All Forum Posts by: Ivan Oberon

 The correct way to insure a renovation project is not with a "vacant" property policy, it is with the correct renovation property coverage.  The property is NOT vacant, it is under renovation.  Most agents and companies out there don't understand the difference or how to insure properly as they are not investors themselves.  You also should not have to start and cancel different policies depending on the stage of renovation or occupancy of your project, however, this is the way most will make you do it. 

I HAVE seen agents issue a "rental" policy on a rehab project but consider yourself lucky your agent advised you against it as that policy would not be worth the paper it is written on in the event of a claim.

There are a very limited number of companies out there that will structure your deal in a way that you can simply switch or amend coverage based on what stage of renovation and occupancy your property/project is in.  Fewer still will have no minimum earned premiums and down payment requirements.

Hope that helps. 

Ivan

In general terms, the amount of liability coverage one carries should be at least as attractive as your current net worth, perceived net worth and potential future net worth, and at least a minimum of $1,000,000.

I guess this is being taken a bit out of context Colleen.  My apologies.  We are discussing issues for real estate investors and the picture is just meant to draw attention to the fact that we need to pay attention to the liability issues we have as investors.

That being said, I was a conventional P&C guy for 8 years before I got into real estate investing and provided "umbrella" policies over my clients home and autos all of the time, even with teenage drivers.  Are the rates higher when you add a youthful driver, of course, but personal liability coverage along with the additional personal umbrella coverage in increments of $1,000,000 was always readily available.

Ivan

LIABILITY - Continued

Always carry as much liability protection as you can afford. As a minimum, you should carry $1,000,000 per occurrence. The larger your portfolio, the more liability protection you should have. Surprisingly, there is a minimal premium charge in most cases to double your protection. An umbrella policy is a method to provide liability coverage beyond the standard $1,000,000 or $2,000,000 limits.

A basic formula that I learned from one of the top loss prevention educators in the industry is this:

Make your insurance policy (Liability) more attractive than your Current Net Worth, Perceived Net Worth and potential Future Net Worth.If it is not a Million yet, make that your minimum starting point and grow from there.

Let’s start to dive into the next part of your insurance policies.We’ve been talking about Property Coverages, let’s now move on to:Installment #6

LIABILITY:

One of my mentors, Tim Norris, likens Insurance to the archers and knights, which defend your “castle.”Let’s explore this analogy.

Contrary to most opinion, insurance should not be the foundation of an asset protection strategy. Think of your assets, whether personal or business, as the items within your castle that you desire to protect. The legal entities that you create, with the advice and assistance of a legal professional, are the castle walls, the moat, and the watchtower you build to help protect them. What you choose to create is a summation of the needs and issues in which tax, financial, and even estate planning must be taken into consideration.

We then acknowledge that insurance is the archer in the watch tower, or the knights with the boiling oil, that attempt to keep nasty things like liability claims, fire, windstorms and other catastrophes at bay. We all know insurance does not cover everything. The list of exclusions in most policies is more than a paragraph. Likewise, the archer does not hit every target. That stated, the archer and knights (insurance) need to work in conjunction the walls and the moats legal entities) to appropriately protect your “stuff”.

Hi Thomas,

First, regardless of whether you own in your personal name or LLC, you really should have all of your properties on a commercial property form master policy type policy, with an agency that is licensed in all 50 states for many reasons, not the least of which are convenience, incrementally lower premiums, receiving some coverage you cannot obtain on a "personal" lines policy and really because anything used to derive income is considered by the IRS to be a "business" exposure, just to name a few.

Pricing and structure of course vary by carrier and there are less than a hand full out there that can structure things the way I've suggested.

Hope that helps.

Ivan

 Thank you Jeremy!

Ivan

Yes, you can certainly insure it while vacant or under renovation.  Most agents and companies don't know how to do it or have access to the right products.

The rate for a property that is actually being renovated is actually more favorable than a property that is strictly sitting vacant for 60 days or more, 30 with some companies, and it certainly stands to reason that the rate for an occupied rental dwelling would be the most favorable.

When you think about it though, it will only be under renovation for a short period of time so if you go with a company that specializes in dealing with real estate investors and has a monthly reporting form, you will only have to pay the renovation rate for a month or two and then can simply switch the occupied rate once the tenant moves in.

Also, if it was already vacant when you bought it, you can't count that as your starting point for "vacancy."  Plus, it's not truly vacant, it's under renovation.

Ivan

One big problem I am seeing here, which I see as very commonplace by the way because conventional insurance agents don't know better, is a lot of people co-mingling personal exposures with business or commercial exposures.

Here is a post I did on another social media platform that will hopefully help.  I am only on installment 4 here on BP.

Another thing to keep in mind is that with some programs, if you want more than $1MM/$2MM in liability, it is easy to bump your underline liability limit to $2MM/$4MM and not even obtain umbrella coverage.  This can be beneficial for a couple of reasons.

Installment #9 Insurance Issues For The Real Estate Investor

Umbrella Policies- Avoid the pitfall of assuming they are a panacea.

I've seen topics posted with a title of "Umbrella Policy or LLC" on various forums. It should never be a question of one OR the other. Remember, insurance is like the Archers & Knights that defend your castle. You still need your Castle Walls and Moat for a well rounded protection strategy for what is inside those walls.

I would also like to point out there are major differences between what most of you know as a "Personal" Umbrella Policy and a "Commercial" Umbrella Policy. This is a critical piece to understand when running your "business" of flipping houses or growing your rental property portfolio.

One of the most glaring dangers of your Personal Umbrella policy is the "business pursuits" exclusion! And let's face it, if your real estate investments are not a "business pursuit" in your mind, then you probably ought to consider divesting!

What is appropriate is a properly constructed package built on a solid commercial policy form with the ability to offer appropriate coverage for assets under any stage of occupancy or renovation, a simple monthly reporting format with no minimum earned premiums, the ability to waive co-insurance requirements, with no location limits, with the ability to insure multiple controlling entities, offer coverage in all 50 states, special form coverage with theft and vandalism and the ability to actually reduce premiums incrementally by aggregating locations, just to name a few little things.

Hope this helps.

Installment #4 - Insurance Issues For the Real Estate Investor

Deductibles:

This is an area of much debate and confusion so let's clarify some things.

Simply stated, the higher your deductible, the lower your premium. If you are a multi-property owner, and your units are insured under separate policies, your deductible will apply, per location, if you are on what is typically referred to as a “package” or “blanket” policy, your deductible usually applies per occurrence (with exceptions, such as a "percentage" deductible for wind/hail). This could be a big difference, out-of- pocket, in the event of a local catastrophe such as a tornado. Take a glance at the deductible you have on all your insurance policies. Chances are, if you increase each of them to the next higher incremental level, the premium savings generated will more than offset the difference. A solid rule-of-thumb is to take the minimum claim you would file, double it, and use that as your preferred deductible on any policy. If you would never file a $1500 claim, then certainly don’t carry a $500 or $1000 deductible.

Besides, as real estate investors, we typically don't pay “retail” for supplies or labor when it comes to construction/rehab/repair...A deductible is, by definition, “self-insurance”. I am an advocate of self- insuring that which you can control or is of a known amount (a deductible, or even the vacant property you got at a tax sale for $10,000). However, self-insuring unknown risk, such as liability, even with an asset-protection strategy in place, is rarely a good idea.