All Forum Posts by: Account Closed

@Susan O. The standard limits for commercial general liability are $1 million per occurrence $2 million aggregate.  A good policy will provide this limit per location as opposed to combined for all properties. I am always shocled at how little the price changes when you change from $500k to $1mm. My guess would be $25-$75 per property. 

The property prices you gave are extremely low and make me think you probably do not have all the bells and whistles on your property coverage. Maybe not though, everyone in Missouri gets earthquake insurance and we have a hail storm atleast oncec a month so that could be the difference in cost. 

@Jeff B. Here is the language straight from the ISO form CG-00 10

We will not pay on a replacement cost basis for any loss or damage: 

(1) Until the lost or damaged property is actually repaired or replaced; and 

(2) Unless the repairs or replacement are made as soon as reasonably possible after the loss or damage.

We will not pay more for loss or dam- age on a replacement cost basis than the least of (1), (2) or (3), subject to f. below: 

(1) The Limit of Insurance applicable to the lost or damaged property; 

(2) The cost to replace the lost or damaged property with other property: (a) Of comparable material and quality; and (b) Used for the same purpose; or 

(3) The amount actually spent that is necessary to repair or replace the lost or damaged property

If the insurance company will not pay until construction is finished and will not pay more than the actual amount spent there is no conceivable way to make money from getting a lower bid when you have replacement cost coverage. I have no reason to be making this up and would not be making statements in absolutes if I were not completely confident but I can't force you to believe me. Thats all I have on this topic. 

@Jeff B. Are you saying total construction cost + loss of rents was $89k and you were paid $95k and pocketed the rest? 

If so that is in clear violation of your insurance policy and could be considered insurance fraud. It is also the exception that this would slip past the insurance company. 

There is always going to be that oitlier case but in the 100s of claims we have been involved in over the past 3 years the process has worked as I explained every time (there is a lot of hail in Missouri)

@Braden Hobbs Is water super expensive in your area? My water bill is less than $10 month and isnt something I even think about. 

@Alan Brown The insurance issue you mentioned actually is a huge problem in all areas with significant new multi-family development (FL, CA, AZ, CO, NY, Etc.) due to class action lawsuits alleging construction defects. In St. Louis there are not enough new multi-family developments to put together a suit with enough volume so we have been spared that problem. Many construction focused insurance companies exclude coverage for residential construction. However, there are a handful of insurance companies still involved in residential construction.  

It varies by jurisdiction but in my area most building code issues that were not in force when the property was originally built are not required to be remedied to get approval to renovate. However, if the building is destroyed due to a fire or storm your insurance will only pay the cost to rebuild as is and not any extra expense that results from meeting the new codes. It is very important that your insurance has the ordinance or law endorsement which provides coverage in this situation. 

The most tedious part of setting up the HOA is getting the HOA qualified by FHA so that buyers can use an FHA loan to purchase a unit. This link provides a step by step guide to qualifying for FHA financing. FNMA has other similar requirements before the condo can be approved. @Dion DePaoli is right on about most lenders being unwilling to finance the units in your complex until the HOA is approved by these government entities making the mortgages much easier to sell off. 

In my experience the bank providing the construction financing will set up a deal with you committing to fund the unit mortgages until approval from the government entities is achieved. THis lender has already financed the entire condo so will not have the same hesitations as a traditional mortgage lender. They also have an incentive to see the project succeed which requires the ability to sell off the units. 

Getting an environmental study completed and obtaining all of the approvals needed from the local municipality before actually purchasing the property is also a way to reduce a potential disaster. 

@Jeff B. You are right I should have specified that is not a requirement it is something we recommend to our clients. There are so many large contractors out that there that do insurance work that it should not be a problem to find a contracting willing to accept. 

I should have also been clear that my comments only apply if you have replacement cost coverage.

If you have an actual cash value policy the insurance company pays you the money and walks away so that is a different story and you are 100% correct. 

