House caught on fire and insurance didn't pay!

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House caught on fire and insurance didn't pay!

Boone Tyson
Real Estate Agent · McAllen Texas · Member since 2018 · 188 posts · 186 votes

Investment Info:

Single-family residence fix & flip investment in Mcallen.

Purchase price: $80,000
Cash invested: $40,000
Sale price: $104,000

Had it under contract to sale at 165K and it caught on fire on the day of closing! The money was en route to our account, we had already signed and had to stop the recording and the wire so that we didn't burn someone else's house down. After that, insurance wouldn't pay and we decided to lick our wounds and move on instead of trying to break even on it

What made you interested in investing in this type of deal?

Was a great flip. We were scheduled to clear about 35K and instead lost about 20K.

How did you find this deal and how did you negotiate it?

Wholesaler - paid what they wanted

How did you finance this deal?

LOC

How did you add value to the deal?

complete remodel and permitted extra living square footage.

What was the outcome?

Lost 20K

Lessons learned? Challenges?

Sometimes its better to take a loss and move on rather than letting ego make your decisions.
Get clear on what insurance is needed.
Know who you're in business with.

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Most Popular Reply

Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
5y
Originally posted by @Boone Tyson:

@Ruth Geller because of the vacancy. Our insurance agent directed us to a bad policy for a flip, but it’s my fault for not asking the right questions. It happened to be on the queue around the same time we had a hurricane locally so I think that played a role in the decision. There were a lot of denied claims locally.

there should be a blog on insurance.. this type of insurance denial happens to landlords quite frequently when they dont realize that their policy loses coverage if their house has been vacant more than ( 90 days is typical) and that you need a vacant home rider. 

Yes for flipping you need builders risk. 

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  • Joe SplitrockPro Member
    Moderator
    Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
    5y
    Originally posted by @Boone Tyson:

    @Joe Splitrock I take responsibility for not explaining the nature of our business more fully and asking better questions. Was it the wrong policy? Absolutely. Should my insurance agent have been more aware? I think that’s a no brainer. A rental policy on a flip house because it was easier to underwrite? No doubt it was wrong.

    That being said, it’s still my fault and I value the education it provided.

    I know much more about insurance for sure.

    But the greatest thing of all cake while I was driving around mulling over what to do and this question came to mind.

    “Can I flip 2 in the time it will take to finish this one?”

    The answer was an absolute yes. So that’s when we elected to sell because we knew it would be a long project to break even at best and our crews would be tied up rather than somewhere making us money.

    We have picked up 1 great deal since then and have our guys working on a 2nd that is looking like our best flip yet. And we have a 3rd under contract that should close in a week or so. The profit from those, if things go even halfway correct, will triple the loss and way more hopefully.

     Thanks for sharing your story. I can tell you will do well long term in real estate, just based on your attitude towards addressing challenges and learning. 

    0Reply
  • Zeriet Woldeab
    Rental Property Investor · Austin · Member since 2020 · 14 posts · 4 votes
    5y

    @Boone Tyson Sorry to hear about this and thanks for sharing your experience, this will be a good lesson to others.

    0Reply
  • Boone Tyson
    OP
    Real Estate Agent · McAllen Texas · Member since 2018 · 188 posts · 186 votes
    5y

    @Zeriet Woldeab Thank you sir! By the way, did you get your property management issue settled here or am I thinking of someone else?

    0Reply
  • Boone Tyson
    OP
    Real Estate Agent · McAllen Texas · Member since 2018 · 188 posts · 186 votes
    5y

    @Joe Splitrock Thank you sir. It sucked, but it will be something we can point back to and know that a lot of key elements of our business shifted during this experience. Onward

    0Reply
  • Zeriet Woldeab
    Rental Property Investor · Austin · Member since 2020 · 14 posts · 4 votes
    5y
    Originally posted by @Boone Tyson:

    @Zeriet Woldeab Thank you sir! By the way, did you get your property management issue settled here or am I thinking of someone else?

    Probably someone else, I have been inactive for the last few weeks. I will reach out soon to resume our SFH or MFH hunt.

    0Reply
  • Josh Stevens
    Real Estate Investor · Coos Bay, OR · Member since 2011 · 21 posts · 12 votes
    5y
    Originally posted by @Boone Tyson:

    @Ruth Geller, @Kyle J., @Jay Hinrichs - I thought early on the coverage was sufficient and I felt we had disclosed it was a flip rather than rental, but I don't think we had made it clear enough so the policy was more of a landlord policy that one with a vacancy clause.

