All Forum Posts by: Kevin Romines

Some of the various challenges for landlords I have heard on bigger pockets are; The property is owned in an entity (LLC / Partnership / INC.) and they are finding it difficult to get a personal lines policy versus a commercial policy. The numbers of homes that an insurance carrier will allow to be written in their company. Trampoline and pool restrictions or even allowed on the policy. Dangerous dog breeds, Umbrella policies and their limitations, previous lapses, previous damage and liability claims. Acceptable loss settlement options, minimum sq. ft. restrictions, minimum value restrictions, vacant policies and rehab policies.

I bring all these issues up so that when your talking to agents, you can address the ones that may affect you?

That said (warning - shameless plug) I feel Farmers Insurance is one of the most investor friendly insurance companies out there. Farmers also owns Foremost and with the combination of those two companies, virtually all the issues I listed above, are not an issue for them. I would at least get pricing from a Farmers agent.

Geico doesn't offer home policies themselves. That then means they are a broker. Now there is nothing wrong with being a broker. In some instances, it may be a better situation for you the consumer, only so long as they can provide you with the correct coverage with a triple A  rated company at very competitive rates? So you are reliant on them to do the shopping for you? Good or bad, you decide?

There are many factors that make up your premium on a home policy. The ones that have the largest impact on the rates are the reconstruction costs, not to be confused with market value or what you paid for the home. This is what it will cost the insurance company to rebuild the home to its current condition only new. Most insurance companies also error on the side of higher reconstruction costs to feel confident they can get it rebuilt. 

Location and proximity to fire hydrants, and paid fire stations would also be a critical rating factor. Contents and separate structure coverage are also contributors to the premium. Additional endorsements will also boost the premium.

The #1 factor that makes up your premium is the reconstruction cost, followed closely by the fire rating. If you want a different number than what they came up with, you may be forced to consider an Actual Cash Value policy. ACV is the cost to reconstruct it new minus depreciation of current condition and age. You typically wont see much change in the premium on an ACV policy, so to me it just doesn't make any sense to consider it, but that's up to you? 

Insurance is always an insurable interest matter. Meaning, who is the owner? The question is the owner of what? The dog, that's the tenant's insurable interest. The property, that's your insurable interest. Potentially both of you could be liable? I would start by seeing if the tenant has renters insurance. If not, then your the only deep pockets to go after.

Then, there is the issue of how your lease reads? If you don't require your tenants to carry renters insurance, you should seriously consider it after this issue gets settled? 

Most carriers only allow 1 liability claim in a 3 year period, so this could be an issue going forward for you in terms of being non-renewed or getting different coverage. Be careful with this, but take the matter to your insurance and let them handle it, if the tenant doesn't have a policy that is.

The standard policies out there are Builders risk policies and Vacant / Rehab policies. I switched from the builders risk to the Foremost vacant policies for several reasons. The builders risk policies don't have liability coverage or theft coverage. They primarily insure the dwelling. I also didn't like that they were fully earned premium, so if you were completed with the renovations in a short period of time, it didn't matter, you weren't getting any premium refunded.

The Foremost vacant policy can be used for rehab. You must discuss this with your agent, they then must get it approved. The main concern for Foremost is the shell of the house being fully closed up and all siding painted. They just don't get real concerned with the interior of the house. The other features I like the most are, you get liability coverage, you can also get theft coverage by adding it as an endorsement. The policy has a minimum earned premium of $250.00 so you can set it up on a monthly payment and pay only the minimum if you are done with the work and ready to switch the policy to a landlord type policy or you have sold the property. All the way around this is a better policy and Foremost has no limit on the numbers of policies you can have and will also do the policy in an entities name.

I had a client that had a policy in another state recently, a tree fell  on the vacant home  blocked the view from the street. Someone broke into the house and stole him blind, wiring, heat pump various other expensive items of the home. The builders risk policy wont cover the theft which was the bulk of the claim. Its sad, but nothing I could do to help him on that except to educate him as to why I have his policies in my state with Foremost.

There is no one size fits all solution when it comes to life insurance. Where most people get hung up on life insurance is when they look at it only and purely as an investment.

First of all, you must have a need for life insurance. That said, virtually everybody has a need that would benefit their heirs if life insurance was in place. Some life insurance policies have an investment component to them. Its when those two needs come together, that's when  a whole life type product may be used in such a way that there are benefits that may out weigh other investment options? Its up to each individual to educate themselves and reach their own conclusions based on the needs, wants and goals?

