All Forum Posts by: David Day

Just an update: I finally heard back from my GC and he is saying that it would cost $40k - $45k (way more than my $10k estimate) to repair the building as it sits right now. Ultimately I wanted to tear down the building and build a strip center with 5 or 6 units anyways, so I'm highly considering doing that now.

Full disclosure: I am a captive insurance agent.

On top of @Wayne Brooks' comment, there are issues on the insurance end as well. P&C insurance is regulated by the state, so this would vary, but generally speaking you're legally not allowed to or it at the least it falls under some gray areas. Then on top of that, in the case for captive agents, they would need approval by their corporate office for the outside business agreement and generally speaking that would be straight "no".

I am ready to make a move on my first commercial real estate purchase and I'm hoping this post will give me some peace of mind. To give you some background, I have an insurance business located in Southwest Louisiana and I want to purchase an existing dwelling to move my business since I'm currently leasing. My current rent is $910 per month for roughly 800 sq. ft. which is reasonable, but I would still rather own my location as opposed to rent.

The place that I am looking at purchasing is listed at $249k, the dwelling is 740 sq. ft., and the lot size is 0.56 acres (measurements are more or less). There are essentially 3 main roads in this town and the property is on one of those three, plus this particular road is almost all commercial. The building is older, it was constructed in 1960, but it has a newer metal roof. There would need to be repairs made to the interior such as:

• Drywall
• Ceiling
• Removal of a shower (see below)
• Floors

There are also some permitting issues that would need to be corrected such as:

• Ramp to comply with ADA guidelines
• 2 handicap parking spaces to comply with ADA guidelines
• 1 of the handicap parking spaces needs to accommodate a handicap van
• A landing would need to be built at the back door, currently there are only concrete stairs leading up to it
• Removal of the shower (it was not permitted)

Finally, I will need to pave part of the parking lot to comply with the handicap parking; right now the parking lot is mostly gravel though there is some (very little) pavement.

I was surprised to find that it is in an AE flood zone, but luckily the BFE is 11 and the current elevation is 12. So at a positive 1 elevation, my yearly flood premium will not be bad.

My goal is to not keep the existing dwelling, instead I would use it while I am paying off of my note, and once the note is paid off I would then demo it to replace it with a strip center with 6 units. I would make the driveway a one way where the entrance is from the main road (right of image) and the exit is a service road (left of image).

Here is a screenshot of the place I want to purchase outlined in red.

Something a little unique about this sell is that it would include a billboard. The owner leases a part of the land (like a 2x2 piece) to a billboard company and collect about $1,600 a year from that.

In terms of numbers, the taxes on the property is only $123.53 but the property is only assessed at $7,960 so I don't think that I would get away with that. Property insurance would run me roughly $3,000 a year. Flood insurance would run me around $1,200 a year, but I might get lucky since the property has a crawlspace and so the difference between the BFE and the top of the bottom floor may be a +2 (which would be nice). I would setup a new business to purchase the property so I would need to purchase a new general liability policy and that would run me about $365 a year. I am waiting to hear back from my general contractor to tell me how much repairs to the interior will be and how much the permit stuff will cost, but I'm hoping that it won't go past $10,000. I haven't gotten an estimate on the hard surfaces yet for the handicap spots, and to be honest, I don't know how much that'll cost me.

I've already talked with my banker and she said that I'm good so long as it does not exceed $500k (which it won't). She explained to me that it is 15% down, amortized over 15 years, and on a 5 year balloon. I was confused because I thought that a 5 year balloon was like on the personal real-estate side where the total balance is due at the end of the 5 years or it'd need to be refinanced, but she explained that it is more like a variable note where the interest rate changes at the end of each 5 year intervals. She told me to use a 5.5% interest rate just to be conservative on the numbers.

I'm using the mortgage payment calculator, and using all of those numbers it would put my monthly notes at $2,484.74 which is a little scary to me. It may be a little less because I would probably take the money from the lease of the billboard and apply it to my flood insurance. But ideally, I would feel more comfortable around the $2k a month range.

With all of this information overload, what would be somethings that I should consider? My dad always says "you don't know what you don't know" and so I don't even know if I'm overlooking something. What advise would y'all give me to give me a little bit of piece of mind?

