Houston Insurance INSANE!

27 Replies | Houston, Texas

Hi All,

I just entered the Houston market with the goal of buying long term rentals. I closed something in Missouri City the other day, and the insurance was $3,000! The home was worth about 145k. 

Im now underwriting a 1996 brick build that I currently have in contract for 148k, its worth about $225k, and only needs carpet and paint. My basis is at 77% of Market value and my net yield is only 5.65% before debt! I know property taxes are insane, but the insurance kills it. 

Any help??

Originally posted by @Jared Vidales :

Hi All,

I just entered the Houston market with the goal of buying long term rentals. I closed something in Missouri City the other day, and the insurance was $3,000! The home was worth about 145k. 

Im now underwriting a 1996 brick build that I currently have in contract for 148k, its worth about $225k, and only needs carpet and paint. My basis is at 77% of Market value and my net yield is only 5.65% before debt! I know property taxes are insane, but the insurance kills it. 

Any help??

I hear it rains in Houston.

I stick to the Dallas to Austin to San Antonio corridor because Houston seems to have a "100 year flood" every other year.

Your insurance in Houston will be higher because of flooding and hurricane risk. That sounds high though. I’d get multiple quotes

Welcome to Texas where taxes and insurance make you want to pull your hair out. And you don't even live here to get the benefit of not paying income tax. Car insurance is even worse. My only suggestion is to shop around. If its in a flood plain you don't have much choice. Caveat emptor. What interest rate are you getting for your loan? At least you are a few bucks cash flow positive as long as it is under 7%. Might want to see if you can get better insurance rates but if not, it might be worth selling after a year. 

Obviously you did not shop around. Insurance is higher than other areas of the country, 3k per year is WAY off the charts. They saw an out of towner and got him!!

Just like anything else, get several quotes. When the tile guy says it will be $10/sf labor are you going to go with him?? I hope not. Get a few quotes. As mentioned, it should be about $1000 to 1300 per year.

Account Closed there are a number of factors that could impact that rate.  We see that sometimes a particular property in an area can have a higher rate, because of what @Account Closed said.  That property may have gotten hit a few times or is in a high-risk area. 

Shoot me a PM and I can help out.  

@Jared Vidales adding to the pile. All of my SFR insurance policies average about $1200-1300/yr and even adding a flood insurance policy is an additional $600/yr, so you should def shop around. $3K is way too high.

Originally posted by @Jared Vidales :

Hi All,

I just entered the Houston market with the goal of buying long term rentals. I closed something in Missouri City the other day, and the insurance was $3,000! The home was worth about 145k. 

Im now underwriting a 1996 brick build that I currently have in contract for 148k, its worth about $225k, and only needs carpet and paint. My basis is at 77% of Market value and my net yield is only 5.65% before debt! I know property taxes are insane, but the insurance kills it. 

Any help??

 I went to a class on Homeowner's Insurance (yeah, I lead an exciting life) and the agent said that there is a national data base of claims. Any time a property or an owner has a claim, it goes into the database and that property and owner will have higher rates for a time. The agent said that even calling to inquire about collecting insurance on a loss triggers entering the data into the database so be very certain you have a loss big enough to worry about before calling. If the property suffered loss and the insurance was used, expect the rates to be more. I don't know if the property in question fits into that area, but maybe your agent can tell you. Remember that an Insurance Company exists to make a profit for the investors, they are not there to "make you whole" unless they are forced to. (Told to me by an attorney ;-)

An insurance provider can pull records of properties that have had claims, included repeat loses. Many of the flood homes in Houston will have high insurance rates if they are in the flood plain and don't have elevation certificates. Houston does have a flood issue, so you just have to be very diligent in finding out the claim history for any properties you purchase. And keep in mind the problem has gotten worse, not better, due to all the growth. It increases runoff and results in waters rising faster than draining. If you're keeping the properties, make sure they're not in an area that has a flooding issue because a property that has not flooded in the past may flood in the future.

Check out the insurance provider partnered with National REIA - through their buying power of 1000's of investors across the country, they have some great rates with Arcana - there's a special national REIA link on their site or PM me and I can send it to you.

I just quoted a vacant policy that was 1/2 of what I have paid with 3 other companies.

You have to shop it every year! I recently changed providers to one where the calculated replacement cost was about 20% lower then my existing provider, this the premium was significantly lower. I suspect my former provider was looking to get out of the Gulf Coast market.

That's why I paid off my SFH home loans. The ins was too high. While I liked having somewhat cheap SFH money, when I factored in what it REALLY cost (due to having to get ins) my unleveraged return was better.

The best rates I've ever received were through Costco (Ameriprise). However, they do not insure rental properties. You may wish to obtain a quote from Safeco. 

Originally posted by @Glen Mauldin :

You have to shop it every year! I recently changed providers to one where the calculated replacement cost was about 20% lower then my existing provider, this the premium was significantly lower. I suspect my former provider was looking to get out of the Gulf Coast market.

Glen you nailed it sir.  When carriers get 'full' in a certain market they just up the rates and it all takes care of itself.  Auto, home, whatever P&C market you can name.  It's a risk management practice, and they all do it.