If they are paying replacement cost they pay the actual cash value up front and the rest when the project is finished and proof of completion and payment has been submitted.  In this situation the only benefit from getting a lower bid is that the insurance company pays a bit less. In that case they will adjust their replacement cost valuation down and you will be liable for overruns unless you follow my suggestions above. 

@Jeff B.  The insurance company adjuster puts together a detailed report listing what is damaged and the price they will pay to fix it. Some property owners hire a third party to evaluate the damage and negotiate with the insurance company to set the appropriate price. 

Your contract for work includes the set price you determined and getting the job requires accepting that price regardless of actual cost to complete.  You then send the scope of work and price to contractors and determine the most capable one for the job.  

You may be able to get a lower bid through the traditional process. However, if you do that bid amount becomes the max the insurance company will pay so you better be certain the contractor with the low bid will actually be able to do the work at that price and wont just walk off the job if it has major cost overruns. Remember the work is being funded by the insurance company and the increase in premium you will have after a $25,000 roof claim is nominal compared with a $35,000 roof claim.

This Youtube video was put together by my area Community Association Institute chapter which is an industry group designed for condominium associations that provides best practices for property managers.  It explains the bidding process after an insurance claim. 

@Account Closed Makes a good point regarding estate planning. It is very important to consider the people you are leaving your assets to when making investment decisions. If you have a son with real estate experience he can probably take over the investments no problem. However, if you are leaving your inheritance to your 85 year old wife in a nursing home you probably need to make a chance. I have always thought that Dave Ramsey's strategies are more geared toward personal finance and reducing debt such as credit cards and student loans. Debt taken on in order to purchase revenue generating assets is a bit different. However, too much leverage has ruined many investors so its definitely important to understand your limits. 

@Jim Brozny 

After a claim your insurance company will give you the actual cash value of the damaged property which is generally much less than the total cost to replace.  If you have replacement cost coverage they will pay the remainder of the cost after the job is complete and you send them proof of the total cost in the form of an invoice from the contractor. So you will not have the opportunity to pocket any money. However, if somehow you do get the opportunity keep in mind that if you are caught committing insurance fraud in Illinois of between 300 and 10k you will get to enjoy a minimum two year sentence in prison. 

You will not need to worry about doing any of the negotiating yourself either. Generally the insurance company will inspect the damage and come up with some $ figure they think is fair for the work. The contractor can sometimes negotiate with the insurance company if they believe it will cost more then the initial offer. It is often beneficial to have your contractor and the adjuster inspect the property at the same time so they can talk and agree on a price. 

Remember, the insurance company is the one making the payment so they have incentive to negotiate a fair cost. A large portion of a roofing or siding contractors business comes from insurance claim related work so these contractors have an incentive to develop a good relationship with the insurance companies. 

That being said, it is still very important that you properly vet your contractor like you would for any job. The one big difference in the vetting process after a claim when you have replacement cost insurance is that you do not need to worry about price since it is already determined by the insurance company. 

@Jeff B.'s advice to get three bids is absolutely correct for normal work. However, after an insurance claim instead of getting three bids you could conduct three contractor interviews to determine who you think is best for the job. If you already know and trust one contractor you can also feel free to use him.  

It is still very important to make sure you have a quality contract and have hired someone capable of finishing the job.  My opinion is that you should hire a large well capitalized contractor with years of experience.  These large contractors often have standing contracts with insurance companies that they will accept the price generated by so and so estimator program making the process totally seamless. 

@Lee S. Actually the complete opposite. I made it clear that I have never said BRRR was a bad investment philosophy and in fact have said the opposite that it can be A GREAT INVESTMENT.

I also stated that you being personally offended by people who use other investment approaches and attacking them personally is counter productive. 

Finally I stated that insisting one investment approach is better in all ways than others is unrealistic and doesn't acknowledge differing investment goals and risk tolerances. 

However, I have a feeling you did read my comments and instead of acknowledging that you personally attacked me after misinterpreting my point you choose to pretend you didn't read it. CLASS ACT BROTHER.