All Forum Posts by: Aaron Porter

I am going to repeat others sentiments when I also say, sorry for your families loss.  

I look at it similar to what Nathan said, homes have huge expenses and tenants can cause damage intentionally or unintentionally.  

Because of this I like to hedge my bets.  for me going backwards on any of my investments is something that I don't like to think about.  If it is within my tolerances then taking the loss for a short term is ok.  But I always set limits, these are business deals and I try to keep it that way.  If I said that I can handle losing $300 a month on it but it starts costing $301 a month I am going to drop that because it has become a liability it is no longer an investment.  

Like others have said, maybe you can turn it in vacation rental, or a medium term rental, rent by the room, or other strategy that while it is more "work" you will not be going negative every month.  

Also remember that every month that you keep the house you are paying a substantial amount of money in interest to the bank, so that is also an expense and needs to be taken into consideration.  If you go to sell the house in 6 months because going negative doesn't work any longer you are still going to take almost the exact same hit if the market holds but you will have paid 6 more months of interest on the loan, the insurance, the utilities, taxes, etc.  

If it were mine, I would get the house set up to do either STR or rent by the room.

You will need to find out if you have an HOA if it is allowed and if the town/city will allow you to STR

@Patrick Shep  Most umbrella policies need to be set up by an insurance agent.  

I have clients that have just their home and auto with $1Mil umbrella cost is about $260/year.  Then other Clients with 20+ rentals that are spending $6-7K/year for $5Mil umbrellas and everything in-between.  The cost on umbrellas have to do with the houses, the neighborhoods, your underlying policies, you as a client, how often you change insurance carriers for your home, auto, and rentals, and how many claims there are in your insurance history, among probably 100 other criteria.  

You might be saving some money by not working with a good insurance agent.  You are definitely saving money by not working with a crappy agent.  But I also have clients that thought they were getting great insurance prices and doing a good job covering their assets however I have seen a lot that is very contrary to that belief.  

Everything in life has a cost, you get to decide what and how you are willing to pay.  

@Dee Dee Huey  These policies are only available through agents who are "licensed" to sell them.  

However just because someone is licensed to sell it doesn't mean that they have the knowledge, education, or training to set these up in a way that they will grow and be usable.  according to people in the industry that I trust, less than 5% of agents who are licensed to sell life insurance possess the knowledge and understanding to set up Cash Value policies that are truly a benefit to the owner.  

My current favorite IUL is through North American, and I have 2 companies that I am using for whole life Lafayette and Mass Mutual.  But remember these change constantly.  Right now my agency has access to over 60 carriers all of them "fighting" for top spot.  

These policies are definitely long term strategies, they are not fast but they are extremely safe and they offer other protections for the money that you invest in them  I use the word invest, but these are not investments.  

Yes they offer available cash value on day 1 but it is a percentage of the money that is put into them.  If you need to have access to the majority of your cash on day 1 then the policy isn't going to perform as well. These policies should be funded with money that you don't "need" access to.  If you need the access maybe a different strategy is better. 

Remember if you are putting in $10K/ year it isn't going to grow over $10k in year 1. Then in year 2 another $10K goes in you aren't going to have access to $20K.  From the standard 10pay policies that I have seen which are set up for the Infinite Banking Concepts the "breakeven" isn't until year 11 in most cases.  Which mean that if you have paid $10,000/year for 10 years, that $100,000.  You wont have access to the full $100K you have put in until year 11.  This is what these policies are illustrating and what is most likely.  If they grow faster than that, that is fantastic, but don't plan on it. 

You will have access to a portion of the money that you put in each year but it will not be all of the money. 

This illustration is for learning purposes only and not a direct representation of an actual policy.  This is only for educational purposes and all that other liability jargon.

Anyone who is showing you illustrations over about 5.5% growth is just trying to get your money, and you should always run from something that sounds too good to be true.  

I don't want my whole post to sound too negative, there are a few threads on BP where Be Your Own Bank and Infinite Banking are discussed and there are lots of people who have a very disgusted taste in their mouths.  I love my cash value policies, they have helped me with a few different investments that I have and they will continue to perform for me through the rest of my life and set my kids and my grandkids up after I am gone. 

In my 1st STR we had a bunk room and it was awesome. All of our guests raved how great it was for kids, and just extra beds. We stocked it with a bunch of extra pillows, and sheets so that kids could make play forts, went to thrift stores and bought a huge assortment of children's books and had toys for various ranges of kids including things like corn hole, frisbees, soccer balls, and a wiffle ball set. We didn't do baseball because it was too easy to break windows.

In my last STR the city regulations only allow 8 guests in the home even though it is 6 bedrooms and almost 4,000 sq. ft. The city also does regular check-ins and issues fines quite regularly to "unregistered or non conforming STRs that break the rules. The city is also known to revoke occupancy permits if found to be breaking regulations.

So I would say check with your local governing board if there are any regulations against having a "bunk room".

