How unforeseen insurance costs can kill your investment!

[Joseph Feldman]

A small Multi Family deal on the NJ coast I was working on fell through mainly because of the insurance cost!

What happened?

The sellers cost on insurance worked just fine to make this a great investment,

It was with a company we have direct access to so initially this looked like a slam dunk, I asked my client to get the sellers policy and found out that it excluded wind coverage,

My clients lender also required flood coverage which the seller didn’t have either.

Turns out the seller didn’t have a loan on the property allowing him to get away with a policy no lender would agree to,

Getting him the coverages he would need quadrupled the price! (He tried getting a quote elsewhere but that just increased his expense by another few thousands)

As they were trying to still make this deal work a potential environmental issue popped up, putting the final nail in this coffin ⚰️

Make sure your due diligence is taking this into account.

Some helpful tips are to ask the seller for all of his actual policies (not just certificates) and comparing them to your lender requirements.

This may unearth some pertinent information,

So don’t just rely on that number on the OM, dig deeper!

[Joe Splitrock]

@Joseph Feldman I have run into several insurance surprises over the years. The sellers insurance cost should be verified in all cases. I had one property that the agent bound the property, but they sent out an inspector and ended up dropping me after one month. The property was mixed commercial and residential and the carrier wouldn't cover mixed use. Why the agent didn't know that, I will never know. In a recent property I purchased as an Airbnb. Many insurance providers don't cover short term rental use. I had to go to a different company that specializes in that and it added 30% to the premium. Another area people get tripped up is with vacant properties. If you are a flipper, you need to get special insurance for a vacant property. You can't cover with a standard landlord fire policy.