All Forum Posts by: Eric Belgau

@Adrian Tilley Yes, the electrical problems can be huge, especially when the grow space is outside the regulated sphere. There has also been a significant uptick in explosions caused by people extracting hash oil using butane or other solvents. (The industrial processors are required to use closed-loop systems here, which makes it safer.)

That does open up the larger issue. However regulated it is supposed to be, it appears that a lot of people have taken legalization as carte blanch to grow. @James Bell I would strongly suggest that you add that clause, and other residential landlords should as well.

Also, legal (or semi-legal) MMJ has made the marketplace a lot more sophisticated. That means more sophisticated production. And when people ape those production methods in their kitchens and basements bad things are much more likely to happen. As the prevailing cultural wind blows more smoke our direction, it makes sense to pad ourselves with protection so we can still see straight.

I'm not sure if this is of any interest to the community here, but from where I sit it's getting to be downright fascinating.

With recreational cannabis legal in WA and CO - and momentum toward legalization elsewhere - we can assume there will be more and more people wanting to rent space for sanctioned, licensed growing operations.

My experience and knowledge is specific to WA and is focused on the insurance aspect. (It would be interesting to hear commentary from CO, as well as other professional perspectives.) That narrow view notwithstanding, there are a few things I'm seeing that I feel commercial landlords should be aware of.

First, leasing to a cannabis-related company will almost certainly impact your Lessor's Risk policy on a commercial property. Our preferred markets don't want to insure buildings that have cannabis-related businesses in them, and that can mean a sometimes significant rate change. That's worth investigating before agreeing to lease terms with a tenant.

Second, although the CO market seems to be going great guns, here in WA regulatory factors are creating significant obstacles for aspiring cannabis entrepreneurs. A significant number of the people I've worked with have had great plans, but they have not had sufficient capital to realistically realize them. I would encourage commercial landlords to take a good hard look at a prospective tenant's capitalization and business plan before taking on the risk of leasing space.

Third, the costs of doing business in the cannabis industry are crazy. It's not just that they're high. It's that they're hard to predict. In the insurance sphere, we're seeing huge spreads (by two and three multiples of the premium) on the quotes rated from a single application. When you lease to a cannabis business, you should be prepared to inherit some of that craziness.

Fourth, because costs are high a significant portion of the growers I've spoken with want to carry the absolute minimum coverage required by law in order to keep their costs down. That means that commercial property owners should take a closer than normal look at their tenants' coverage to make sure there aren't any gaps that could present a problem in the event of a loss.

On the other hand, these issues, as well as the regulations, do create a shortage of space, which can mean premium rents.

Food for thought!

Matthew is right. You don't have any real leverage.

Also, your attitude is right: you want to pay a fair (even "premium fair") rate for the service that was performed, and you want to pay it promptly, but you don't want to be gouged after the fact.

Unless you're a really good negotiator, the best way to create leverage when you have none is to use a proxy. Have your PM call the dry-out company first and get all the information to pass on to you. Then you can have the information in front of you and can make a reasonable decision about how to proceed. If the company charges an appropriate rate, you can just call and pay it. If the company decides to price gouge you, then you can look at your options for recourse.

It's probably worth mentioning that the endorsement to cover this is usually pretty cheap, and I always recommend including it in a policy. I'm mentioning it for the benefit of others, not to pour salt on your wounds, and I hope it doesn't come across that way.

@Rodney Kuhl I wouldn't worry too much about that. If your plan calls for having a tenant in within 30 days use that plan with your agent. Then if the vacancy looks like it's going to last longer, get guidance from your agent on what you should do. An agent can call your insurer and say, "Hey, Rodney hasn't found a tenant for his rental, so it looks like it's going to be vacant for a couple more weeks" and in all likelihood the insurer will provide some grace or a remedy.

Servicing a policy isn't usually quite as cut and dry as rating one.

In the Washington market, Farmers has one of the better policies for vacant properties that I've seen, at least around here. Although I haven't had a client experience a loss to a vacant property, I am aware that the claims process can be more challenging, so if you do experience a loss it's probably a good idea to hire a public adjuster.

Disclosure on the next paragraph: I work with these carriers, but I'm sure you all have your own agents. I offer it FYI.

Generally, I like smaller regional insurers for rental property portfolios because they are generally more receptive to agent input and more flexible with their terms. Around here, my favorites are Middle Oak (for portfolios of 11 doors or more) and Red Shield (for smaller portfolios). I believe Middle Oak writes in Indiana. Red Shield is only WA, OR, ID, and UT.

One important thing to remember about the price variable is that protection class (defining how well the fire department can respond) is one that you have control over in the buying process. It's very easy for your agent to look up the protection class for a property you're looking at, and that should be a factor in the buying decision, especially if you're planning to buy and hold.

With solid experience, no claims, a protection class of less than 5, and a replacement value under 200k, $500-$600 per door is a realistic number to shoot for.

I agree with Chris K. Our first rental was an investment, bought with money we set aside to invest. Once we put money into an investment, we think of it as belonging to our future, not our present. The same goes with everything that investment yields. Any positive cashflow goes into the same investment account we're building to buy our next rental.

In my opinion, if you're looking for returns, there are better places to put money than real estate. If you're looking for growth, then there's really no better place to put money than real estate.

But growth is like a balloon. You have to keep blowing it up. If you put a pinhole in the back of your balloon (constantly taking money out) then you can't make it grow as well or as quickly.

For what it's worth, I discovered that a few insurance carriers offer a discount (especially for larger multifamily buildings) for installing automatic stovetop fire extinguishers. I promptly had them put in, not just for the discount but because they're mechanical. They don't have to think about paperwork, a date, and whether or not they remembered to get gas before putting out a fire.

There are a couple of issues at play here.

First, Duncan is right. A book of business does affect the premiums you get from underwriters, especially when you're a captive agent - selling for one brand, like State Farm.

Different agents also view their job in different ways. Half the job is selling policies to clients, and the other half is selling risks to underwriters. Agents who specialize in selling policies often sell less to their underwriters, and the rates suffer as a result.

But if you have an established relationship with an agent (meaning you've had your business with them for some time) and you suddenly get a big rate increase without any claims during the preceding year, it's probably because the insurer changed its guidelines. It's very tempting (and convenient) to go after you agent over the rate increase, but those don't happen because agents want to make a buck.

There's a difference between a commercial umbrella and a personal umbrella. You'd need a different one for property owned by you and property owned by your LLC. If the hotel is held differently, it would need to be covered differently.

If there's a way to move it into your LLC, you might be able to save money by insuring the apartment and hotel together.

Otherwise, given the hotel property's use, I think you could protect yourself adequately with a lessor's risk policy that has high liability limits. You're probably being quoted a $2 million aggregate/$1 million occurrence limit, but there are $4 million aggregate/$2 million occurrence limits available. The higher limits should be cheaper than adding an umbrella.

An umbrella contains additional breadth of coverage, but most direct liability on the premises would hit your tenant's insurance first.

This is, of course, an opinion without knowledge of your actual situation.

The simple answer is: you are responsible for personal property you leave at a rental unit.

You can pass that responsibility on to a tenant through the wording of your lease. Whether you can make that transfer of responsibility stick or not depends on how thorough the lease and move-in inspection are.

And guys? Since it was mentioned, don't leave barbecues for your tenants to use. Please. My insurance brain gets cramps just thinking about it.