@Matt Smith Proper Insurance is almost always going to be the absolute most expensive option. They have a great product and you are covering all the bases through their policy structuring. However almost every insurance carrier offers a policy for STR. In most cases it will be a landlord policy with a STR ryder. If your agent is trying to give you a homeowners policy run from them as that is the totally wrong thing and if you have a claim you will be denied. If your agent swears that you will still be covered tell them you want that in writing on their agency letterhead with ink signatures from the principal agent. This way you can go after the agent when you get denied coverage.

In regards to costs, Florida is extremely expensive right now and those homes on or close to the coast are even more expensive.  Hurricane Ian caused $65 billion in insurable damage.  Which is one of the reasons rates are so high, combined with almost 20 carriers have left the state of Florida in the last year so there are way fewer options.  

I have a good contact in Florida for insurance, if you message me I can share their contact info.  

This topic has been discussed quite recently on the forum, damage right before closing.  I believe that the most recent one was flood damage due to freezing pipes. 

That being said, there are a few options available to you: the 1st being walking away from the property.  Next option is to postpone the closing until after the "permitted and inspected" repairs are made to the property.  3rd renegotiate the purchase price of the property to reflect the damage to the property.  4th create a contract between you and the seller where you take possession of the property and the original owner pays for the cost of repair, this is usually through proceeds from the insurance claim.  

The insurance company will not make the purchaser of the property the "payee" of an insurance claim.  So you will have to work with the current owner of the property through the entire renovation period to make sure that everything gets fixed properly and paid for by the current owners insurance policy.  

There is a good chance that you will need to get a renovation risk policy on the home if you decide to go through with the purchase.  Make sure that your insurance agent knows what is happening to make sure that you are covered and not left with any lapses in coverage.

@Tim Murray 

For your insurance like Esta said one of the big things is the difference between Replacement Cost or Actual Cost Value.  Replacement Cost will make sure that regardless of the rising cost of labor and material that your property will be rebuilt to the same "like and kindness".  Where Actual Cash Value depreciates the value of everything in the property depending on age.  If a roof is 15 years old the cost of replacing the roof will be divided by the "average length of a roof's life" then 15 years of that cost will be deducted from the payout.  so a $10,000 replacement with a 20 year life span will only recieve $2,500 if the roof gets replaced due to a covered peril.  

Most of the time ACV policies have less covered perils than RCV policies.  

Other things to note for your policy is to make sure that you are being properly quoted and covered for.  If your property is a 2 story brick structure with slate roof that is what it needs to be insured as, not as a 1 story with a metal roof.  If your property is improperly insured you will be denied if you need to submit a claim.

So work with an insurance agent that knows and understands your needs for coverage. 

@Johany Herrera  My agency works with many carriers that offer builders risk policies.  Depending on the location of the property has some bearing on which carrier will accept the risk.  Almost every carrier has a policy for builders risk.  

One huge thing to note is that almost every carrier in the US has increased rates by 10%+ for 2023 so whenever your policy comes up for renewal rates are almost always going to go up. Some rate increases I personally have seen in the last 2 months are in excess of 20%.  

@Account Closed That is a really great idea, I didn't know that there is a golf cart rental program. 

@Edward Moore  You will definitely need to let your insurance agent know that you will have a golf cart on the property for the tenants to use.  There are some new regulations coming that I was informed about today.  Travelers will not insure a property with a golf cart that has rear facing seats.  Which means that if your golf cart has rear facing seats on your property and you have travelers they will deny coverage even if you have a stand alone policy for the golf cart. 

I have had short term rentals in the past where we had ancillary items for the tenants to use while staying at the house.  We went through special steps to ensure that we we covered for liability and property damage.  from liability waivers, to extra insurance, to stand alone policies for liability, property, and property damage.  

Work with your insurance agent they want you to have the coverage that you need, if the agent doesn't know how to do what is needed, find a new agent who does.  If your policy doesn't explicitly state that you have coverage for something and your agent tells you that you do, get it in writing from your agent.  Your carrier will deny a claim if the policy states it as an exclusion or it isn't listed in your policy.  Example- a homeowner's policy is not the same as a landlord policy, if the carrier finds out that you have tenants they will deny coverage. There are hundreds of other examples but the main thing is that you need to keep records of what you tell your agent, and make sure that the policy they build for you gives you the coverage that you asked for and need.   

@Jose Ditren  

There is the possiblity that the carrier you are being quoted through offers a discount for having a security system, or the agent could be quoting 2 different carriers.  

There are definitely carriers that require things like security systems, water detection systems, they want the alarm to have a call out feature, the smoke detectors in the property to be tied into the security system on the chance of a fire, and also cameras.  

In the long run the security system does 2 things, it offers you a lower cost of insurance through discounts or carriers that wouldn't insure the property otherwise and it is a deterrent to things of a criminal nature, and protection/prevention through monitoring