Posted over 7 years ago

The Biggest Expense Loser - We Have a Winner

Deborah B. is the first winner in the $100 Expense Reduction Challenge. Here's the link the my original post announcing the challenge.

 

Deborah B. now holds the title of Biggest Expense Loser! She did it by fine-tuning her insurance policies then converting them from Replacement Cost Value (RCV) to Actual Cash Value (ACV). The cost-cutting scheme saved her over $200 per month ($25 per property)!!!

 

This concept of RCV vs. ACV was new to me. I had to have several people explain it to me several different ways before I could really grasp it. Here’s how Deborah B. explained it:

 

Deborah B. owns inexpensive rentals in Oklahoma's “tornado alley.” She doesn't plan to rebuild if disaster strikes. She just wants enough money to pay for clean up and recover her intial down payment.


Shifting Her Thinking
Since she wasn't planning on replacing her buildings, there was no need to pay for "replacement" insurance. So she converted all her insurance policies to ACV. So now if there was a catastrophic event, her insurance carrier would cut her a check in the amount needed to replace her rentals (RCV) less her deductible and less the depreciation.

 

Here's the equation: ACV = RCV - deductable - depreciation

 

This will likely not be enough to rebuild, but Deborah doesn't care. She just wants the ability to recoup her original down payment investment (in addition to the insurance check, Deborah B.might need to sell the land to fully recoop her intial investment).

 

Congratulation Deborah! We're emailing you get a $25 Home Depot gift card!


AN INTERVIEW FROM THE WINNER'S CIRCLE
Deborah B. was kind enough to answer some interview questions. Here is what she said:

 

When did you start landlording?

I started in 2002

 

What city and state are your rentals located?

In the Oklahoma City Metro/Oklahoma

 

What types of rentals do you like owning?

Single Family Houses

 

What is the #1 challenge of owning those types of rentals and how do you mitigate the challenge? 

Families are vulnerable to economic changes, we mitigate by extensive tenant screening and being supportive when families face sudden changes.

 

How did you come up with the idea to slim down the replacement values in your insurance policy to find savings?

Oklahoma has been experiencing unusually severe hail for a few years. Even on replacement value policies, roof deductibles were climbing so we did a risk:benefit analysis and came down on the side of ACV policies

 

How much will you save per month per property?

We actually raised the value of a few properties so the number is a bit blurry but in the neighborhood of $25 per mo per property

 

Any advice for other landlords who are considering taking the $100 Expense Reduction Challenge?

Your initial question on Bigger Pockets challenged me to quit thinking about it and DO something.  I'm certain that every landlord has some small opportunity they haven't made the time to capitalize on.

 


Comments (7)

  1. That's awesome Aaron Yates! Watch out insurance companies. Here comes the BP Brigade!


  2. I just did this same thing. It's saving me $1000 a year on 4 properties.


  3. I just received the insurance bill that shows the final adjustments. I'll do the math and update on the totals shortly. Hint - It's even better than I projected.


  4. Ned Carey you're chock-full of great suggestions! I just embedded the link. Here it is again: https://www.biggerpockets.com/forums/52/topics/85255-want-12-000-the-100-expense-reduction-challenge. Thanks Mr. Carey.


  5. Congratulations Deborah. Al Williamson, Can you update the blog post to link to the original thread so we can see all the great ideas?


  6. Brandon Turner come on Big B! Would love to send a gift card up to WA. I've racked up $30 of monthly savings and stumbled onto evident suggesting I should raise rents. Talk about unintended consequences! I felt like a dull knife once I realized I wasn't doing simple things to save money. Ya'know complacency is REALLY expensive - I can't afford it. I'm solemnly swear I'm going to join Deborah B. as a Big Expense Loser by year end or I'm going to wax Joshua Dorkin's car!


  7. Awesome! Congrats Deborah B! Very cool. I gotta get on this thing! I want that gift card! :) Thanks Al for encouraging us to save money on our rentals!