. teardown, will they give you the stated value. Different states have different rules, so consider that - case law matters to, for example in Georgia, there is verbiage similar to substantially damaged. 
  4. -Use a contractor who focuses on Fire Restoration if not a teardown.
  5. -If you have a mortgagee you have replacement cost, so yes, you absolutely have options to teardown and not rebuild, rebuild, pay off mortgage and get cash, and many offer options to buy somewhere else and use the replacement cost. Talk to your adjuster. 
  6. -Ordinance and law - if you have this coverage and you should unless super new, it will cover additional costs to bring to code up to 10%, 25% or 50%. Just today spoke with a client who was forced to bring foundation up a full foot after hurricane, all from tree falling on house and changes in code.
  7. -Financials - Fair rental value - what's the difference between continuing and non-continuing expenses. That one number. What is the cost to tear down (often 5% to 6%), clean lot and sell and buy another rental or rebuild.
  8. Hope this helps!
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  • David Avery
    Flipper/Rehabber · Phoenix Arizona · Member since 2020 · 1k+ posts · 686 votes
    5y

    Is the triplex livable at all?

    Is it 10% burn or 80 % burn?

    What is your insurance going to cover?

    Burns are hard for owners because the city makes you come up to all codes @ new sprinklers and two sets of  exits per unit.  Everything comes up to todays code!!

    Contractors hate to work on fire/water/smoke properties.  It is very dirty and their bids will show that.  Note many contractors have ever worked with fire damage properties.

    If it is burned more than 40 % then it is almost not worth it.  

    Then you have to deal with demo and removal,.  Mean while you have to make it a safe building,

    Sometimes a big can of worms,   Some wholesaler's will try and move it but all these factors will come into play with a buyer.

    I have done several fire properties and the buyer needs to get a great deal.

    0Reply
  • Carol Kilpatrick
    Member since 2021 · 12 posts · 8 votes
    5y

    Hi Jose, first, so sorry you are going thru this. Here are some thoughts and feel free to pm me for more.

    1. -What was the origin and cause of loss, did the insurance company retain an origin and cause expert or is a well-known cause. Important because of 1) you want to be able to purchase insurance again and this will be on your record for three to fire years, so secure docs stating what happened and 2) Subrogation - if origin and cause is determined and money collected, not only may you get your deductible back, you're more likely to make it thru underwriting 
    2. -40% burned is a lot if not just smoke damage - check with the building department in your jurisdiction, if it costs 50% or more to rebuild, they are likely to require a teardown and rebuild due to safety code
    3. - Are you in an Agreed Value State - so where there is a fire and nothing to build on, i.e. teardown, will they give you the stated value. Different states have different rules, so consider that - case law matters to, for example in Georgia, there is verbiage similar to substantially damaged. 
    4. -Use a contractor who focuses on Fire Restoration if not a teardown.
    5. -If you have a mortgagee you have replacement cost, so yes, you absolutely have options to teardown and not rebuild, rebuild, pay off mortgage and get cash, and many offer options to buy somewhere else and use the replacement cost. Talk to your adjuster. 
    6. -Ordinance and law - if you have this coverage and you should unless super new, it will cover additional costs to bring to code up to 10%, 25% or 50%. Just today spoke with a client who was forced to bring foundation up a full foot after hurricane, all from tree falling on house and changes in code.
    7. -Financials - Fair rental value - what's the difference between continuing and non-continuing expenses. That one number. What is the cost to tear down (often 5% to 6%), clean lot and sell and buy another rental or rebuild.
    8. Hope this helps!
    4Reply
  • Peter M.
    Rental Property Investor · DFW, TX · Member since 2013 · 953 posts · 910 votes
    5y

    @Jose Cervantes Do you have an agent you got you policy through? If so they should be able to talk you through all the options. If not, contact some other insurance agents and ask them to look at your policy. Insurance claims are never fun, just be sure to vet your contractor hard. Getting a crappy contractor started on the job on top of dealing with the insurance company will quickly turn into a nightmare. I just finished paying on a debacle of a situation that happened almost 2 years ago because of a bad contractor. Good luck

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