All Forum Posts by: Michael Norris

This will be a fight amongst the attorneys and insurance carriers. *I'm NOT an attorney and this is not legal advice* I am however an insurance agent and here is my gut how this will work out. If this was an intentional act by the tenant any insurance that person carried will not pay. The damage to your unit is a civil matter between you and the tenant i.e. not covered by your policy. The damage to the personal property of the tenants in the lower units should be covered by their renters insurance assuming they have it. The damage to the physical lower unit itself should be covered by their unit owner / landlord policy. Depending on the wording the master policy for the building probably covers "from the exterior walls to the studs" or something like that and unit owners policy covers "from the studs in". The master policy will most likely not cover any damage to the interior of any units themselves which is why they won't file on the master policy.

Good luck. I always recommend to my landlords to put in the lease a clause saying something like the tenant is required to carry and show proof of renters insurance and that their failure to get renters insurance nor your failure to inspect for renters insurance relieves them of the duty to carry it. Ask your attorney to type that one up.

I'm also seeing a lot more management companies demand proof of renters insurance from the tenants than ever before just because of situations like this.

Flood Insurance is a government policy that is bought/sold through local P&C agents but the coverage can vary greatly and not all agents know how to properly quote it for the best possible rate. The neighbor may have totally different coverage which would account for the price difference. Call around and find a local agent who has experience with Flood to get it properly quoted AND they may be able to help you make the argument with the bank.

Not every time but I've had some success arguing with lenders to allow the property buyer to insure a lower end rental at market value versus full replacement cost that the bank wanted them to get. (Not that it's the best way to insure but some experienced investors are ok with it)

I insure a lot of flip and rehab to rent properties as well as flip houses my self. I insure most of them through Foremost but there are other companies available.

What you need to know is these policies are "pretty good" but will not cover every possibility like a traditional home owners policy does. You should sit with an agent who has experience insuring flip homes and have a good "what if this happens" session to see how much risk you are willing to take on and what coverage gaps there may be.

Some examples of gaps in coverage: Contractors you hire need to have Workers Comp coverage as your Gen Liability will most likely not pay for their injuries on the job site.

Vacant home policies almost never have Theft coverage vs Builders Risk policies typically has some coverage for "theft of building materials" but that is building materials only not other property.

Ex: someone kicks the door in (vandalism) and proceeds to poke holes in the walls to rip out the copper pipes (still vandalism). They load the pipes up and leave the property (uh oh - now it's theft).

Your typical policy for vacant / builders risk will then view the broken door and holes in the wall as vandalism (covered minus deductible) but the stolen pipes are theft and most likely not covered at all.

Those are just a few - there are a lot of variables but don't let it scare you off just make sure you understand the risk

Seek out their motivation on why they want to pay it up front. An insurance client of mine has a couple high end properties he was flipping that are now occupied by pro ball players with families in town for the season. They both paid up front what he would have asked for a year's rent and will occupy the property for about 8 or 9 months. In the mean time both houses are in a hot area taking appreciation and the rent off sets his improvement expense.  I'd straight up ask them why face to face... Most people pay month to month - why are you offering to pay up front? If it doesn't feel right don't do it

Foremost is great for the Landlord trailer park properties - my agency insures many of them thru Foremost. You can have them list each unit separately or schedule them on one master policy. Not all Foremost agents are created equal though - some don't understand the landlord policy as well as others or know how to schedule the properties.

Find a local agent who reps them and ask questions before you pull the trigger. Foremost is sold by both Independent agencies as well as Farmers Insurance Agents (Farmers owns Foremost) - some think it's a differently priced policy under the independents but that isn't true they just don't know how to generate the proper rate and maximize the discounts.

Like the others stated unfortunately there isn't an insurance product that will protect you for those issues. However - there is a program called Legal Shield that can give you some of what you are looking for. I don't want to make this sound like an advertisement by listing everything off that it does but simply... there is defense if you are sued, you could have unlimited phone consultation with an attorney for any questions you have, they'll review contracts for you, and make calls or send letters on  your behalf. Those are the types of issues that could keep you from having to evict someone and if you do hopefully keep you from getting sued for doing it. If you want more info PM me on here.

