All Forum Posts by: Eric Belgau

We're buying 6 acres of undeveloped land adjacent to our primary residence, creating a privacy buffer for now, but with an eye to developing it down the road. We're buying with cash directly from the seller without a Realtor involved, and we have a good enough relationship with him that he'll close however we chose.

So in Washington State, what's the cheapest way to close? Any insight will be greatly appreciated.

@Jaspree Sin I don't know that E&O is precisely what you're looking for, unless you're a Realtor and doing this within your profession. You need to define the nature of your business and then sit down with a good insurance broker who can write the coverage that will match your specific areas of risk.

It's important that you find a quality, knowledgeable broker. If you're wholesaling and selling to ultimate owners through rent-to-own contracts - and if you're not a Realtor, attorney, or other licensed professional - you can touch on some potentially significant liability issues. You need to be aware of them, and you need tools to help you manage them, as well as the insurance to cover them.

The trigger on this type of policy is almost always a broken lease. It insures a landlord's financial interest in a tenant's contractual obligation. So it would only cover vacancy if that vacancy was caused by an eviction or a tenant breaking a lease, not if it was caused by a landlord having trouble finding a tenant.

That distinction might be moot, since these policies do seem to be gone for now. But just in case they come back...

Replacing it is most likely your best course of action. However, it's worth mentioning that right after we bought our condo (2008) the fridge made exactly that sort of sound. There was an issue with a fan blade. We put in a new blade, and it has worked ever since.

This may easily not be the issue with your fridge.

The main recommendation on an umbrella is - yes, you should have one. Separating your financial universe into a business side (incorporated) and a personal side makes a lot of sense for a lot of reasons, but liability insurance is certainly a simpler and less nuanced way to protect yourself from risk.

There are certain things you can expect to be excluded from the policy:

Malpractice - which is likely not applicable unless you're acting as a Realtor. You'll need separate Errors & Omissions coverage.

Workers Comp - which is much more possible if you don't make ABSOLUTELY sure that everybody doing work on your house is covered.

Wrongful Acts - which broadly means causing harm intentionally and/or unlawfully

(WC exclusions may be different in some states, but it will definitely be excluded here in WA.)

Congrats on the new rental, and good luck!

The timing of inspections can be a bit unpredictable, depending on the company, the risk profile, the area, even the agent who's writing the coverage. And there are a number of differences between adding a property to the schedule on an existing commercial policy and covering a primary residence at purchase.

After the inspection is done you will have some time to remedy the situation, but you want more flexibility than a lot of the captive underwriters will be willing to give. Under normal circumstances, if they do an inspection before closing and give you a month or so to remedy it, that's no problem. In a short-sale with no finite time frame, you might not have access to the property in time. Some carriers will be flexible and understanding, others will not.

@Account Closed

The common wisdom that you should have liability insurance to cover your net worth comes from the fact that claims tend to expand based on the depth of your pockets. Let's say my dear old mom comes to visit me at the house I rent from you. As she's leaving, the stair you haven't gotten around to repairing breaks, and she falls down to the pavement, cracks her head open, and dies. As her heartbroken son, I hire a lawyer and go after you.

The number in that suit is likely to reflect your net worth in some way. If you're a rich jerk who didn't care enough to fix the stairs on your rental, the number will be bigger than if you're a little guy doing your best with limited resources.

That's why people say you should have liability coverage up to your net worth. It's not that the umbrella is actually protecting your net worth - like, if you have $2m in assets and $2m in coverage you'll never have to pay anything out. Your policy will always pay up to its limits, and you'll always have to pay anything beyond those limits, regardless of your financial situation.

Also, the RISK of something bad happening doesn't care about your net worth. In the above example, the claim might not be as big, but it's still going to exceed $1m, and it's still going to wipe you out.

So the bottom line is, the need for liability insurance INCREASES as your net worth goes up, but it doesn't DECREASE as your net worth goes down. And because the cost of each stratum of coverage goes down (the first $1m costs more than the second $1m, which costs more than the third $1m) this is an area where it makes sense to be overinsured rather than underinsured.

@Victor Morgan if the home is/has been vacant, your mortgage company should be okay with you getting a builder's risk policy for the vacancy/repair period, to be replaced with a permanent policy after that.

If it is not or won't be vacant, then you should still be able to get it covered. The most brand-prevalent insurance companies tend to be risk-shy, but if you speak with a broker who has access to numerous markets you should be able to find a policy.

When you speak with insurance people, describe the situation in terms of what you're doing to remedy it. From my perspective, there's a big difference between a guy who says "the roof has holes in it" and the guy who says "There are some issues with the roof, so I've been getting bids to repair or replace it as soon as I close."

The first guy has a problem; the second guy has a solution.

It's also good to take your own pictures and show them to the broker. The companies I work with do inspections - which isn't fraud; they have to know the risk they're taking - and you don't want this issue to repeat itself right before you close.

I usually recommend $2 million in liability as a minimum, and I shoot for $1 million on the property policy and $1 million on an umbrella to start with.

Some carriers don't offer the $1 million limit on the property policy. A lower limit there is fine as long as it's high enough to support the umbrella, and as long as we increase the umbrella limit to reach that $2 million minimum.

So John T is fine with his underlying limits of $300,000 because he has a larger umbrella and, I assume, the umbrella only requires a $300,000 underlying limit.

If there's a substantial price difference between the two policies, it is almost certainly because of a difference in how the carriers underwrite the property. (Liability coverage that's included in a landlord policy isn't that expensive.) So you'll probably be better off with the $500,000 liability limit and an umbrella.

You should definitely disclose it to your insurance agent, but it shouldn't increase your premiums if it's in good working order (and depending on your carrier).

I would look at in terms of how much time and effort it is going to take to keep it in good working order. If you're going to manage risk effectively, an annual lease term is really too long to go between inspections: an accident that happens as the result of a repair issue can cost you dearly. You'll want to create an inspection schedule, complete needed repairs immediately, and maintain records. All of that is added work.

So instead of it being vs. liability or vs. premium I'd analyze it vs. headache.

Of course, you should make sure you have adequate liability coverage.