    We are in the process of litigation though because right after purchase, our county went into a covid related total lockdown (Hidalgo County Texas). All the county announcements and even those from the governor were sent to our agent. Between our lockdown which prevented our "nonessential" contractors from working, and the moratoriums in place which kept most tenants in their residences, I think we have a good case.

    It was actually set to close prior to the fire by about 3 weeks but 2 days before closing, the city stripped our certificate of occupancy because there had been an enclosed addition in 1997 that wasn't permitted. They flagged us when we ordered a roll-off dumpster and so it couldn't be sold.

    Got the enclosure permitted and we were ready to close when it caught on fire ahaha! Nightmare scenario!

    Standard "not a lawyer" disclaimer here but if you were thinking of any litigation or in the process of it about this I think I would delete this entire thread...

    1Reply
  • Boone Tyson
    OP
    Real Estate Agent · McAllen Texas · Member since 2018 · 188 posts · 186 votes
    5y

    @Josh Stevens thank you. I appreciate your input. This is actually all in writing and on file already with the attorney and insurance company because we had to retell the story a number of times. I will definitely consult our attorney and if he advises that we remove, we will do so.

    Thanks again

    0Reply
  • Anna Laud
    Investor · Indianapolis, IN · Member since 2020 · 234 posts · 194 votes
    5y

    Sorry to hear and thank you for sharing, I'd like to make a video about this so just to be clear what exact steps would've avoided this?  The vacancy clause seems like not enough.  Thanks!  = )

    0Reply
  • Boone Tyson
    OP
    Real Estate Agent · McAllen Texas · Member since 2018 · 188 posts · 186 votes
    5y

    @Anna Laud step 1 would be finding an investment savvy insurance agent. We talk a lot about investment savvy realtors but it takes a full team including insurance, bankers/lenders, etc...

    Step 2 would’ve been a better meeting than just a brief phone call where the scope of work and plans for the property were laid out clearly. This would’ve allowed the best policy and riders to be selected.

    Step 3 could’ve been presenting some hypothetical scenarios to see if coverage extended to those. This was such a freak occurrence that it wouldn’t cross our kids most of the time, but that’s what insurance should be for - those freak occurrences.

    Step 4 should’ve been better ongoing communication with my insurance agent to stay educated and also stay top of mind. There’s no telling what might’ve been different if I would’ve known what questions to ask and also if I had been a favorite client for my agent

    1Reply
  • Anna Laud
    Investor · Indianapolis, IN · Member since 2020 · 234 posts · 194 votes
    5y

    Thanks Boone I had a buyer with a similar situation and I gave him back the 15k assignment I felt so bad.  My realtors and everybody say it is entirely the insurance agent's fault he says it was the law.  Either way you are right we have to look out for own thanks for that list I'm adding making sure they understand flip versus landlording versus wholesaling.  

    0Reply
  • Boone Tyson
    OP
    Real Estate Agent · McAllen Texas · Member since 2018 · 188 posts · 186 votes
    5y

    @Anna Laud No problem! Happy to help!

    0Reply
  • John Whittle
    Vendor · Cincinnati, OH · Member since 2014 · 144 posts · 58 votes
    5y
    Originally posted by @Boone Tyson:

    @Steve K. Soldering a water spigot that had broken off on the front porch actually.  

    If it was a contractor soldering you should be going after his liability insurance. If the contractor doesn't have insurance this story makes a good case for only hiring contractors with GL certs.

    0Reply
  • Boone Tyson
    OP
    Real Estate Agent · McAllen Texas · Member since 2018 · 188 posts · 186 votes
    5y

    @John Whittle No insurance. He was just a handyman of ours.

    0Reply
  • John Whittle
    Vendor · Cincinnati, OH · Member since 2014 · 144 posts · 58 votes
    5y
    Originally posted by @Boone Tyson:

    @John Whittle No insurance. He was just a handyman of ours.

     Even if you had the right insurance on the house the claim could of still been denied for using an unlicensed, uninsured handyman. Best to use professionals and get w9, workman's comp cert, insurance cert and copy of license. Any number of other things can go wrong using handy hacks.

    0Reply
  • Boone Tyson
    OP
    Real Estate Agent · McAllen Texas · Member since 2018 · 188 posts · 186 votes
    5y

    @John Whittle yes sir. I'd say definitely something that could've been avoided

    0Reply
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