All Forum Posts by: Kevin Romines

Don't forget about the insurance.

I would buy it and try to flip it, but with the backup that you can offer it as a rent to own, seller financed, or lease optioned or even rented out and it should be a cash flow king at that point. Use the fact that it was flooded as a big negotiating point. Flood policies are not really bad, 300-2000 a year, that’s just part of the operating costs. You should still cash flow very well.

I have thought of pursuing these properties specifically. But that just me.

You would be well advised to get your own E&O policy even if the managing broker has theirs. Do you want to trust in that persons policy, when you're not exactly sure what it covers? What if that person's E&O coverage is exceeded, then are you at risk? The safe bet is to pay the small amount required for your own policy and also ask to get a copy of the managing brokers policy so you can actually see how you are covered. Keep in mind, these policies pay for legal defense as well, we all know Lawyers are not inexpensive?

This is a very common commercial policy for Farmers. Quite honestly, its the particular risk that Farmers does the most and is the most competitive on. I would look up an agent there and have them give you a quote.

I would do a vacant or rehab policy through Foremost as there are several advantages over a builders risk type policy. The builders risk doesn't have liability on it, so your totally exposed in that area, they are primarily insuring the dwelling and contents. The builders risk is also a fully earned premium, so that means if you get the rehab done in just a couple of months and you want to switch to the standard landlord type policy, that's great, but you wont get refund of any of the premium you paid.

If you go with the Foremost Vacant or Rehab type policy then you get liability coverage (don't skimp here) and the minimum earned premium is $250.00, so set it up a monthly basis and then you wont have to pay any more than you use, or a min. of $250.00.

Once the rehab is complete and you have a tenant, then switch the policy over to a standard landlord policy through either Foremost or Farmers Insurance. Farmers owns Foremost. You will also get multi-policy discounts between Farmers and Foremost.

Start the quest for insurance early. Be sure to discuss your needs and the condition of the house with the agent. The agent will need to get pictures and also need to know your time frame until the shell of the home is done. That's the main area of concern for Foremost. He/She will then submit the details to underwriting and get approval to bind even though rehab items are outstanding.

From there, your on your way.

With your position with the title company, you are in one of the best positions to capitalize on flipping properties. I would use the tools you have available at work to look up who is paying cash for homes to rehab or even hold. They may be someone that would fund your deals. I would also look all deals that flippers and rehabbers in your area have done and see who they have used for their financing. That would be your potential lenders as well.

I was an 18 year vet of the mortgage industry (owned a mortgage brokerage) before I switched to insurance side of things 5 years ago. Look for the magazines and journals that cater to that industry. There you will find some specialized lenders. I don't want to give away all my secrets, but here is one for free. Look up the Scotsman guide. Do searches for the specific kinds of lenders you will need there. That should get you off to a running start.

All answers can be found if you know the correct questions to ask and pursue.

Sometimes you buy a property with great plans in mind and those plans to pan out. You need to have 2-3 exit plans in mind before you buy the property because life doesn't always work out as we would hope?

I would offer it as a lease option or rent to own, or maybe even a owner contract type situation depending on your tax status with the IRS (Dealer status?). I like all these scenario's better than just renting it. You can collect a down payment or option fee, and because they have skin in the game, they generally take better care of the property. If they default and you don't want to work with them anymore, you can get them out and do it over again. The last scenario I would go after would be a straight rental. But that's just me.

I like to get as many advantages as possible, so if you lease option it or rent to own it, you get the tax write offs and the depreciation, but you are responsible for the repairs. Bone up on the landlord tenant laws in your state - area and put in the contract as much of the repair requirements that you can legally put on the buyers side of things. By doing these things, you get all the benefits while minimizing the risk and costs.

Farmers Insurance owns Foremost Insurance. As a Farmers agent, I write many vacant or rehab properties through Foremost. Everybody is correct about the vacant properties costing more. This is due to the risk of the property being vandalized or just the chance the property will fall into dis-repair. Once you have a renter in the property then you can either switch the policy to a landlord policy with Foremost or depending on the type of property, you can switch it to a Farmers policy.

I love the rehab policies through Foremost because they only have a minimum earned premium of $250.00, and it has liability on the policy. Compared to a builders risk policy, on that type of policy, there is no liability. I would say that is a huge risk, so never liked that aspect. I always set my flippers up on a monthly payment plan so they only pay for the amount of time they are actually on that policy. The builders risk policies are fully earned premium, so no refunds even if you were only on the policy 1 month. 

For a rehab, Foremost is primarily concerned with the shell of the house. If there are siding, roofing, window or foundation issues, be sure to discuss this with the agent. Foremost will give you about a 45 day window max. to resolve these issues, but they must be discussed with the underwriter and pictures must be sent in, otherwise the property will be inspected, not pass and they will just cancel. I would encourage you to call a Farmers agent and discuss these options with them.

You can get the policy either on personal lines or as a commercial policy. It tends to be less expensive as personal lines policies depending. There are several factors that determine the premium, such as, the dwelling reconstruction costs, the fire rating classification, if the responding fire stations are paid or volunteer and if you have a hydrant within 1000' of you property, your credit rating, just to name a few. Most personal lines duplex policies are 700-1500 depending?

The reason they need your auto info for the umbrella is that all insurance companies have minimum underlying coverage requirements in order to get an umbrella.

Someone mentioned USLI, I use them in my business and they are a great company, however they are not an admitted carrier in most states. This means they are not licensed in that state and they don't participate in the states insurance fund. So if you have insurance with a non-admitted carrier and that carrier goes bankrupt, then you don't have anyone around to pay your claim. An Admitted carrier is licensed in that state. Their policies have to be submitted and approved by that state and they participate in the fund, so the states fund will pay your claim if that admitted carrier goes bankrupt in the middle of your claim.

Some of the things that help determine the premium is as follows:

- Dwelling reconstruction costs - make sure this doesn't seem to high, yet high enough to actually get it rebuilt in the event. This is typically where 80-90% of the premium comes in.

- Fire rating classification - Do you have a hydrant within 1000 ft. of your property or is it more rural? Is the responding stations paid or volunteer? Do they have tanker trucks to bring the water in? This also can make a huge difference in the base premium.

- Liability - while its not a big adder to the premium, this is one of the most important items to consider. You can never tell what kind of accident will occur and or how much you can get sued for, so do not go cheap here. Saving 20.00 could costs hundreds of thousands of dollars. We always set down with our clients and find out what all they have in the way of assets and then set the liability enough to cover the value of all those assets. That doesn't mean, that's all they can be sued for, but a minimum coverage you should have if not much more?

- Loss of use is typically a percentage of the dwelling and is capped off at 12 or 24 months. So long as you can recover 12 to 24 months rents in this section, then that's all you can really expect?

- Deductible - think of this as the amount your willing to take care of up to the point where you would turn in a claim. Keep in mind, most claims will affect your premiums for 3 years, some as much as 5 years.

- Endorsements - Back up sewer and drain is a coverage I wouldn't do without. There may be other endorsements that you would want to consider, talk with the agent. Will the insurance company allow you to extend liability from one primary property to all your properties, thereby saving you money on each one?

- If you have many properties that you hold, you might be better off writing the policy as a commercial policy known as habitational BOP or business owners policy. You get much more comprehensive coverages and may find it less expensive?

- Don't forget to consider an umbrella policy. Umbrella policies are secondary liability policies to your auto's / home / toys policy. They start at 1 million and can go as high as 5 million on personal lines. Commercial umbrella's can go much higher liability coverage. Remember, liability coverage is relatively cheap and its your best friend, don't skimp on this coverage.