All Forum Posts by: Michael Norris

Sorry for your luck on this one. No one has a crystal ball to say exactly what the insurance carrier will do you can assume after two claims they will raise your rates at a minimum or go even more extreme and non-renew your policy. 

What to do? A lot of people don't know this but as soon as you call the 800# of the insurance company (or sometimes depending on the agent) and ask a "something happened is this covered" type question you have basically submitted a claim even if you decide to withdraw the claim it's still in the history as a $0 pay claim.

The insurance carriers look at it as a data point for your claims history and likely hood of submitting future claims.

Since you are already in the process you might as well see it thru and take payment assuming your deductible is something like $1000. If you have a higher deductible like $5000 maybe consider withdrawing the claim and let it be a $0 pay.

Also when you are about 90 to 120 days out from your next renewal I'd shop the policies ahead of time so you have a back up plan in case you are non-renewed with the current company. 

@Jennifer Breaux Foremost is/was awesome but FYI as of Oct 1st they stopped insuring 2,3 & 4 family dwellings. If you already have one with them you should be good but if you acquire a multifam they won’t touch it for another year (or two) we’ve heard.

@Jason Medina The insurance market in Florida was a disaster before the hurricane hit. 6 carriers went insolvent last year and more will probably fail this year after the claims get sorted out.

@Nicholas Nicastro Speaking plainly you have a couple different ways to insure your rentals.

1. Replacement Cost (RCV) - this is the best type of coverage to have but of course will cost more (usually). To get RCV you’ll need to insure the property to at least 80% to 100% of the calculated cost to rebuild.

*your mortgage company may require you to have RCV fyi

2. Market Value - I’m using this term loosely for the concept.

This is going to be Actual Cash Value coverage which means the payout on a loss will have depreciation applied depending on what is damaged.

*lots of mortgage companies that work with investors will accept ACV some will not.

Here is a basic hypothetical example of how ACV works.

Say the kitchen in your rental is 20 years old and has a fire that causes $30k in damage.

The adjuster may apply something like 50% depreciation for the age of the kitchen so $30k - 50% = $15,000 payout. Then subtract your deductible say $5000 and the payout is $10,000.

Now… real world you own a maintenance company and can probably put in a kitchen for a lot less than $30k so take the ins money and do your thing.

I’ve had some clients who buy the $50k houses in Cle and Toledo that are ok with this type of coverage and if they have a fire they just sell the house As-Is to another investor for whatever they will pay and then combine that with the insurance money and just go buy another house.

*You mentioned student rentals - do you have students in any of your properties? It matters some carriers will not touch college rentals some will they charge a little more.

If you need any help I’m happy to talk

Sending you a PM

Find the local REIA's, join, and don't miss a meeting. This is where you'll find a mentor (be careful), financing (doubly careful), and get the boots on the ground advice you are seeking.

If your worry is about having your name show up in a liability situation you will be brought into it anyway even if ownership is held in a corporation. (Not giving legal advice I'm an insurance agent not an attorney) If you are sued and they allege negligence on your part they can pierce the LLC protection anyway is my understanding but you have to ask your attorney about that part.

My bigger worry is in a claim situation with you having a policy in your personal name but the legal ownership in an LLC is the potential for the claim to be denied (at first) for not having insurable interest - you could fight thru to show you are the owner of the LLC thus the property owner and have an "insurable interest" entitling you to coverage BUT... do you really want to jump thru those hoops if the house burns down?

I'd talk at length with your insurance provider and give them ALL the info and get in writing what they are willing to do and how you would by covered in a hypothetical situation of a major loss, home owned by LLC, insurance policy in your personal name?

Express the same concern to the lender who is willing to loan money to an individual person with the collateral being owned by an LLC? I don't think they are thinking it through or don't understand the potential insurance issues they are asking you to expose your self to.

I don't rep Safeco so I can't speak what their homeowners policy does/ does not cover but from experience many carriers are not endorsing a "homeowners" policy for Airbab (aka short term rental) they are selling a seperate policy specifically written for the short term rental use. Ask your agent to show you where on your policy it is endorsed for short term rental because you may have some huge gaps in covaerage.

So far the short term rental policies (in ohio) have not been priced much higher than a standard homeowners policy for the carriers I work with. If you are in Florida I can't even imagine what that is like right now. 

Ask your agent specific example questions - if the short term rental TENANTS burn the place down accidentally would the fire be covered by my policy? (Does Airbnb cover this - they are supposed to... but do you want to risk it?)

What if one of the TENANTS is injured while staying at your place? (Refer to the policy language in your original post about the exclusion to liability because renting out your place is definately business use)

Notice the emphasis on TENANT... your homeowners policy should have definitions of who is covered by the policy and who is not. Unless your carrier is truly endorsing their homeowners policy for short term rental most likely you need a different policy.

It's all fun and games until you have a claim then unfortunately for many people that is when you find out what your insurance actually covers - you are asking the right questions push your agent a little more on specifics.  

This is a very common issue and something I review with each and every new flipper insurance client. (I flip houses too so I am exposed to the exact same issue)

Vacant Policies (which is what you have and is the correct policy) can cover Vandalism and Malicious Mischief but rarely, as in almost never, covers theft from the property (your state may differ). A builders risk policy or course of construction policy typically has a smaller dollar amount of coverage for "theft of building materials" but that is fairly subjective (in my opinion) and usually only covers like $5000 or $7500. What defines building materials is why I say it's subjective. If you have an appliance package stolen I would not consider that "building materials". Old pre-existing pipes or existing copper wire to me would not count as building materials but you may get a liberal claims adjuster to see it in your favor I wouldn't count on it. 

As I said above Vacant policies can cover vandalism (if endorsed) but heres how that breaks down. Someone kicks the door in (vandalism), pokes holes in the walls to rip out the copper pipes (vandalism), rips the pipes out and has them piled up in the living room (vandalism).

If they get spooked and run off leaving all the metal on site - this should be viewed as a Vandalism claim based off my past experience. (your claims adjuster may see it differently but I'd fight that one all day long)

However when they load your metal up in a van and take off - Vandalism just became theft and theft from a vacant property policy is typically not covered.

In this example (again referring to typical situations not all companies are the same) the kicked in door and holes in the wall would still be covered by your vandalism coverage on your Vacant policy subject to deducible which probably isn't even worth making a claim on just for the broken door and drywall damage.

This stinks but that is our reality.

What can you do?

I try to make friends with the neighbors and schmooze or bribe them (cut grass, fix a little something, bring them snacks) to watch your place, if you have an elderly person who is home all day that is even better! Make sure they know which vehicles should be there and make sure they have your number to let you know if something is going on. (Some may be reluctant to call police on your behalf so just tell them to call you). Lock it up, cover the windows, change your lock box code after each trade wraps up their part of the project. And if you have a couple extra bucks there are mobile phone based security systems you can contract for which seem expensive until you factor in getting all your stuff stolen and delaying your project.

Greater Cleveland REIA - meets the second Tuesday of every month.

6 year member and love it - lots of great info and even better networking.

They run a REIA U for basically zero cost with a new membership (which is also so cheap it's basically free) that can take you from zero knows nothing to being ready to make a plan, find a property, negotiate, and execute your strategy.

People go out and pay hundreds/thousands for this type of info and my REIA gives it away for under $200 a year.