All Forum Posts by: BreAnn Stephenson

You might try Open Door Homes. They are a smaller outfit, but have been around a while and also have access to a network of subs too...

Hi Larry! Interesting to hear that State Farm is asking these in-depth questions, but it doesn't seem odd to me given that you are out-of-state. Perhaps the collection of rent is a little different, but they are just trying to make sure that the property will be properly managed in your absence. 

I will tell you that often times claims we see are a result of absentee PM's. Discovery that the tenants have moved out months prior and the property has now been vandalized multiple times, even burnt down with no one's knowledge. A quality PM is CRUCIAL in preventing unnecessary losses at a property and can save you many headaches and unnecessary expense. They are your partner in helping your investment perform to its highest potential.

If you can use your insurer's questions as a way to helping you make sure you have the best care for your property, it will only be to your advantage. Yes, they are trying to prevent a claim on their end, but a saved claim is a financial loss you don't have to have the pain of experiencing too. 

Hope that helps!

BreAnn

Everything that @Jared Newsom said! 

And yes, though they've given you a time frame, pay that contractor. If their first experience with you is a hassle, you may give them a distaste for doing work for you in the future... Assuming you were pleased with their service and would want to re-hire them of course... 

@Jacob Stephen

Yes, check with your agent, but generally you should have a liability portion in your policy that would address damages like this. Liability coverage protects you when you do damage to another's property. There still may be exclusions to this coverage, so be sure you are aware of those as well.

Best,

BreAnn

Hi there... thought I'd add a little to the discussion here... 

I empathize with you both on the complexities of insurance. Which is why my first bit of advice is to find a great agent who insures investment properties on a daily basis. Happy to give a referral "offline" if you need... 

My second thought is that depending upon your investing strategy and the particular property, actual cash value or replacement cost could both be viable options. Perhaps for someone who purchased a property at a low price and is only concerned with insuring their purchase price. Meaning, they are looking to use their insurance only if they have a total loss and they are not concerned with rebuilding... ACV might be a way to go. However, for properties you would want to fully repair or replace if you have a loss, RC may be a better fit even with a slightly higher premium as John mentioned.

Lastly, I just wanted to talk about co-insurance. Co-insurance requires you to insure to a certain percentage of replacement value in order to not incur a penalty in a claims settlement. Common co-insurance requirements are typically 80% (though could be 90% or 100% so check your policy!), meaning your property would need to be insured to at least 80% of replacement value at the time of the loss to not incur a co-insurance penalty. It does not mean, however, that you are responsible for insuring that last 20% on top of your deductible. Whatever percentage you were "under-insured" is what they would subtract from the claims settlement in addition to your deductible and any depreciation, if applicable.

Example A:

A property is insured to $80,000.

RC is $100,000 at the time of the loss.

Co-insurance requirement is 80%.

80,000/100,000 = 80%, so you have met the co-insurance requirement, no co-insurance penalty. They would only subtract your deductible and any applicable depreciation from the settlement.

Example B:

A property is insured to $70,000.

RC is $100,000 at the time of the loss.

Co-insurance requirement is 80%.

70,000/100,000 = 70% so you are 10% "under-insured," reducing your settlement by 10%. So, on top of your deductible and any applicable depreciation, your settlement will be 10% less.

Hopefully that helps... co-insurance can be one of the more confusing aspects of insurance for sure!

Best,

BreAnn

First, disclaimer, I work for a sister company of NREIG who provides loss prevention services (think preventing burst pipes, cooking fires, theft/vandalism) for their clients.

That stated...

Kevin, first of all, great breakdown of all the policies and coverage offerings... I'm sure many will find this post helpful!

Just wanted to clarify that NREIG does have STR offerings... along with other commercial coverage products, it's just separate from the main Program products offered for flips, sing fam/small multi-fam rentals and vacants.

Have a great day!

Hi David!

I would defer to a claims specialist in some regards on this, but in my general knowledge as an agent I can tell you they appear to be judging this correctly as it occurs to Loss of Rents. Here's why...

Property Insurance, in general, is intended to bring you back to the state you/your property was in at the time of the loss. In this case, you did not have a tenant when the loss occurred. Therefore, reimbursing you for rent that you actually didn't lose would be profiting you from the loss. There is no lost rent to reimburse because there wasn't a tenant paying you rent in the first place... 

