A hot topic-owning property in the mountains.

San Jose, California
San Jose Real Estate Forum
5yFollow

A hot topic-owning property in the mountains.

Gayle Eisner
Investor · Monterey, CA · Member since 2014 · 174 posts · 55 votes

Hi all:

I own a duplex in the Santa Cruz mountains, Los Gatos. Prices here are crazy high. I love the area/schools/great rental income BUT it is in a 100% fire zone-meaning high risk. Many of my neighbors have had their insurance cancelled & I expect at a minimum mine will be doubling. Last year I had to evacuate. There is a small  fire department close by but I don’t know if that really matters…With prices so high right now, should I jump ship & sell?  1031? Hang on? Or just sell & hold? Anyone else have experience with this problem?

0Reply
15 views

Most Popular Reply

Steve Korn
Los Gatos, CA · Member since 2017 · 6 posts · 4 votes
5y

I own a SF with an ADU off Summit in Los Gatos. I recently did a complete remodel on the entire property and because of that my insurance just was cut in half by State Farm! My agent simply had my contractors sign off on a document stating the work done was legit. $2,700/yr for roughly 2M in coverage. I'd suggest looking for another insurance provider before unloading on a good cashflowing property.

2Reply
See this reply in the discussion

14 Replies

Jump to latestLatest
  • Stephen G.
    Oakland, CA · Member since 2015 · 49 posts · 40 votes
    5y

    Fire risk is a real threat and will increase over time. I never thought South Lake Tahoe and Heavenly would burn, but here we are. 

    If this is your only Bay Area property, it’s hard to say. If it’s not, I’d be very inclined to sell and reinvest in something else (1031 into a beach duplex rental in Capitola and stay there for free throughout the year, multi family in another fast growing metro like Denver or Austin, cash flowing building in South Chicago,  etc). It really depends on your goals. 

    I’ve been told by other investors that the “like-kind” aspect of 1031 is intentionally grey so you can likely fold into a quad without breaking any rules, but this is a conversation for your real estate attorney. Also see if you can transfer your property tax basis.

    If you don’t sell, your insurance costs will eventually climb to 1-2k/month which simply isn’t worth it imo. You can find strong yields elsewhere.

    0Reply
  • Bruce WoodruffPro Member
    Contractor/Investor/Consultant · San Diego / Phoenix · Member since 2021 · 12k+ posts · 15k+ votes
    5y

    I used to live a a fire risk area in eastern SD county. Prices were high but not as bad as you're talking. I'd sell now and re-invest where fire is not a problem.....it's only going to get worse what with the drought and forest mismanagement....IMHO

    1Reply
  • Jeremy Jackson
    Investor · Santa Cruz, CA · Member since 2015 · 20 posts · 8 votes
    5y

    I just bought a Duplex up in the mountains, and you're absolutely right - getting insurance was no joke. It was the long pole in the closing process and delayed closing by multiple weeks just to get a response from CA FAIR. 

    Now, the cash-flow and the deal still make a lot of sense for me to enter because the price is right, but take that into consideration if you try to exit your position - whoever buys it likely has to get insurance for the property as well. 

    1Reply
  • Brian C.
    Investor · Aptos, CA · Member since 2015 · 87 posts · 38 votes
    5y
    My insurance went up a little but not that much on two mountain properties..

    0Reply
  • Stephen G.
    Oakland, CA · Member since 2015 · 49 posts · 40 votes
    5y

    Interesting. My friend pays 1-2k/month for a $2m property in marin since Lloyds of London was the only insurer willing to take him on. It seems to be much lower in SC which is awesome!

    0Reply
  • Steve Korn
    Los Gatos, CA · Member since 2017 · 6 posts · 4 votes
    5y

    I own a SF with an ADU off Summit in Los Gatos. I recently did a complete remodel on the entire property and because of that my insurance just was cut in half by State Farm! My agent simply had my contractors sign off on a document stating the work done was legit. $2,700/yr for roughly 2M in coverage. I'd suggest looking for another insurance provider before unloading on a good cashflowing property.

