All Forum Posts by: Chris Sweeney

I have a triplex in a township in Southeastern PA. This township has been overcharging certain property owners in a way that isn't in line with their code book. 3-unit properties and up should pay less per unit for rental licenses than do 1- and 2-unit properties (according to the code). However, this township has been charging me and several other 3+ unit property owners at the more expensive 1- and 2-unit rate. I called them out on it, and although the township solicitor (attorney) agreed with me in writing, the township manager is still trying to fight back because he knows the township will end up having to reimburse many rental property owners past-and-present for years and years of rental license fees, plus interest, damages, legal fees, etc.

The township manager is defending the township by claiming that our triplex is a "single-family structure divided into 3 apartments". Haha what?!

I'll spare you all the details, but I just need to know what other investors, appraisers, realtors, insurance agents, etc. think of this classification. Am I crazy, or does anybody else think calling a standard triplex a "single-family structure divided into 3 apartments" is one of the most ridiculous things they've ever heard? Or is a 1-unit property that has 3-units in it actually a thing?

Quote from @Francine Melia:

Hi Chris,

This is a great question around mixed use properties! If your current insurance agent (who is recommending the commercial policy) specializes in personal lines/residential policies, I would recommend talking to a commercial specialist and I'm happy to help further if you want to DM me.

Without knowing too many other details about this, in general, anything mixed use should either have individual policies for each unit OR a commercial package policy that can be customized to your specific usage percentages. In short, a residential policy isn't designed to protect any commercial spaces/uses, so your current policy would not apply to the commercial space, any liability claims that arise from it, etc. That means that this part of the building is not covered, and you can refer to your current policy, usually in the Exclusions section, as that should be described therein.

The policies/coverage that Robin is talking about sound like what he's requiring of his renters (renters insurance) and yes, I highly recommend your renters (residential and commercial) each carrying a renters insurance policy (the commercial tenant should get a COMMERCIAL renters policy, not a standard renters policy) to protect them, their contents in the unit, their liability, etc. At the very least, a liability policy for the commercial unit is helpful for claims made against the unit renter. BUT if a pipe bursts, the roof collapses, or a fire happens in that commercial unit, that's not really the place of the renters/liability policy to kick in -- it should be covered by the landlord policy as it's a loss on the physical property (which the renter does not have an insurable interest in); a residential policy would not cover the commercial unit, and that's the gap I'm seeing in the current setup regardless of who is named on said policy.

Best of luck and take care,

Francine

CA Insurance License #4138783 (In case you're in CA)

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Disclaimer: The information provided in this post does not, and is not intended to, constitute specific insurance advice. Anyone reading this must contact a licensed insurance agent or company for guidance with respect to their specific insurance matter, and should NOT act or refrain from acting on the basis of information herein without first seeking the specific advice of a licensed insurance producer.

Thanks for helping to clear that all up Francine. So my followup question would've been: If my current habitation risk policy won't insure the office tenant's space in the event of fire/flood/etc., couldn't the office tenant insure that part of the building with their own policy? It sounds like the answer is no, because like you said, the office tenant does not have an insurable interest in that physical part of the property. They could get a commercial renter's policy that will cover their liability and their contents, but it would NOT cover the physical building space that they occupy because they do not have an insurable interest in that part of the property.

Am I understanding that all correctly?

I have 4-unit property that has a spare room we rent out as an office. The current tenant is a videographer and doesn't have any visiting clients (minimal liability). A new prospective tenant, a therapist, would have visiting clients, which means increased liability.

Is there any benefit to upgrading from a regular residential policy to a commercial policy for the whole building, or is simply requiring the new tenant to list us (the property owners) as additional insureds on their liability policy sufficient, making sure they carry at least $1 million in coverage? I'm thinking the latter is fine, as coverage is coverage, whether I'm the policy holder or not, just as long as we the owners are listed as insureds or additional insureds. My insurance guy recommends getting a commercial policy, but part of me can't help but think he just wants to sell me more insurance.

Thoughts?

Yeah it's been kind of frustrating for me going back and forth with them them about it (phone calls and emails). They basically told me they have no plans to allow users to add multiple SSNs per bank account. Also, you can't easily edit which SSN you want associated with each bank account; they said you have to call them. Well I called them, and they still weren't able to help.

@Janell E. - Are you using Apartments.com, or another payment processor?

Anybody have any thoughts? 

I've been using Apartments.com (formerly Cozy.co) for rent collection for several years. I'm happy to provide them with my SSN for tax purposes to comply with the new IRS rules, but there seems to be a problem with Apartments.com's system. Each of the bank accounts that I have in my Apartments.com account have multiple tax entities (multiple owners). I do not own any of those bank accounts alone. I should be able to specify multiple Social Security Numbers for each bank account. If I'm only able to input one SSN (my own), then the 1099-K form is basically telling the IRS that all of that income is mine (which it isn't; it's split among the owners of that specific bank account). However, there is no way to specify multiple owners for a single bank account. I just emailed Apartments.com, but wanted to see if anyone else has any thoughts on this.

Thanks!

Good call with getting a line of credit on the subject property as opposed to cashing out. It's so simple, but I forgot I even had that option because I was so focused on cashing out. I'll look into it! 

I'm considering doing a cash-out refinance on a rental property with a good amount of equity. I'll be able to pull out a little over $200k. My new P&I payment will be about $900 more per month, but rents will increase by about $600. This will be after renovating and renting out the last of 4 units in a 4-plex. My question, though, is this - since my debt service will increase and my gross rents will decrease, will pulling this amount of money out affect my debt-to-income ratio to the point that it would be detrimental to my ability to obtain a mortgage on my next rental property? Or is there a general rule-of-thumb or guideline that basically says "hey, if you're cashflow positive after all expenses including vacancies and setting aside reserves each month for capital expenditures, you're good."? The property will still cashflow very nicely after this cash-out. I know, a lender would have to calculate all of that, but just wondering what your own experiences have been, or if there's a general rule of thumb, or if I shouldn't even worry about it, go for the cash-out, and reinvest.

Thanks!

Chris Sweeney

Those with Jersey Shore vacation rentals: 

Is there any local/state/federal aid being offered for vacation rentals? How about aid through online rental platforms like VRBO, HomeAway, AirBnB, etc.?

If the stay-at-home orders continue into (and perhaps throughout) the vacation season, are you planning on offering anything to those who have already booked and paid for their stay, such as refunds or a free postponement of their stay for future dates?