I read a book by a couple guys in Philadelphia called The Section 8 Bible. They built up a portfolio of Section 8 houses and it has a lot of tips on what they did to set up the properties ahead of occupancy and how they screened for the best possible tenants. Even though you are not doing Section 8 there are probably some good tips in there for you.

Both policy types are tools for your tool box and it really depends on your budget and what you are trying to accomplish financially. Unfortunately there is no right or wrong / good or bad on comparing Term and Whole Life other than I'd be a little wary of a door to door life insurance sales rep.

Term is the least expensive option but has it's limitations especially the older you get. You could out live the price fixed part of the policy and it could become very expensive when you are older and more difficult to insure with a replacement policy.

Whole Life (Permanent) is more expensive on a monthly cash flow basis but funded the right way will earn cash value over time which could offset or actually grow larger than the amount you paid into the policy.

I typically set up a Term policy if someone is trying to get coverage for the near future as inexpensively as possible. I've set up some whole life policies based off the concept of paying off the primary home mortgage 6 to 11 years early on a 30 year mortgage. In this concept of protecting the mortgage on the short term if someone dies they have the death benefit to settle the mortgage - long term the client has an option of paying off their mortgage early with the cash value of the policy.

It really just depends on your overall financial plan. Unfortunately I can't help you in your state but ask around and I'm sure a local agent could offer more detailed advice for your particular situation.

Having an LLC is not a substitute for having a "strong" insurance policy. Putting the homes into an LLC (or separate LLC's if you really want to add layers of protection) does not really negate the need for insurance. Separate LLC's give you the option of going BK on the one property without losing all of your properties or losing your personal home or assets. I'm an insurance agent not an attorney so you need to speak with an attorney for real legal advice on that subject.

The definition of insurance is the transfer of risk. Having low coverage does not make you a bad person - it just means you are willing to assume more risk in a given situation. You need to define your risk tolerance by asking what if questions and speaking with your agent.

The LLC gives you and extra layer of protection (this is managing your risk vs transfer of risk) in a liability situation should the tenant want to come after you for a significant injury. Picture something bad - Just this morning I saw there was a fire in a local duplex and a child with downs was inside the home and the mother died trying to rescue him. Besides the human element on loss of life how secure would you feel with your current policy if that was your property?

If it was truly an accident then your policy would pay out to the limits (hopefully you have more than $100,000 in Liability coverage!!) and they could still try and sue you or the LLC for injuries above and beyond the $100,000 if that was your policy limit.

If each home is in a singular LLC you could try and go bankrupt and let the house go as the only asset the tenant could collect and that "should" be the end of it.

**However** - if they can show some sort of negligence on  your part. Like there was a wiring issue that needed to be repaired and you had not fixed it yet. Then they could claim negligence on your part and still come after you personally.

Even without a negligent situation they could still try and come after you personally (it's a burned up kid - no matter what the facts are you are the big rich landlord and in our society "somebody has to pay".)

In the end paying several hundred to a couple thousand dollars per year extra for quality insurance can really come in handy if you ever get that 3am phone call.

Last - I didn't see someone post this yet. Most mortgages have a "due on transfer" clause that could be triggered if the title transfers.

Replacement Cost has nothing to do with market value - there is no relation of the two. On Replacement Cost estimate the insurance company is trying to calculate how much they think it will cost to rebuild the property if it is completely destroyed. A $1 million dollar house in California may only cost $200k to rebuild just like a $5000 house in a bad part of town could cost $200k to rebuild. Not to pick on your Realtor but what he/she pays for their primary homeowners policy has nothing to do with what you will pay for a Landlord Policy and they should know that.

You didn't mention the deductible or what level of Liability coverage was quoted nor if you added on coverage for Loss of Rent, Sewer & Drain backup, or Landlord Personal Property. All of these are important to your over all policy package.

A great price with terrible coverage is NOT a good thing!

Typically Replacement Cost coverage breaks down to a dollars per square foot calculation for the size, type of construction, and location of the property. I don't know where your property is in Illinois but assuming it's a metro area and they are using something like $130 per square foot then your property is about 1500 square feet?

If so $900 a year for $200k landlord policy with Replacement Cost coverage does not sound out of line assuming you have some of the other coverage lines I put in above and a decent amount of liability coverage.

Talk to your agent - if they can't break down the info and explain it understandable terms find a new agent. Good luck!