What kind of coverage do you usually get for your rental property?

Fire, dwelling, liability? Do you have extended coverage like Windstorm, Hurricane and Hail, Explosion, Aircraft and Vehicles, Riot and Civil Commotion?

Thanks!

@Jared Vidales   I live and invest in Houston like many other Houstonian investors like @Tony Castronovo .   Yes insurance is high but not in all areas it depends so please do not generalize that Houston is high insurance. Yes we do flood in areas but not in all areas, again folks from out of state please do not generalize. Can you name a state which doesn't have natural disaster?  California is prone to Earthquakes, East coast  is all about snow storms, Mid west is about flood  and I can keep naming things. You might find may be few states which is totally disaster free and no body would want live there.  

We, Houston is 4th largest metro in the state for a reason, people love moving here even with Hurricane and flood because its welcoming city. We have expanded so much that our spans miles and miles and it all depends on where you want to invest and secure your investment goal.  If you don't know the area just sitting from out of state, you will get lost and lose it.  Come on folks!! 

Anyway, I have multiple properties in Missouri City area but if you are buying east of Fort Bend tollway your insurance is going to be high because you are almost close to Brazoria  county. Brazoria county is considered close to coast and have high windstorm coverage insurance. Not all Missouri City has high insurance. I just closed property last Friday, my 5th rental and we just paid $1342 as rental Dwelling policy for that property. It's 2005 built and 2300 sqft. I have another property which is 1983 built and paying $1900 because of more coverage due to loan on it. So it all depends what's the coverage, where is the location, how old is the house, what has been updated and so forth

Hope this helps. If you need more direction, find me for help.

Originally posted by @Jared Vidales :

Hi All,

I just entered the Houston market with the goal of buying long term rentals. I closed something in Missouri City the other day, and the insurance was $3,000! The home was worth about 145k. 

Im now underwriting a 1996 brick build that I currently have in contract for 148k, its worth about $225k, and only needs carpet and paint. My basis is at 77% of Market value and my net yield is only 5.65% before debt! I know property taxes are insane, but the insurance kills it. 

Any help??

Any help?  Yeah, you're paying too much for insurance.  Get the MINIMUM.  Or none.  I pay about a "$.70 rate" meaning each $100 cost me $.70 to insure.  So a $150k house should be ~$1000/year (or rather $100k of coverage.  You should be insuring to your LOAN VALUE not home value.  I have a $10m property that has $3m of insurance since that's what my loan amount is)

Originally posted by Account Closed:
Originally posted by @Jared Vidales:

Hi All,

I just entered the Houston market with the goal of buying long term rentals. I closed something in Missouri City the other day, and the insurance was $3,000! The home was worth about 145k. 

Im now underwriting a 1996 brick build that I currently have in contract for 148k, its worth about $225k, and only needs carpet and paint. My basis is at 77% of Market value and my net yield is only 5.65% before debt! I know property taxes are insane, but the insurance kills it. 

Any help??

 I went to a class on Homeowner's Insurance (yeah, I lead an exciting life) and the agent said that there is a national data base of claims. Any time a property or an owner has a claim, it goes into the database and that property and owner will have higher rates for a time. The agent said that even calling to inquire about collecting insurance on a loss triggers entering the data into the database so be very certain you have a loss big enough to worry about before calling. If the property suffered loss and the insurance was used, expect the rates to be more. I don't know if the property in question fits into that area, but maybe your agent can tell you. Remember that an Insurance Company exists to make a profit for the investors, they are not there to "make you whole" unless they are forced to. (Told to me by an attorney ;-)

Another reason I get cheap insurance, with as high deductible as I can.  I don't plan on ever using it unless there is a TOTAL loss.  In 11 years of buying in Houston (2000 units) I've NEVER had a claim.  And for that, I save about $250k/year vs. if I got 'better' insurance. 

@Cody L. So, with that $10m dollar property, if it burnt to the ground, can you rebuild it for $3m? Does it cover loss of income when it's being rebuild? With your portfolio maybe you can take these risks, however, not everyone can.

Insurances is high and will always be part of the equation. If you ever been sued as a landlord/owner, you will gladly pay for insurance and, also an umbrella policy. I wouldn't think of not carrying insurance on any of my properties, even if it paid off. For most small inverters like me, one disaster could kill 1 to 3 years of profits or even put you out of the game entirely.

So, insurance should be tailored to the individual’s portfolio to minimize risk.

 

@Dave Chapa I cannot agree more. You are spot on. It has minimize your risk when you are hit by big disaster and cover you with less out of pocket. I know keeping high deductible is good idea but whether you can manage it when you have 10 properties with 2% deductible and hurricane hits 5 of them you have to shelve out 2% for all 5 properties. It has to be tailor made and don't forget carry Umbrella. it doesn't cost much. 

Houston landlords, flippers, investors:  

Any investor friendly agent you recommend?  I need a quote for 15 rental properties.  They are about to expire 1/1/2019.  I don't like benchmark insurance anymore so looking for another agent.  

TIA