All Forum Posts by: Eric Belgau

I just found out that Foremost has lowered its Dwelling Fire policies on rentals by 14% in Washington.

Just to be clear, I do sell Foremost insurance. I do not work for Foremost. My purpose in posting this is to make investors in the area aware of this, in the hopes that it can generate cost savings.

I don't believe that's a violation of the forum guidelines. If it is, my apologies.

Evidence of a break-in. You can't break into open space. :)

@Bill S. Those are good points. My experience as a landlord has been in a desirable neighborhood in Burbank, CA, and we've been very tenant selective. We haven't had this issue, but we've been looking at semi-rural multifamily properties around Olympia, so I feel like it's on the way.

I like the idea of creating that idea of responsibility, even if it isn't enforceable when push comes to shove. If you're right that most thieves are known to the tenants, then I can see how just putting that out there would motivate the tenant to "find" the "lost" items. And making them feel financially responsible makes them less likely to steal it themselves.

As far as insurance goes, it does make a difference whether they're inside or outside, behind a fence/locked gate, etc., because theft coverage often requires evidence of a break-in. (For stuff out in the open, like the drain grates, the missing grates is evidence enough.)

All large appliances that are furnished with a property (and worth more than the deductible) should be on the landlord policy.

@Bill S. Have you made that policy stick on appliances installed in the unit?

You can write anything you want into a lease, but even if an item is inside the unit, if there's evidence of a break-in and various things belonging to your tenant are stolen, and if the thief makes off with, say, a refrigerator belonging to you, I think you'd have a rough time enforcing a policy that puts responsibility for your property on the tenant.

If it's on the property but out in the open, I can't imagine anyone assigning responsibility to the tenant.

George is right that it's probably a bluff, but that doesn't change the fact that it should be referred to the insurance company. Defense is included in the policy, and it isn't a claim unless there's a liability payout.

But the thing about this stuff is that a landlord's policies (not the insurance policies; the policies by which we run our business) shouldn't constantly have to react to every nuance of every situation. They should be consistent. That makes life easier for everybody, tenants included.

When there's a possible injury involved, the less reaction the better. Saying, "I'm sorry to hear that. This is how we deal with that," will give a legitimately injured tenant peace of mind and clarity. It will also likely call a bluff.

Personal, one-on-one communications are almost always the best way to resolve problems, and I think landlords who foster collaboration with, and make themselves available to, their tenants do themselves a service.

BUT that doesn't work with liability issues.

If you want to communicate with a tenant who claims to have suffered an injury, limit that communication to listening and understanding the circumstances. Explain that you're insured for this kind of thing, that you'll refer the issue to insurance, and that you hope it will be resolved quickly. Frustrating as it can be, and as much as it runs contrary to our natural inclinations of empathy and conflict resolution, it's not your job to admit responsibility for an injury. It's your insurance company's job to assign that responsibility.

There's a simple rule that can be applied to this.

When something happens, the claim is going to go through responsible parties until it hits an insurance company. That insurance company will (in the vast majority of cases) deal with the claim and subrogate against others if it's warranted.

That means you should always do two things:

1. Make sure the people down stream from you have proper insurance in place, and

2. Make sure that you have enough coverage to handle a claim that swims upstream.

Your GC should be getting certificates of insurance from every sub. You should be getting copies. Everybody who walks onto a work site should be covered. If you require the certificate in your office before a sub starts work, that should make it manageable.

What strikes me about many of these programs - especially in Real Estate Investment, but really in any kind of investment and any kind of business - is that they focus much more on the outcomes than on the way you get there. They possess - or at least pitch - a formula that can generate that outcome.

I get that. Outcomes sell. But to whom? Most often, it's the people who have the drive and, in many cases, the startup capital, but who lack the comprehensive knowledge that will make them successful.

The problem with a formula is that it depends on a specific set of conditions, and when those conditions change the formula (and the business build on it) fail. I remember a 22-year-old day trader who lost over a million dollars in a few short hours, sweating in front of his laptop on the patio at a SoCal Starbucks when the tech market imploded in 2001. He'd been using a formula. He'd been making great money. The conditions changed, and his formula didn't work anymore.

Those who are starting out need patience and knowledge. They need to be taught about all the risks (something BP does well). Learning what to do usually less valuable than learning what not to do, and the formula can get in the way of getting down to the fundamentals.

There are loads of courses available out there - finance, accounting, business planning, sales, marketing and advertising, and on and on - through university extensions and online sources (like Coursera). They're taught by credentialed instructors. They deliver a value. They provide the foundation to run a business.

Any investment portfolio is a business. It has to behave like a business. To run mine effectively I feel that I need to possess the knowledge to plan, manage, market, analyze, and improve it. Would I pay for that? Yes, in a heartbeat, and I do. Would I pay for a formula? No.

One other point... I consulted on a product to assist hedge funds and other large investors to manage their large rental portfolios when they were buying "books by the yard." The business model was to buy the properties significantly under value, hold them as rentals, and then sell when the market hit x, y, or z threshold.

As a normal investor I wouldn't pay too much attention to that phenomenon, or attach too much significance to it. If they're selling large portfolios, I would expect it is either because the market hit their threshold or because they realized that actually managing those rental portfolios was harder than it looked.

Jackie - I envy you. Where are you at in Panama? I have some friends on Contadora that I visit EVERY CHANCE I GET!

The article's commentary is bunk. (although if you read it as a hopped up Chris Farley it's pretty damn funny.) However, I see the facts in the article as being very relevant for a well-represented group here on BP - new investors operating on tight margins who want to get into flipping. Those relevant issues, specifically, are:

There has been a large supply of undervalued homes on the market; and one of the catalysts for the current increase in home values has been real estate investors buying those homes for any purpose - fix and flip, rentals, whatever - it takes them off the market, and as inventory turns it energizes the market.

As activity increases in the undervalued inventory, that attracts more investors. Prices rise. The values come closer to normal. That's not necessarily bad, but it does mean that the margins get tighter.

There is still a large inventory of off-market bank owned homes, unexecuted foreclosures, etc. Both here and in LA, the Realtors are aware of this, and I suppose it's the same other places. If that inventory were to "flood" the market, it would create another surplus of undervalued properties, which would drag overall home prices down.

That could create a disaster for a new flipper who is over-leveraged and can't afford to carry the investment. It's a reason for concern for anybody who is getting into that business without adequate cash.

Of course, if that were to happen, there would be another large, undervalued inventory, creating attractive investments, and the cycle would repeat.

Where the article misses by a country mile is the idea that it is bad to have investors accounting for a large percentage of home sales. There are numerous other factors at play - stricter lending standards (largely good, in my opinion), current homeowners waiting for the market to recover, etc., etc., etc. - in our current market dynamic.