All Forum Posts by: Ryan Ingram

"Coverage D" is the section of your insurance policy that provides coverage for this. Coverage D only applied if a covered loss occurs to the property. You'd have to refer to your specific policy to determine covered losses. 

Coverage D is for the loss of use or loss of rents. On a homeowners policy, Coverage D is often 20% of Coverage A. Coverage A is the amount the residence is insured for. If the insurance limit or coverage A is $300,000, Coverage D would likely be around $60,000. 

On a dwelling fire policy, or "landlord insurance policy" coverage D is generally 10% of Coverage A. 

A renters policy is a homeowners policy, in the insurance world they are referred to as an "HO-4." Coverage D is also available on the renters policy. 

To attempt to bring this together...let's say a kitchen fire happens and makes the house inhabitable. If the tenant has an active renters insurance policy, most likely, their policy would handle the displacement. Their coverage D would kick in, and their policy would pay for them to stay elsewhere until it is resolved. 

If they didn't have this policy...your landlord policy would be the first line of defense. So, on the landlord policy, your Coverage D is called "loss of rents" and the policy will pay you the fair market value for rent for the shortest amount of time while the property is managed. You would then use this to place the tenant elsewhere. If it is lesser, great...you will make money. If a hotel or something is greater...then you will lose money. 

I think you're right in that you need to mitigate this risk. However, I think you may be recreating the wheel. If you have a clause that requires renters insurance, you may have enough. I would just go so far as to put a system in place to enforce and make sure that all of your tenants have renters insurance. 

If this didn't make sense...or you'd like for me to elaborate on this...please let me know. I'd be more than happy to help. 

@James Wise, well...I'm happy I know that now. You're right, I didn't know that. I'll shake the bitterness off that I have around that one instance. With that company, I just got tired of seeing a $40-45 service fee (in addition to the management fee) each time a tenant had a need. The letter was the tipping point for me, albeit ignorance on my part. The overarching sentiment is the dislike for incessant service fees. 

The letter has become my go to example in discussing bad PM companies, so...duly noted and I won't use that example again. :)

Lol...funny...I think there is this company called the United States Postal Service that can do a bang up job for 1% of that price. 

It is a possibility, and I think all of your concerns are valid. Every insurance company is different and each one beats to their own drum.

Most are deterred by open claims, some aren’t.

I’d really be careful about filing claims often. As a general rule of thumb, I usually tell my clients that if you don’t absolutely have to file a claim, then don’t.

We just had a tornado run through Dayton, so I’ve filed a lot of justified roof claims over the past day and a half.

If you’re going to have that many claims, the strategy I’d suggest is plan to stay with the current insurance company for the next 3-4 years. 

The current insurance company with all of your claims will most likely be ok with insuring another property that you acquire.

Getting new quotes with other insurance companies may do exactly as you suspect and present higher premiums to deter you from signing on with them.

If too many claims are filed and the insurance company decides to non renew or cancel your policy, then it would most likely be difficult to place you with another company on the admitted market. However, there is probably always a company on the non-admitted market that would take on your portfolio.

I’d be happy to answer any more questions if you have any...or if you want me to elaborate on any of those points. 

Thanks!

I once had a property management company charge me $45 to deliver a letter to the tenant advising them that the PM would be entering the residence the following week.

That same management company also had an early termination cause in the contract.

Now, this may be local to my area, but I soon after received some wisdom from a few other investors. That was to always be leery of a property management company that has an early termination clause in their contract.

If they’re good at their job, there is no need for that clause. 

I’ve switched to another PM and she has made my life extraordinarily better. It feels so good to get owner statements that are consistently rent collected minus PM fee without any other expenses.

She does not have that clause in her contract. When I asked her about it, she said, “if it isn’t a good fit, why stretch it out? If you don’t like working with me, or I don’t like working with you, why stretch it out longer than necessary?”

Completely agree....

Again, this may be specific to the area which I invest...but I hope it helps.

Hey @Brandon Roof, I’m sorry. That’s not at all what I meant. You’re right, I didn’t say that well.

When you screen tenants, you have to follow all of the equal housing laws and to me, it seems like a bunch of other things too. I have little to no knowledge about this area...

