All Forum Posts by: Account Closed

Your agent is correct that insurance companies require you to insure your rental property at the cost to replace. They do this because they know if they used market value every investor would claim a value lower than the actual value knowing that most claims are not total losses of the property. To prevent this they charge a penalty if you are insured for less than their required amount of insurance. 

As john stated most companies allow you to choose from 100% 90% and 80%. Your insurance rate will be lower the higher percentage you choose. Standard is 80% is rate x 1 90% is rate x .95 and 100% is rate x.9. The insurance adjuster will determine the replacement cost at the time of a claim so lying about the characteristics of your building doesn't do any good.

The best way to get around this issue is the agreed value endorsement. With agreed value you and the insurance company sign a document at the beginning of each policy period stating you both agree on a certain value upfront and that will be considered 100% coinsurance in the event of a claim. If you are considered a quality risk the insurance company will often set the agreed value of as the cost of rebuilding with the most basic materials and appliances. (i.e siding, carpet, linoleum, etc.) In Missouri 90 cents a square foot is a common valuation.  REMEMBER if your entire building is destroyed you will only be given the agreed value regardless of the actual cost to rebuild. 

Its important to note that insurance companies will not do agreed value unless you are considered a "good risk". A good risk is someone unlikely to file claims and will only file claims for large unpreventable accidents. I have found the main ways you can be considered a good risk are: 

1. Well Maintained Roofs: The biggest reason property insurance has increased over the past decade is because of people who let their roofs deteriorate until a hail storm and then have insurance pay for their new roofs. 

2. Proactive Maintenance Plan: If you are routinely fixing small issues when they appear they are less likely to turn into bigger issues. 

3. Written Risk Management Policy: Deadbolt locks and alarm systems, tenant screening, not letting units go below freezing in winter, not allowing grills on balconies, etc. 

4. High Deductible: If you are doing steps 1-3 you are very unlikely to have incidents resulting in smaller claims. Having a high deductible is a way to put your money where your mouth is and show you have confidence in your property. 

5. Good Claims History: Historic results are the best way to predict future results. Insurance companies look at frequency not severity. 

Good Luck!

I have never experienced anyone have trouble with their lender using builders risk. BR is essentially hazard property insurance + additional construction specific coverages. 

Builders Risk insurance is what you need to protect damage to the property/materials during the rehab. 

There are many types of liability insurance you can purchase and you should find a good agent to provide a recommendation on this. HOWEVER, if you are acting as the GC this insurance would under no circumstance provide coverage for an injured employee of yours or a subcontractors employee. The subcontractors workers compensation coverage would cover this and it is important you make sure subs carry this insurance. 

It sounds like the tenant signed a year long lease. If this is the case they are technically on the hook for the entire year and just taking the security deposit should be a good compromise. However, I would urge you to get familiar with your states eviction laws. You generally have to go through legal proceedings to officially evict someone and unless they voluntarily do not move in you can be sued if you improperly evict them. 

This is incorrect. Foremost vacant home coverage does not cover theft and in fact only covers fire, explosion, lightning, windstorm, hail damage and vandalism. This policy will depreciate the materials used in the rehab in the event of a loss meaning you will be given less than you paid. The liability provided in Foremost's vacant home insurance does not cover damage resulting from construction or completed operations. 

Builders risk coverage replaces materials at their cost, covers not only theft of your materials but theft of other contractors materials and is generally less expensive or very similar to vacant home premium. Builders risk also covers earthquake, waterbackup and equipment breakdown.  The liability insurance provided from your homeowners policy provides the same protection as a vacant home policy. However, I would recommend looking into a policy that covers losses from construction and completed operations. 

My guess is the surety bond guarantees that you will abide by the laws and regulations associated with a remodel. This should be pretty simple to get and cost around $50.

The properties that will accept Section 8 vouchers in St. Louis are very concentrated in poor minority areas with no demand from people actually wanting to live there. The voucher program basically guarantees rent at the "market rate" which is significantly higher than the actual market rate in those area. Investors have taken advantage of this program by purchasing homes in these poor areas knowing the voucher holders will be forced to live in that area regardless of its condition. Lenders know the rent is almost guaranteed so you wont have trouble getting financing if you can live with yourself. 

The flipper mark has been consistently undeserved by most insurance brokers and companies.The fact that NREIG (i think the name has since changed) is catering to this market is a step in the right direction. 

