All Forum Posts by: Michael Norris

@Aaron Moayed

In no way do I intend to talk down to the post originator nor demean anyone’s knowledge on this topic.

This question is asked on here so often I feel the need to ask...where or who is giving the advice that an LLC is some bow replaces the protection offered by an insurance policy?

You asked - What are the “real risks”?

Fire, smoke, explosion, vandalism, wind, hail, weight of snow, falling objects, sewer & drain back up, liability such as slip & fall, electrocution, broken water pipes, personal injury (aka discrimination), service line break, fungi & rot, etc etc etc.

Good business practices and tenant selection is your first layer of defense

Insurance is the second layer of defense

LLC is the third layer of defense.

If a situation is bad enough to need your third layer of defense - you're basically looking to quitclaim the property and bankrupt the LLC and walk away. Hopefully you don't have any other properties in that LLC or you'll lose those too.

@Isabel Cruz situations like this are exactly why wholesaling may eventually be outlawed.

Have a discussion with the agent on whether you have RCV or ACV coverage on the dwelling. RCV aka replacement cost is way better coverage but will cost more.

If you are handy or have a good local contractor maybe consider upping the deductible? Ask the agent to walk you thru some what if scenarios to figure out what deductible you are comfortable with.

Then consider maxing out the available liability on the policy before considering the umbrella. Most companies offer $1 million and some are starting to offer up to $2 million for primary liability.

Along the lines of liability ask about personal injury coverage - getting sued for wrongful eviction or for declining to rent to someone because of discriminatory reasons.

Loss of Rent coverage - if property is damaged and tenants move out you lose the rental income while repairs are being made. This coverage kicks in to cover the lost rent.

Those are the big ones off the top of my head

What you are talking about is layers of protection.

I'm not a lawyer but I am an insurance agent and here is how I see it...

Layer 1 is preventative action - aka risk management. Make sure the property is up to code, free from trip hazards, repairs are done by professionals, select good tenants, have a solid lease in place, etc.

Layer 2 is a proper primary insurance policy - aka transfer of risk. This can be a personal type landlord policy, commercial policy or similar. At a minimum you need property coverage for the building itself plus liability associated with that location. That is the bare minimum of coverage and need to sort out if an RCV or ACV policy is best for you.

Layer 3 is an umbrella policy. You need a primary policy before the umbrella - this is not an either or scenario. Think of umbrella as "Excess Liability" insurance. If something is bad enough to exceed the liability limits of your primary policy then this is where the umbrella kicks in.

Layer 4 is putting your assets in a silo so that one bad incident can not take down the whole portfolio. This is where you see properties in LLC's, separate LLC's or Trusts. Both LLC and Trusts can be set up in a way to make it difficult for an attorney to find you and in theory protect your personal assets home, auto, etc from the LLC assets.

You could debate swapping #3 & #4 but either way you look at it they come after the first 2.

BUT - Having all of the above scenarios in place may not protect you from your negligence.

If you have a hack repair done to an electric panel, know about issues while taking no action and the house catches fire and people are injured or die. Your negligence can be the tool used to deny insurance coverage and to pierce all the LLC or Trust to punish you personally which is why layer #1 is so important.

If my comments above sound harsh I apologize that is not my intent.

I see investors constantly making bad decisions related to insurance and feel my contribution to this platform that I get so much out of is to try and give the best advice I can for the area I work in.

Prime example - I have a client who I insure his primary home and autos. He just bought a lake side property he wants to set up as an Airbnb and occasionally use himself.

I quoted the dedicated policy for this situation called by one of my carriers "Vacation & Short Term Rental Insurance" which seemed expensive I guess. 

This client went online and bought a policy for "a lot less" from a big name carrier with a snarky mascot with a 3 letter name tag and usually wears a white uniform.

It's a great company but the problem is -that company does not offer a dedicated policy for an Airbnb type property that will also be used by the homeowner.  They will insure a primary home OR a vacation home OR a rental home but at this time they do not offer a combo policy that covers more than one of those things at a time. 

@Steve Vaughan has about the lowest cost strategy you could employ at this time.

Be the nice guy, offer to pay medical expenses while accepting no liability which is the good neighbor thing to do. If that fails it's time to lawyer up.

Nothing I'm about to say is intended to judge or shame @Woodrow Wildcat (if that is your real name that is awesome!) Just my perspective from seeing LOTS of landlord insurance policies.

I see investors all the time trying to save a couple bucks and doing things that open them up to massive liability and property exposures.

I see advice on this platform all the time coming from investors who say they just have an Umbrella policy and not any primary liability. It's all fun and games until the loss happens.

DO NOT allow your tenants to make repairs!

They are not bonded, insured, and typically not qualified to do the work and if they screw it up or get hurt doing the work it can come back on the property owner several ways. Such as denied property damage claim from improper repairs, denied liability from not having the proper coverage, and workers comp penalties for paying people under the table to do work and them getting hurt.

In this situation the agent who insures the primary home could have...

1. Possibly extended liability from the primary residence to the landlord property location which costs about $20 to $30 per year. This is not the ideal way to cover yourself as it exposes your primary home to a lawsuit but...better than nothing

2. Set up a landlord policy with liability and medical expenses coverage

3. Then set up an umbrella policy aka "excess liability" above and beyond your primary coverage.

Now if this makes it feel any better - you probably saved $200 a year with the set up you currently have so add that up times the number of years you have owned the property and  you may be break even after settling up with the neighbor.

Where I am permits are not posted on the auditors website even though there is a link for the info - you can try calling the local city building department and ask them for any previous permit info.

I'm a west side Clevelander but I like Columbus too - I invest in Cleveland but have insurance clients in both cities.

You'll do fine in either one I think it really comes down to what's important to you and the budget you're working with.

I think you'll get more bang for the buck in Cleveland on your primary house and for REI properties maybe a little better in Cleveland but it will depend on your strategy.

Make sure to maximize your wife's VA programs when you do buy something.

If you plan to drive to Buffalo often Cleveland is a better choice.

If you like warmer / more consistent weather Columbus would be better although as compared to Buffalo both places have better weather and milder winters.

Both cities have a lot of newer restaurants and hipster gentrified artsy areas on the rebound.  

Cleveland Clinic just got voted #2 hospital in the world by whomever rates stuff like that. 

Since you have time on your side do your research, be ready to buy, and wait for a dip in the RE market which I think is coming (just a dip not a full on crash).

Any "what if" calls to your insurance carrier get logged in as claims so don't call any 1-800 numbers.

Call your agent if you really need to but I think it would be more important to review the property security plan, ask the other tenants for their input and see if anything can be done to better set up the building - lights, door locks, a fence, etc. You may have gang activity on your property and not even know it.

On the insurance side other than cleaning up some blood and maybe a few holes in the walls - the cost of that is probably well under your deductible and... do you really want the underwriters to reevaluate your property as high risk and either non-renew your policy or jack your rates up?

@Alexis Mix it's not that hard - the agents just aren't being creative. Most people agents or otherwise have no clue what an SD-IRA is so that's what they are choking on most likely and aren't even trying to find a way to do it.

Most companies can insure it with you named primary on the policy and the SD-IRA as additional insured.

Foremost Insurance for sure can do it in the SD-IRA name and you as first person in control of the property. I have several clients set up that way in Ohio.

If you’re still stuck shoot me a PM with what city / state your in and I can find somebody from one of my social media groups to get it set up for you.