All Forum Posts by: Account Closed

Florrisant does have a major problem with out of state investors buying and not maintaining section 8 housing. I believe this bill was meant to target those investors and not the honest landlord and I think that is evident in the amount of requirements that require the physical presence of the landlord. 

That being said it does seem like they went a bit over the top. 

@Jeff Dimock I believe that many investors choose the ACV option due to bad communication between many agents and their clients. It is absolutely true that many flipper type houses are purchased for much less than the cost to replace.  However, the vast majority of investors will never experience a total loss claim but will experience numerous partial losses. If you want the property damaged in a partial loss to be replaced through insurance you need to buy replacement cost coverage. 

An ACV policy will deduct 6.5% from roof ($15,000) value every year providing no coverage after 15 years. They deduct 10% a year from most appliances ($7,500 furnace, $2,500 AC) 15% from carpeting ($1,000).

It is not unheard of for older homes to have an ACV for these items close to $0. It is important to be aware of these potential large uncovered losses when making your insurance decision. 

It is also  misconception that an insurance limit equal to the cost of the home will be sufficient in the event of a total loss. This insurance limit can be used to pay off a loan and recoup any principal paid. However, it does not cover the cost to demolish and remove the remnants of the home or to remove and fill the basement foundation. After all of that you are still left with a worthles lot to maintain and pay taxes on. I actually wrote a blog on this topic today. 

I am looking to purchase my second rental property in the St. Louis area and am currently targeting my search towards suburbs along the 270 corridor such as Maryland Heights, South Bridgton, Olivette and potentially St. Charles. I have found some pretty reasonably priced properties out in this direction and wanted to see if anyone else has had success in these areas. 

I should clarify my goal is to buy and hold rental properties in this area and while positive cash flow is a must I am more than ok with a 5%ish cap rate. I am interested to hear if anyone has been active in this area. 

@Ray Lai I have seen a number of these measures pass. It has always been my understanding that these laws are meant to dissuade out of state investors who don't take care of their properties and hide behind the anonymity of an LLC. Have you heard that local landlords are being targeted?

@Ray Lai It is almost impossible to invest in the Ferguson and other similar cities without knowing the area extremely well. There are solidly middle class areas of Ferguson that could have homes worth $250k. However, you could walk 4 blocks and find yourself into a totally dilapidated slum.  The property you mentioned does not have good highway access, you can likely hear planes landing and taking off at the airport and it seems to be in the Mcluer South school district which is one bad year away from losing accreditation. I would not consider this an ideal location unless you plan to use section 8 housing. 

@Dave Blackman I would think that the inability to put your Missouri properties on the umbrella has more to do with the number of properties you have than it does with crossing state lines. You should be able to purchase one umbrella for all of your investment properties (regardless of state lines) and one umbrella policy for your personal insurance needs (home, auto, etc.). 

A typical structure is to have a general liability policy specific to each property ranging from $100,000 to $1,000,000. (Increasing these limits is pretty inexpensive) You then have one umbrella policy ($1 million to $10 million limits) that can provide liability coverage for all of your properties in the case that the primary layer is exhausted. It is unlikely that you will ever need this extra layer of coverage but for $500 or so it may be worth the assurance you are protected. 

I think it is worth noting three major differences in the MO and CA property insurance markets.  

Earthquake: a major fault line runs through St. Louis that has not been active for the last 100 years. However, buildings in Missouri are not built to withstand an earthquake so if one were to ever occur most older properties would be totally leveled. For this reason purchasing earthquake insurance is something I would consider. 

Wind/Hail: It rains in St. Louis around once a week and large hail is a regular occurrence. For this reason, your wind/hail deductible is much more important. If your properties have older roofs it is only a matter of time until you have a hail claim. 

Agreed Valuation: Most of the rental properties with good cash flow our close to downtown and can be upwards of 100 years old. The cost to replace these homes as they are would likely be much more than the way you would actually rebuild (i.e. brick covering 100% of the home, wider hallways etc. For this reason, I recommend trying to get an agreed value policy which allows you and the insurance company to agree on the value of the home upfront. This strategy allows you to agree on a value that more closely reflects how you would actually rebuild the home without being subject to an under-insurance penalty. 

Is your main concern interest rate risk or freeing up capital for another deal? 

If it is interest rate risk but you want to keep the property for cash flow and you have 15 other cash flowing properties I would think you could role the extra $21k into one of those loans. I.e. If you have paid off $21k of some other rental property you can refinance and basically borrow an extra $21k against that property and take the $44k loan offered by the lender. 

If you want to free up the line for another investment while maintaining leverage why not just sell at the $72k you think the market will pay, free up the line, make a small profit and use it as a learning experience?

Jim Bowser Oftentimes basic liability insurance that is combined with a dwelling fire policy excludes claims relating to subcontractors. Full blown commercial general liability policies should cover you for claims resulting from subcontractors. However, if your insurance company picks up a big claim caused by a subcontractor and you don't have proper safe guards in place to ensure you subs are insured your likely to be non-renewed or have a very large premium increase. If a company has work comp their employees can only collect from that policy and is prohibited (99% of the time) from suing you. If they don't have work comp nothing is stopping them from faking an injury and to get money out of you.

Jim Bowser You are correct that this is an independent contractor. Work comp laws vary by state but in MO you would not be responsible for their insurance. However, if they don't have work comp and get injured on the job they can sue you in civil court with no limit to damages. It is important to remember that often times the jobs with the smaller $ contracts can have the most potential for risk. That being said whether or not you require the hauler to have insurance is a business and not legal decision you have to weigh.