If I was picking tenants for all of my properties, I could potentially be sued for discrimination, or some sort of other housing laws. My insurance most likely wouldn’t cover this.

Since the Property Manager is placing the tenant...they are the ones responsible for following all of the government regulated guidelines. If any violation occurs, it is the PMs error, not mine.

Any potential suit would be geared towards them, and most likely not me.

The PM has errors and omissions insurance, professional liability, and also commercial liability insurance. Since they are liable, the claim will be handled by one of those insurance policies...not yours.

I was really just using that as an example of transferring liability because it is an area I have no knowledge of...so I’ve transferred that. 

Does that make more sense?

I utilize both. I don’t think it’s a one or the other. 

I have insurance personally with very high liability limits and an umbrella policy.

I have LLCs and the LLCs have Insurance.

LLCs might be great for limiting liability...but that is just one facet of insurance. The LLC won't help you if the property burns down or get hits by a tornado (I've been handling tornado claims all day!)

I really like what @Scott Smith is saying.

1. Avoid Risk at all costs.

2. If you can avoid it, transfer it to someone else. For example, I have rental properties that need tenants. I don’t know anything about housing laws, so I utilize a property manager for this. The exposure is transferred to the PM and I have very little to do with this. 

3. If you can’t avoid it or transfer it, purchase it. Purchase insurance to fill in the gaps of all the things you can’t avoid.

Man, I love BiggerPockets! Thanks for asking the question and letting me respond. Let me know if I can elaborate or answer any other questions...I’d be more than happy to. 

Great question!

Homeowners policies cancel if they are vacant for two reasons. First, favorable premium rates are given to homeowners for the inherit “pride of ownership” that comes with personally occupying a home.

The second reason is that when a property is vacant, it is much more vulnerable and likely to have what the insurance world calls Vandalism and Malicious Mischief (VMM). Vacant houses are a target and can result in some pretty large claims, consequently, insurance companies need to collect more premium for their law of large averages formulas to work.

As an insurance agent, I get it! As an investor, it sucks! It is generally 2-3x more expensive that a homeowners policy.

I have 3 open rehabs going on at the moment, and I’m paying $1,200-1,700 annually on each of the policies. 

I’d recommend finding an independent insurance agent and asking for a few quotes for a vacant policy.  

If the property is covered under a vacant policy, it can stay vacant as long as you’d like. 

I’d be happy to answer any other questions or elaborate if necessary.

Thanks!

I love my property manager. She makes me life significantly easier. BUT....

I’d highly recommend keeping positive control over your insurance and claims filing. If they mess that part up, you’re the only one that is exposed. If they underinsure you because they are unaware of your net worth and a lawsuit occurs that is greater than your insurance limits...it will be your livelihood and material possessions at risk. Not the PMs.

Insurance is a pretty intimate thing.

For the same reason, I wouldn’t recommend allowing them to handle claims. Connecting the property manager with the insurance adjuster is a great idea. However, the actual filing and decision whether or not you should file, should remain in your discretion.

Too many claims, especially frivolous small claims, can have an adverse impact on your premiums and insurability. 

Since mortgages are also tied to you personally, and can have a negative impact on your credit and bankability if handled poorly, I’d also keep that part of your responsibility...not the PMs.

Having said that, there may be other professional options to help. 

As an independent insurance agent, I make sure that all of my clients have an appropriate amount of coverage based on their net worth and risk tolerance. I also advise them on whether or not it makes sense to file a claim. I also actively look for great insurance companies that have an “appetite” for providing insurance for investors. This allows me to regularly check (annually or biannually) to make sure their rates stay competitive.

I do use a bookkeeper/CPA that keeps an eye on all of my payments and accounts.

The bookkeeper/CPA is my second set of eyes on my finances and helps hold me accountable and even fixed things before they get urgent. 

So, I suppose all of the things you listed are great to get help with...however, the PM probably isn’t the best place for it. 

I use the PM to source tenants, collect rents,  and answer/deal with the tenants when there is an issue. 

I use other professional services to fill in the gaps of any weaknesses outside of that.

Hope this is helpful, and I’d love to further clarify if needed...or answer any other questions if you have them. 

Thanks!

Good to hear! 

A few areas were destroyed pretty well.