The ability to insure the purchase price of a rehab instead of the replacement cost is a really cool feature assuming the rate remains the same. The Lloyd's wholesaler used by my agency is able to offer this feature but in return increases the rate to the point that it isn't worth it in most situations. I would be curious to know how this works with this program. 

I am not convinced that moving from vacant to builders risk on a reporting form is necessary and will only increase premiums. The reason being that it is probably more cost effective to exclusively use a builders risk reporting form . Builders risk is generally cheaper than vacant property insurance and many polices give 60 days of coverage after construction is complete. If a property does not sell in 60 days you can simply perform a few more small additions and monitor the property regularly and keep the policy in effect for a few more months. I  would recommend notifying the insurance company of your plan to avoid any coverage disputes. 

Similarly, the third party risk management and claims advocacy services are provided free of charge by most standard insurance companies and agents.  

This program relies on excess lines insurance companies to provide coverage. These companies are not subject to state insurance laws not required to use the forms and rates required by other insurance companies. In the event of a claim, the multiple excess lines companies can have multiple interpretations of coverage that slow the payment of a claim. Negotiating policy endorsements can also be significantly more difficult with excess lines companies. 

While I clearly believe this program has room for improvement, it does provide all of the necessary coverage and helps remodelers understand the insurance they are purchasing. I commend the program for its effort and hope that competing programs will provide a more competitive and efficient environment for flippers in the future. 

Mark, 

While it is ultimately good for residents in the event that their property is destroyed requiring rental insurance is ultimately done to protect you. If a tenant does not have rental insurance and his/her things are damaged he is much more likely to file suit against you to replace his property. 

In addition to covering a renters property the policy also provides liability coverage to the tenant (often around $100k). If one tenants property is damaged as a result of the negligence of another tenant, if someone is injured while visiting one of your tenants or if someone is injured driving home after drinking heavily in one of your tenants units and sues a renters policy will likely respond respond. 

My answer is generalities only and may or may not apply to your particular circumstance. For simplicity sake I will break down the word into two types of subcontractors. 

Category 1 is a sub that regularly does jobs for other GCs and has a number of employees. Generally this type of contractor will carry similar liability insurance as a GC and will be required by law to carry workers comp. The reason being that good GCs have insurance requirements a sub must meet in order to protect themselves from claims arising from a subcontractor. However, you should still require a certificate of insurance, require the contractor name you and the association as additional insured and follow all the procedures your association insurance agent has put in place. 

Category 2 is a small contractor whose only employees are owners of the company and do mostly small residential/single family jobs. It is pretty much a role of the dice as to whether or not this type of contractor has solid insurance and I would be very diligent in making sure this type of contractor is properly covered and ask your agent to review the actual policy in addition to the certificate. 

Please note these answers are generalities and not meant to be used for making actual business decisions. You should read each full policy and consult with an insurance agent before making any business decisions.

Do I need ACV or RCV?

This is up to you. An Actual Cash Valuation will provide the replacement cost - depreciation and Replacement Cost Valuation will provide the Replacement Cost.  

Insurance companies each have a formula they use to find the depreciated value of something based on age, product, how long that product is expected to last etc. For example if the roof on your rehab costs $10,000 to replace but the roof is 15 years old they will likely give you substantially less than $10,000 in a payout if you have ACV but will give you $10,000 with RCV assuming its a covered loss and you met the coinsurance requirements. It is a business decision whether or not you want to pay a higher premium for that. 

Do I have coverage up to my loan amount or up to my ACV?

Not always. Generally the insurance company will pay the lesser of ACV (replacement cost - depreciation) and the limit of insurance. So your loan amount can be $250,000 and your limit can be $250,000 but in a total loss if the insurance company determines the replacement cost - depreciation is less than $250,000 you will get whatever figure they determine. That being said there is an option to get insurance on an agreed value basis. With agreed value you and the insurance company determine a value ahead of time and that is the amount you are paid in the event of a total loss (assuming 100% coinsurance which I would always recommend). 

Does builders risk only cover injury liabilities and vacant only cover property damage?

Generally Builders risk covers only property damage. Your business should have a general liability policy that if properly structured would take care of the liability risks. In my opinion vacant insurance is only worthwhile if you have a building that is truly sitting vacant with no construction or occupancy for an extended period of time.

Vandalism AND Theft endorsements?

Should be included already in a good builders risk policy and are generally an additional premium in a vacant policy. Again that is a business decision whether or not you want to pay the additional premium to cover those exposures.