Thank's y'all! I have a lot to learn (especially abbreviations) but I am very excited.

Hi BP community! My name is David Day, I am 26 years old, and I am from South Louisiana. I own a captive insurance agency that I started scratch in 2015 which is where my primary income comes from; I'm still a small agency but I continue to grow and started earning a profit after my first year and haven't stopped since. I also do freelance computer programming and web development on the side, though that only produces $1,000 here and there nothing really to write home about.

I do not have very much background in real estate. I've co-bought a single family dwelling with my dad that was financed on a 5 year balloon payment that I intended on refinancing. The situation changed when the opportunity to start this agency came up and so I decided to sell my portion of the home to my dad so that I could cash-flow properly (or at least show it on paper). Because I was so young, finding a lender without my dad co-buying the home as well as getting a line of credit for my business was tough, but I never missed a payment on my home and then I converted my line of credit to a traditional 5 year note of which I paid off in 90 days (I had told the lender my intentions so she worked with me on not including an early payoff penalty). Right now I am living in a home in which my dad owns, but luckily I am not being charged any rent.

What interests me in real estate is that right now I am leasing a small office for my business. It is around 800 sq. ft. and after my rent and lot charges I pay $910 a month (which is great for where I'm at). However, I know of several agents who work for the same company as I do that say that the best thing that they've ever done is purchase the property that they do business on. Most of the people who I talk to own the property and have 2-9 units that they lease in a shopping center style complex, though some own just one large building. However, I would be a fool to say that jumping into commercial real estate doesn't intimidate me a bit.

What I'm looking at doing right now is purchasing a piece of property that is about 1/2 an acre in a great location on a corner lot for about $200k and building something that has 2 or 3 units (to be honest I don't know how many can fit with a parking lot). I would have one unit that I used for my insurance business, it would pay the company that I would setup for my real estate dealings like any other business would, and then leasing the 1 or 2 remaining units to help offset the financing costs.

Anyways, that is the who, what, where, and why of me! I look forward to participating in the forums, especially bringing my insurance expertise on how not only to properly cover risks but also using insurance policies to help finance purchases.

I am a captive insurance agent on the other side of the state, but I am familiar with the Baton Rouge area. The biggest thing to consider in hurricane risk management areas such as Baton Rouge is your wind and hail (W&H) deductible, this can also be called a hurricane deductible/named storm or tropical cyclone deductible. A rough way breakdown to explain this is to explain them in order of what is encompassed under the deductible:

1. Hurricane Deductible or Named Storm - The least restrictive. Depending on the carrier this can be exclusive to Category 1 and above Hurricanes or it can also include Topical Storms and/or Tropical Depressions
2. Tropical Cyclone - A little broader in that it will generally include any storms that originate from the Gulf of Mexico regardless of the status (hurricane, tropical storm, etc.)
3. Wind and Hail - The broadest in that it not only covers any storms originating from the Gulf of Mexico but any wind and/or hail damage regardless of where it originated from

The reason why you need to pay attention to this particular deductible is because it will be percentage based deductible; keep in mind that this means that if your cost of insurance on the dwelling increases, so does the deductible. Generally speaking the deductibles will be either 2% - 5% although through some brokering companies I have seen them as high as 10%, but the deductible will generally need to either meet or exceed your all peril deductible (AOP) of $2,500. Doing some simple math, this means that on $125k your minimum W&H deductible would need to be at least 2% which coincidentally is exactly $2,500.

Before I move off of the W&H deductible, I want to provide you with some real life scenario of what happened during Hurricane Ike in 2008 (after the percentage based W&H was rolled out). I have a friend who is a local owner of a strip mall that had a claim during Hurricane Rita in 2005 prior to the W&H being a percentage and it fell under his AOP deductible which was $1,000. During Hurricane Ike he sustained serious damages, but because he wanted to save some money he had a 5% W&H deductible. His dwelling coverage was around $750k... he was not happy when he realized that he had a $37k deductible.

With regards to the coverages: The liability looks fine. The 80% coinsurance is standard. The difference between the $2,500 AOP deductible and a $2,000 may only be a couple of buck a year to move to, I'd look into that. The earned premium seems a little high at 25%, I generally see around 10% on a lot of my brokered business, but so long as you intend on keeping the policy that should be a big deal.