Think about self insuring my properties

[Mark Fries]

I pay about 40k a year in premiums for my properties. I am well versed in the practicalities of having coverage but as my portfolio grows it's becoming a hassle to monitor and deal with it. Thinking about taking that same 40k each year and put it into an interest bearing account or other fund and let me work for me....if a property burns down...just bulldoze it and move on? I have a 10 mill umbrella policy in place and will always keep that.

Any thoughts?

[Jay Hinrichs]

if I had stayed in on the 350 doors I had amassed we were just about to go to self insured..

if you have no debt and no requirements.. something to think about.. although your in an area were wind and I suspect hail damage is a real factor.. so if you did have that really bad storm and 20 of your houses got hit at once that could be an issue.  

I think back on all the houses we have owned as rentals over the years and as long as they were active rentals Not vacant we have only had a few fires..  lots of tenant abuse and theft but that goes with the territory.. 

I wonder if you can just get a wind/hail policy and not fire ? 

[DJ M.]

In general I think that self insuring is best, but a lot of people dont have the risk tolerance or capital reserves to do it.

I like Jays idea of the wind/hail policy

[Mark Fries]

@Jay Hinrichs

I've lived here my whole life and honestly wind and hail are really a non issue.. I have only seen hail larger than a pea twice in the last 30 years. I wish I could find a carrier that would just write a fire policy for like a 150 or 200 a year. I would be all over that.

If I owned a bunch of short term rentals within one mile of the ocean of course I would have insurance and not be thinking about this but all of my properties are far inland.

[Jay Hinrichs]

Originally posted by @Mark Fries:

@Jay Hinrichs

I've lived here my whole life and honestly wind and hail are really a non issue.. I have only seen hail larger than a pea twice in the last 30 years. I wish I could find a carrier that would just write a fire policy for like a 150 or 200 a year. I would be all over that.

If I owned a bunch of short term rentals within one mile of the ocean of course I would have insurance and not be thinking about this but all of my properties are far inland. 

there you go then.. if wind and hail are not an issue.. my experience tells me that if your buying 40k houses which I kind of think you are.

unless you have one burn down yearly you will be ahead self insuring them.. Although not all fires of course burn the whole house down and I suspect your quite capable of doing your own restoration yourself for far less than the average arm chair investor ?? 

[Mark Fries]

@Jay Hinrichs

That was exactly my thinking...thanks for the nudge...I will probably pull the trigger.

[Matthew Paul]

If the numbers play out , I would do it . There is always value in the land , so there cant ever be a total loss . 

[Max T.]

@Mark Fries

Most mortgages require insurance so if your properties are leveraged it probably won’t work. But if you own outright and the numbers make sense, why not?

[Mark Fries]

@Max T.

I own them, so it seems like the right direction.

[Jay Hinrichs]

Originally posted by @Mark Fries:

@Jay Hinrichs

That was exactly my thinking...thanks for the nudge...I will probably pull the trigger. 

at one point our insurance on all those houses was about 600 a year.. X 350 / 12 =  17,500 per month on 50k houses so I was at the same point you were.. buying only liability which would have lowered it considerably.  so figured would need at least 2 complete wipe outs .. But the other issue though is in these lower value assets.. it cost twice as much to replace the house than what we buy them for.. so your right if you do have a fire your probably just bull dozing and giving the lot away as the lot has negative value.. most all lots in areas were replacement cost exceeds what you can buy existing homes for have zero value or negative value..  only people that make those work are like habitat for humans or church charities supporting their neighborhoods.

[Mark Fries]

@Jay Hinrichs

100% correct...most have no lot value unfortunately...maybe could sell to a neighbor so he could have a double lot...lol

[Dustin Hood]

@Mark Fries former insurance guy here...have you looked into finding a policy that insured all your properties on one policy? Meaning one bill you pay, one policy not having to keep up with a lot.

I’ve found one and slowly started adding all my properties to it.

[Mark Fries]

@Dustin Hood

I thought about that but the deductibles are so large it would be the equivalent of the total fire damage claim almost pointless it would seem?

If I have a $30000 deductible and I have a $35000 fire damage, doesn't make sense to me?

What kind of deductible are you seeing on a large policy like that?