We are a Dave Ramsey ELP. That said, we agree with the model of buy term and invest the rest. This model works best for the masses and with the model of living debt free. However there are times that a whole life type product with a cash value can be very useful, like when your investing in real estate.

I'm not here to sway anybody one way or another, I personally belive in both depending on the overall situation? My goal with this comment is to point out the percentions people have, and encourage everyone to truly research what works best with your goals and then when you feel you truly understand it, then go forward.

Farmers is a very investor friendly company. You can insure entity owned (LLC / INC) properties on their personal lines so long as you are the managing member, it would need to be insured with the individual as the primary and the entity as an additional insured. Claims will cover the additional insured just as they would the primary. You can do up to 20 personal line policies with the same number allowed on the umbrella. Anything more than that and you would go to a Farmers commercial if you also needed the umbrella.

Farmers also owns Foremost who has no limits on the numbers of policies you can have. If you have a foremost policy, it can be backed up by the Farmers umbrella. The umbrella allows limits on the homes as low as 300K, however the pricing on the umbrella goes up if your underlying coverages are lower. There are times it better to have higher underlying coverages followed by a lower priced umbrella. As you get more properties then the lower limits on the underlying will give you better pricing even though the umbrella will be higher priced. Keep in mind, if you have both a Foremost policy and a Farmers policy, then you get multi-policy discounts from both.

Some of the issues that you may run into when working with your investment properties are listed below. I would consider Farmers and Foremost (Farmers owns Foremost) as they tend to be one of the most investor friendly company's out there as far as the big boys.

- Restrictions on dog breeds, - Restrictions on the numbers of properties insured with 1 company

- LLC's or entities on personal policies, - Vacant or properties to be rehabbed

- Replacement or Actual Cash Value or Agreed Value, - Bundling policies for additional discounts

- Umbrella policy requirements, do they allow other carriers? - Trampolines and Pools?

- Policies after damage or liability claims? - Commercial policies with the same carrier

I know many on here have mentioned these issues and more when it comes to rental properties. While its important to get a competitive price, it make no sense to not have the correct coverage even at better prices. Its in your best interest to interview your prospective agents and get together with an agent that fully understands the challenges and coverages that may be important to you as you grow your portfolio.

Yeah net worth is an okay measure, but it doesn't take into account any wages that the insured earns. Why is this important? If you have a claim that exceeds your coverage and if the policies are in your personal name, they will sue you for the remaining amount of damages and legal fees. Also keep in mind that any legal expense once the insurance company has paid out to the limits is now on you.

Once the judgment is in place, they then can proceed to garnish your wages and bank accounts. Some people get the misconception that certain retirement accounts are creditor proof, and I will say they are, while the money remains in there, but once that hits your bank account, then its fair game. Don't forget about RMD's required minimum distributions on your retirement account.....that money will hit your bank account and if its garnished....kiss some of it good bye. Most states allow garnishments between 25-45% of your gross wages.

If you are years away from retirement, this can add a substantial amount more than just your net worth to the number that you need to protect. Also keep in mind that your mortgage balances will be coming down in theory, so your net worth is a moving target.

Most personal lines policies for the umbrella start at 1 million and go to 5 million. The most expensive million is the 1st million, the additional millions are progressively less and less. All in all, umbrella policies are cheap, so load it up when in doubt. You'll sleep better at night and it wont cost that much more.

As Andrew P said above, no one can with any accuracy tell you how much you can be sued for, but we can tell you how much in assets you have and might have in near future........Don't forget to do yearly reviews with your agent......Very important!!!

Don't forget that deprecation is the basis or what you bought the home for minus the cost of the land (this can be subjective, but you can get a feel for what a lot or acreage is going for in the area) divided by 27.5 years. So under the 200K scenario if the lot is worth 50K then it would look like this: 200K minus 50K lot value = 150K / 27.5 years = 5454.54 a year in depreciation. Also remember that depreciation is reducing your basis in the home, so when you go to sell the home, you will have more profit than when you bought it due to the declining basis due to depreciation.

You can avoid the taxes on the profit by doing a 1031 exchange. You will need a quality exchange facilitator for this.

Foremost will allow you to have up to 5 property damage claims and 1 liability claim within a 3 year period. They are competitive on rental homes. I would at least call them.