Financing Options after Vandalism and Theft

[Kerwin Butts]

Good Evening BiggerPockets Family, I'm new to the forums and have been looking to see if I can find a solution to my current problem. I have a 2 unit, 1b, 1bth duplex in Jennings, MO that I acquired back in July. Now I should preface this by saying I've learned from this experience and l'm still learning as I've only been doing this a few months. With that being said. I acquired this property with a HML and about 30K for the rehab budget. The rehab was two months in and a little over budget when the units were broken into and major items including the pipes, water heater and condensers were stolen. Insurance isn't covering anything and I'm hoping there's a solution to resolving this where I can fund the damages and complete the rehab and keep the property even if it takes some time to recoup the loss. What are my options or vehicles available to me? If any? I welcome and appreciate all feedback.

[Michael Norris]

This is a very common issue and something I review with each and every new flipper insurance client. (I flip houses too so I am exposed to the exact same issue)

Vacant Policies (which is what you have and is the correct policy) can cover Vandalism and Malicious Mischief but rarely, as in almost never, covers theft from the property (your state may differ). A builders risk policy or course of construction policy typically has a smaller dollar amount of coverage for "theft of building materials" but that is fairly subjective (in my opinion) and usually only covers like $5000 or $7500. What defines building materials is why I say it's subjective. If you have an appliance package stolen I would not consider that "building materials". Old pre-existing pipes or existing copper wire to me would not count as building materials but you may get a liberal claims adjuster to see it in your favor I wouldn't count on it. 

As I said above Vacant policies can cover vandalism (if endorsed) but heres how that breaks down. Someone kicks the door in (vandalism), pokes holes in the walls to rip out the copper pipes (vandalism), rips the pipes out and has them piled up in the living room (vandalism).

If they get spooked and run off leaving all the metal on site - this should be viewed as a Vandalism claim based off my past experience. (your claims adjuster may see it differently but I'd fight that one all day long)

However when they load your metal up in a van and take off - Vandalism just became theft and theft from a vacant property policy is typically not covered.

In this example (again referring to typical situations not all companies are the same) the kicked in door and holes in the wall would still be covered by your vandalism coverage on your Vacant policy subject to deducible which probably isn't even worth making a claim on just for the broken door and drywall damage.

This stinks but that is our reality.

What can you do?

I try to make friends with the neighbors and schmooze or bribe them (cut grass, fix a little something, bring them snacks) to watch your place, if you have an elderly person who is home all day that is even better! Make sure they know which vehicles should be there and make sure they have your number to let you know if something is going on. (Some may be reluctant to call police on your behalf so just tell them to call you). Lock it up, cover the windows, change your lock box code after each trade wraps up their part of the project. And if you have a couple extra bucks there are mobile phone based security systems you can contract for which seem expensive until you factor in getting all your stuff stolen and delaying your project.