All Forum Posts by: Drew Maconachy

Another con is insurance costs. If the asset has more than 5% section 8, you will lose the interest of about 1/3 of the insurers. Insurance costs will go up 15-25% depending upon geography. I'm not saying don't do it, just be sure to price for it. Good luck!

Greg-

Thanks for the post.  I'll address each of your points:

1) You are correct, if you are listed as an Additional Interest you will get notified that they no longer have insurance and you would need to follow your steps.  All of that takes time, effort, and potentially losing a tenant.  And if you have 100+ doors this is a substantial time suck.  This product eliminates you investing any time at all regarding this important issue.

2) Also correct, however in point three you mention "dings" on your record.  By putting your P&C insurer on notice and having them chase the Renters policy, you will create a "ding" on your policy (as the claim would be filed against your Property policy).  It shouldn't have any claims payment associated with it, but insurance underwriters are more concerned with frequency of claims than severity as it is an indicator of the PM's professionalism, so why create an unnecessary "ding" on your P&C placement?

3) Correct, this will create a "ding", but ONLY with regards to this specific policy.  You will package your Property, GL, and Umbrella coverage with a another insurer, and they would never be notified of your turning in a claim to the policy that I am recommending.  If you get to many "dings" on the Renters Legal Liability policy, rates will go up and you could decide to end it and go back to individual Renters policies and their headaches at that point.

4) Incorrect - This $100,000 limit (which is more than most Renters policies provide by the way) is dedicated to fixing your asset first (just like you would want), but if the $100,000 limit isn't used up fixing your asset then your renters have up to $15,000 to cover their personal property.

In summary, the product costs about the same, provides coverage to the asset owner FIRST, requires no tracking/monitoring by you or your staff, doesn't open the owner up to exposure between when you find their policy has lapsed and you get it corrected, and will decrease your P&C costs.  If you are large enough to qualify for these programs, they are unequivocally better than Renters policies for an asset owner.

A common theme is for landlords to require their tenants to purchase a Renters Insurance policy.  Some take the next step and have them prove it (good idea).  Here's the problem, an independent study was completed that showed that over HALF of the Renters policies that are purchased are cancelled within the first calendar year.  The widely accepted belief is that a tenant will buy a policy, show the dec page to the landlord or MGMT company, and then immediately cancel it.  Unless you or the MGMT company are constantly checking to make sure the policy is in force, then it's probably useless.  

So what should you be doing?  You should be searching for a Renters Legal Liability policy.  The offerings vary, but generally it provides a landlord with $100,000 of coverage from their tenants (or tenants guests) accidents or negligence that causes a loss to your asset.  And the beauty of it is you are the named insured, meaning you don't have to chase a tenants policy for reimbursement, you (and I) handle the claim from start to finish and are reimbursed directly.  They usually cost $8-$10 a month, and you can remove the requirement for Renters coverage so it should net out for your tenants (as you will pass this cost onto them), but you are assured that all tenants are covered.  No tracking, no headaches.

If you own more than 50 units, reach out.  I can help you.

Drew

Dante-

My best advice at this point would be to start looking at your service providers that you use on a day to day basis and make sure they are specialized in what you do.  Does your lender focus on the types of properties you buy?  Is your accountant giving you guidance that you are finding helpful?  Is your insurance provider showing you some potential pitfalls that you will definitely want to avoid.  You should start leaning on your vendors harder and double checking their work by bringing in competition, because you are now big enough to justify vendors spending significant time reviewing your business.  Good luck and here to help if you need it!

Drew

I am an insurance broker who represents RE investors across the country.  A common question that I get is, "Why am I buying water backup coverage if I have a flood policy?"  The answer is relatively simple: they cover two different types of loss.

A typical property policy is going to exclude flood coverage, especially if you are in a flood zone.  You are going to have to buy back this coverage, and if in a severe flood zone, that will have to be done though the National Flood Insurance Program, a government backed entity.  This coverage is weak and you should work hard to find an actual insurance company to offer flood insurance on one of their policies.  So what is flood coverage?  Flood coverage is triggered when surface water comes into your asset from the outside.  This is obviously common is floods, but can also happen in heavy rains.

What's the difference between that and water backup coverage?  Water backup is the backing up of drains or pipes that backflows into your property.  This is the most common type of property claim, and can lead to very expensive claims if the backup happens on an elevated floor and gets into the calls and ceilings of the units below.  While this loss is the most common trigger on a property policy, I would say that less than half of the policies that I inherit have coverage for it.  Also, many of the ones that I have it have a $5,000-$25,000 sublimit, which in almost all cases is not adequate.

Quick summary:

1. If you are in a flood zone, make sure you have flood coverage.  Don't assume you have it, because unless you ask, you likely wont.

2. All RE investors should purchase some form of Water backup coverage.  If you have a multistory building, you should be buying higher limits of this coverage.  This is also not on every policy, and if it is, it is likely a nominal amount of coverage.  Need to make sure you have adequate coverage.  Talk with your insurance agent about what that appropriate amount is.  Don't skimp on this coverage to save money.

I hope you find this helpful!  Reach out if I can answer any questions you may have.

As an insurance agent who works with investors nationwide, I would strongly suggest finding a mentor in the space who has gone through everything you are about to face as you enter the RE world.  Let them jumpstart your career by learning from their mistakes before you repeat them with your own (or worse, your investor's) money.  I personally think the best mentor is Tim Bratz.  Very hard working, smart guy, that made lots of early mistakes on his path to great success.  Look him up on social media if interest.  Last suggestion is surround yourself with professionals that commonly work in RE.  From my experience, I would say 90% of the insurance policies that come to me have potentially catastrophic flaws for upstart investors.  Reach out if you think this may be you!

@Collin Schwartz Congrats on such a quick and seemingly success transition into the REI world. One quick insurance tip for you in NE.. be mindful of the wind deductible that you agree to in your property policies. While you can save huge dollars by increasing the deductible just a single percent, the downside can lead to catastrophic cash shortfalls in the event of a loss. I would suggest keeping making the deductible equal an amount that you could survive, but it would "hurt". That way you keep as much money in your pocket as possible while not facing enterprise risk. Glad to discuss this further with you if you would like.

From an insurance brokers perspective:  If you drop average rent below certain thresholds (these change by geographies obviously), insurance companies will apply a heavy surcharge to premiums.  Their fear is that the quality of tenant goes down as rent goes down, and the investor is more likely to have to turn in claims accordingly.  Something to think about as you are pondering this decision.