[Jason Bott]

Originally posted by @Mark Fries:

@Jay Hinrichs

I've lived here my whole life and honestly wind and hail are really a non issue.. I have only seen hail larger than a pea twice in the last 30 years. I wish I could find a carrier that would just write a fire policy for like a 150 or 200 a year. I would be all over that.

If I owned a bunch of short term rentals within one mile of the ocean of course I would have insurance and not be thinking about this but all of my properties are far inland.

Mark, I have several clients with SFR portfolios who only carry Liability. Several in FL.

If you look at it as paying yourself the premiums to retain the risk instead of the insurance carrier, it seems like a logical transition.

Rates in FL will only be going up. Nationally rates are starting to go up after many years of flat or declining rates.  When this happens, the highest risk areas will feel it first.

Lastly, you could look at a master policy with a $25k or $50k deductible, but where your based I still think it will be too much premium for the risk you will retain.

Good luck with it.

[Jason Bott]

Originally posted by @Mark Fries:

@Dustin Hood

I thought about that but the deductibles are so large it would be the equivalent of the total fire damage claim almost pointless it would seem?

If I have a $30000 deductible and I have a $35000 fire damage, doesn't make sense to me?

What kind of deductible are you seeing on a large policy like that?

 If Dustin doesn’t jump in...

I have clients with $5k, $10k, $15k, $25k and $50k.  

I Even heard about a large landlord with 12,000 units who took a $1M deductible to save another $400k:)

[Storm S.]

@Mark Fries you should look into setting up a captive insurance company, you get to self insure and your premiums are a tax write off, vs if you just put it in a savings account you lose the ability to write off.

[Bill B.]

I assume there’s a separate llc for every so many policies so when there’s a natural gas explosion, or a death in the fire and they sue for $5million you don’t lose everything?

You mentioned having an umbrella but I don’t think that will help as most have a $300k limit insurance policy minimum requirement. (Which I hear is going up to $500k next year at least with USLI.) maybe you could get liability only or get a $300k deductible on your umbrella? 

[Mark Fries]

@Storm S.

I tried and in order to correctly have a place to put the domicile you have to at least have $200,000 annual premiums. Puerto Rico is the ideal place to put the domiciled company but they have restrictions on the total annual premiums

[Storm S.]

@Mark Fries have you looked into areas like Bermuda or the Cayman Islands for setting up a captive they are some of the more popular locations. Also have you looked into a protected cell captive and renting one it’s generally cheaper than starting a new captive.

[Mark Fries]

@Storm S.

I was unaware that you can rent them and that's definitely something I will look into!!! Learn something new everyday.

[Caleb Heimsoth]

@Mark Fries I have nothing to add to your question but I found this entire thread educational

[Wayne Brooks]

@Mark Fries Yeah I was going the umbrella issue...as far as I know you have to have the underlying $300k liability on a property for the umbrella to apply....hence the low rates for the umbrella.

[Dustin Hood]

@Mark Fries my deductible is $3,000 and $5,000 for windstorm. It’s called a portfolio policy. It’s worth looking into at least. It doesn’t help you on premium, but it’s nice to have to all together.

[Andrew S.]

Originally posted by @Wayne Brooks:

@Mark Fries Yeah I was going the umbrella issue...as far as I know you have to have the underlying $300k liability on a property for the umbrella to apply....hence the low rates for the umbrella.

Agreed - and that's what has kept me from self-insuring also, but perhaps there are companies who will write "liability only plus umbrella".  If so and if the premiums are reasonable, it may still be worth exploring. 

[John P.]

Originally posted by @Mark Fries:

I pay about 40k a year in premiums for my properties. I am well versed in the practicalities of having coverage but as my portfolio grows it's becoming a hassle to monitor and deal with it. Thinking about taking that same 40k each year and put it into an interest bearing account or other fund and let me work for me....if a property burns down...just bulldoze it and move on? I have a 10 mill umbrella policy in place and will always keep that.

Any thoughts?

I don't have the cajones for that but good for you.  I like a high deductible but I like having insurance. Where did you find a $10m umbrella?  That sounds interesting. Do they not require some underlying coverage?  I thought that was a prerequisite for most umbrella policies!?

[Mark Fries]

@Dustin Hood

I will look into it and thank you for clarifying!