All Forum Posts by: Bao Nguyen

Some will undoubtedly think I'm crazy, but I invite B&H investors who owns 5+ SFH to give their inputs on my thoughts about forgoing property insurance on my 3 SFHs.

Here's why I'm thinking of forgoing property insurance:

1) In the past 20yrs of owning all 3 units, I've had the following claims:

       1 floor damage due to dishwasher leak, 1 garage roof damage due large tree branches falling down, 1 burst pipe due to the extreme cold, 1 act of vandalism that ruined a bay window.  The insurance company paid for the floor damage from the dishwasher leak, and didn't pay for anything else, either because the $1000 deductible exceed the repairs or I didn't have the riders/extra coverage required (vandalism for example).

2) In the past 20yrs, I've paid the following : $650/year/SFH (average) = $39k (assuming no inflation nor interest). My rental homes are valued ~$50k, I can almost buy another unit in cash every 20yrs at this rate, instead of settling only for flooring replacement.

3) If I were to keep property insurance, I would more than likely increase the deductible to $2k to reduce premiums.  At $2k deductible, the insurance company would cover virtually nothing in my opinion since most things that go wrong are under $2k to fix.  Again, very few natural disasters in my area other than risk of fire.  And if that fire was vandalism, then I'm probably going to get screwed by some insurance lingo verbiage that I didn't really understand because I didn't spend hours perusing the insurance booklet of fine prints.

4) If I save $1850/year for my 3 units, I'd put that in my own insurance fund. in 10 years, something will most likely go wrong (furnance blew up from spontaneous combustion, aliens decided to zap my bay window again..whatever). $18k in 10yrs, I think $18k would pretty much cover whatever I needed to fix from a "big disaster" on a $50k SFH. This "self-insurance" makes more and more sense as I accumulate more and more properties.

5) I would buy some type of umbrella liability insurance to cover me from lawsuits.  

Let's assume I would buy insurance when required due to loan requirements from the bank - but if I can help it, no insurance.  

What are your thoughts on my craziness?

@Brian Beadle count me in.

@Mike H. Very good point about property taxes eating into the profits.  Property taxes are fixed, and no matter how experienced or efficient you are as an investor, you can't lower this cost.  For B&H investors, looking at the city's financial state can give clues on whether prop taxes might go up or not.  This is another reason why when I calculate a purchase, $300/mo CF is the minimum I'll deal with - for unexpected costs such as prop. tax hikes.  Besides, it's just not worth the time and headache to own/manage a rental for less than $300/mo.  

Just to clarify, no need for specific net income - but sharing it is definitely appreciated.  I'm hoping for people to share:

1) Net income selection from these 3 options:  Less than $100k annually....between $100k and $300k..... or $300k+/year.  

2) how long you've been doing this.  

3) which property types  (low end, mid-end, high-end, duplex, apartments..luxury homes, commerical) are your favorite and why?

Thanks to all those who are sharing so us newbies have a realistic expectation and don't get discouraged because we didn't make a $million our first year.

@Don Coumbs Thanks for sharing Don.  Your numbers and time frame makes sense to me.  Again, it reaffirms to me that this stuff takes years (15+ as I estimated) to get to where you are.  You net $90k/year in passive income.  Quite smart if you ask me.  

@Mark Del Grosso @Jarrett Harris Thanks for the reminder guys.  I'm not posting this thread to compare myself to others: I have 3 units, hardly anything to compare to.  My goal was to get a pulse of where the veteran investors are at so I can have an idea of where my path will lead to should I chose to be a flipper or buy-and-hold, and if so, what units to buy and hold.  So yes, I am comparing, but only in the sense to get an idea of what I can expect: very much like when you guy to buy a car you compare so you can pick the right car.  I'm doing the same, but for my retirement.   

You're talking to a Vietnamese immigrant that has grown up in America being different to everyone in small-town Lansing, MI in almost every way - from my background to stinky lunch food. :-) I really don't think much about others and their ways beyond "comparing" what they are doing to make sure I don't have the road map upside down the entire time. So far, the experiences shared on this thread by more experienced investors have made me think twice about investing in low-end properties purely for high ROI and cashflow - it may have saved me a decade in going the wrong direction. Kudos to @Bill Gulley and numerous others on this thread for sharing their experiences that gives me a more holistic view of real estate investing, despite them possibly not agreeing 100% on everything.

@Bill Gulley Market conditions make or break flippers, agreed. I'm pretty sure I'd be the unskilled flipper that gets wiped out, so that's why I choose to focus on ROI and cash flow from LL. My focus is stable income, without having to constantly switch "jobs" or careers due to market fluctuations, and I think LL is one of those few ways to bad times, assuming you are realistic about all costs - upfront and deferred (such as cap ex and vacancy).

@Chris Lynch I agree with you.  Given my risk appetite, access to funds that is more appropriate for residential than commercial, lack of knowledge in commercial real estate, and the desire to stay focused and be specialized, I will have to stick to residential for now.  Maybe one day when I have a million to gamble with, I'll move up.  :-)

@Bill Gulley

@Annette Hibbler Thanks for sharing Annette.  I can definitely see how flipping/wholesaling can generate huge amounts of cashflow.  But that to me is not investing, but rather a full-time job without much income from passive activities.

@Bill Gulley Thanks Joe for re-emphasizing that the scale-able system is one which uses leverage, and that's the drawback of low-end homes: banks won't finance or refinance them.  I'm learning.. thank you.

@Jeremy Davis These numbers and timelines makes sense to me.  10-15yrs is what I calculate as well for myself, but that's taking into consideration of holding a fulltime job in addition to investing.  I guess from this thread, it is possible to achieve those same results in 2-3yrs using other methods and making real estate the main job.  Thanks for sharing Jeremy.