    2Reply
  • Gayle Eisner
    OP
    Investor · Monterey, CA · Member since 2014 · 174 posts · 55 votes
    5y

    Hi Steve:

    Yes, I have a duplex in Redwood Estates.  The talk on the mountain is that CalFire will be mandating property inspections every year (which is a good thing).  What type of renovations did you have to do?  Can you give me more information?  My property has a great cash flow.  

    1Reply
  • Steve Korn
    Los Gatos, CA · Member since 2017 · 6 posts · 4 votes
    5y

    Hi Gayle,

    I’m kind of surprised, especially with the new state of the art Fire Department going in next to your house. I’m really looking forward to that project getting completed. 
    as for my renovations we did everything: (for my both the main home and ADU) Roof, siding, electrical, plumbing, floors, etc. State Farm mentioned that because house is pretty much brand new that the probability of electrical fires, plumbing disasters are now much lower hence the premium reduction. We also did a tremendous amount of tree work, which surprisingly didn't have any impact on my premium. I hope this helps!

    2Reply
  • Gayle Eisner
    OP
    Investor · Monterey, CA · Member since 2014 · 174 posts · 55 votes
    5y

    Thanks Steve! My house is really old..1931. Followed up on new fire station. I talked with the fireman & it was disappointing to learn that the facility will be new but they are not adding any new fire trucks (2) or men (3). Just a heads up!

    1Reply
  • Brian C.
    Investor · Aptos, CA · Member since 2015 · 87 posts · 38 votes
    4y
    Quote from @Brian C.:
    My insurance went up a little but not that much on two mountain properties..
    (update) Take that back..Boulder Creek now 'high fire risk'. Cal 'Fair act' insurance is my only option it seems:(

    0Reply
  • Sam Shueh
    Real Estate Agent · Cupertino, CA · Member since 2016 · 4k+ posts · 1k+ votes
    4y

    The replacement anywhere in CA is going to be expensive.  What is the insurance cost a year?

    0Reply
  • Emily Wilson
    Member since 2020 · 28 posts · 8 votes
    4y

    I guess you have to do the math with the costs of the CA "Fair" Plan.

    I have a rental duplex in the foothills.  The finances make sense with regular insurance, but they don't with the fair plan.  I currently have regular insurance, so it makes sense for me to keep it due to a family member living in part.  However, once my family member moves on, I plan on doing a 1031 exchange and getting out of fire country. 

    0Reply
  • Dave FosterBusiness Member
    Qualified Intermediary for 1031 Exchanges · St. Petersburg, FL · Member since 2013 · 9k+ posts · 9k+ votes
    4y

    @Gayle Eisner Before the next fire comes along you might as well just shop around for replacement properties for a 1031 exchange and see if one catches your eye. You could then 1031 into it and end up with a property of equal or greater value and not have to worry about your house burning down or the cost of insurance. The duplex sounds like it is positioned to sell pretty fast, so you could go under contract for your replacement property before you even close on the sale of your duplex (you just have to make sure to build in some wiggle room because you have to close your sale first) just to avoid the time constraints of the 1031 (45 days to identify replacement properties and 180 days to close). Many of our CA clients will wait to even list their old properties until they're under contract for the purchase because they can get a non-contingent cash offer within days.

    The 1031 Investor5137 Reviews
    WebsiteView Page
    0Reply
  • Steven Foster Wilson
    Rental Property Investor · Columbus, OH · Member since 2017 · 3k+ posts · 3k+ votes
    4y
    Quote from @Gayle Eisner:

    Hi all:

    I own a duplex in the Santa Cruz mountains, Los Gatos. Prices here are crazy high. I love the area/schools/great rental income BUT it is in a 100% fire zone-meaning high risk. Many of my neighbors have had their insurance cancelled & I expect at a minimum mine will be doubling. Last year I had to evacuate. There is a small  fire department close by but I don’t know if that really matters…With prices so high right now, should I jump ship & sell?  1031? Hang on? Or just sell & hold? Anyone else have experience with this problem?


     Come to Columbus!  Your money will go very far, you'd be able to pick up a multifamily portfolio and start your cash flow. Not to mention Ohio is a landlord-friendly state, and no fires!

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