It doesn't matter if the repair process delayed your ability to place the next tenant... Nothing could have happened to your property and you still may have had an indeterminable number of months of vacancy let's say. You don't expect your insurance company to reimburse you during those times because Loss of Rents/Loss of Use is an additional coverage that ONLY kicks in if/when you have a COVERED loss... You do have a covered loss here, just not a reason to engage the Loss of Rents/Loss of Use coverage as the loss didn't displace a tenant who was paying you rent at the time. The loss didn't cause you to miss out on their rent...

Hope that makes a bit more sense. Unfortunately, I don't believe there is anything to challenge. Without seeing the specific verbiage of the policy, I can't be for certain, but as a standard practice, this judgement seems correct. At least the fire didn't injure a tenant or damage their belongings... which would have been worse to deal with. Losses are never fun no matter the circumstance though, so I empathize...

Best to your future investing!

BreAnn

Oh, also... there are companies that can insure multiple properties located in multiple states on one schedule too... since you are in CA and your properties are in PA. That way if you'd like to invest in multiple states you don't have to have an agent in every state...

All the insurance agents coming out of the woodwork, lol... I'm an agent too, but I work in loss prevention so I aim to help you hopefully avoid a loss altogether. ;)

A couple of thoughts. I would agree with the gentlemen above and add... 

The "Special Form" which John is referring to...There is also "Basic Form" and the less often used "Broad Form". This will determine the types of losses which are covered under the policy. One of the biggest differences between Basic and Special is that Special includes Theft and Water Damage while Basic does not. Always make sure you understand the coverage you are purchasing (don't wait until you have a loss to ask questions!) That stated, there are also ways to avoid many types of losses if you are proactive...

Mainly I'd like to say this... 

The way you insure your investment property depends on your business model, needed cash flow and risk tolerance. If you work with a company that specializes in working with RE investors, they can help you make decisions appropriate to a combination of those factors. Some investors like to take higher deductibles to lower their cost for example... let's say $2500, $5000, even up to $25,000... Some programs also have reduced requirements for RC so that you can get RC coverage if insuring to at least $75/sq ft vs having to insure for $100/sq ft or more... Some companies offer coverage on a month-to-month basis so if you're doing a rehab you only pay for what you need and don't have to pay 3 or 6 months up front and hopefully get a refund on the back end... You may also have different desires or needs if you are doing solely rehabs vs long-term rentals or if your portfolio is a combination of the two... you get my drift... I'm happy to suggest a company to work with, but at the end of the day just be sure you work with someone who understands the RE space and covers your properties to your specific needs.

Hope that helps!

I agree with Jason here!

I could add...

Probably the best thing you can do is make sure that your PM is on top of regular maintenance/repairs for the property. If they are discovering issues before the tenant, it will lessen your risk. 

You will also want to visit your properties on a regular basis. I know you mentioned they are all spread out so it may be challenging, but some have a bigger appetite for out-of-state investing than others for that reason. 

Your PM likely has a list of go-to people for the small repairs you described. I would ask them to share who they might be calling if/when a small, unauthorized repair is needed. Then you can do some of your own research. Some might think you're a little demanding, but honestly you're just demonstrating care for your investment.

Also, some questions to ask yourself:

1) Does your PM agree in their contract with you to use licensed and insured contractors? (No matter what the job size?) If this is what you have agreed to, make sure it's in writing!

2) Do your PM's have Professional General Liability policies to cover their actions in the course of business? They should, no exceptions.

3) Does your lease/the lease your PM's use state the conditions under which a tenant is allowed to hire someone to do a repair? You can require the tenant to go through the PM for all repairs, if you don't already... 

4) Do you/your PM's require all tenants to carry renter's insurance in case one of your tenants causes unintentional damage to the unit? May not solve your handyman injury scenario, but many investors don't know that renter's insurance doesn't just benefit the tenant. Requiring (and enforcing!) renter's insurance is a must. You would also want to have either yourself, or if you have a PM managing, your PM, listed as an Additional Insured on the policy for the same reasons as Jason mentioned above!

Part of the risk you take with having out-of-state investments is that you will always give up some element of control. Or, really, even if you have a PM, you are still entrusting them to act responsibly on your behalf... and lastly, you can't really control the actions of anyone else but yourself... so though something is in a contract or lease, the other parties still have to keep their end of the deal. 

Two last pieces of advice:

1) Hire the best PM's possible and make sure you have regular meetings with them.

2) Make sure you have the best tenants possible - know your PM's tenant screening methods. Common sense isn't always so common, unfortunately!

Kudos on your proactive mindset and all the best!