All Forum Posts by: Kevin Romines

@Jon Holdman

Hi April, great question. You will need to check with the company your want to work with, but yes you can do that. We write them as personal lines policies in your personal name. We then add the LLC on the dec. pages and as an additional insured. If a claim is made, the check comes in your personal name and possibly the LLC as a second signer. I just wrote 2 policies in this way last week. The personal lines policies were about 1/3rd the cost of the commercial policies. My underwriter had no issues with this, they actually suggested it.

Josh, one other comment. To get the same rate of return and end up with 20K at the end of 30 years, you would need to get a rate of return of 6% on the 20.00 month difference in the premium between the two types of policies? If you look at a 12% rate of return, you would actually have $69899.28 at that end of 30 years. There are many investments that can consistently hit that mark averaged of a 30 year period.

I was an agent with another company prior to Farmers and at that time you could not have convinced me that Dave Ramsey's method regarding term versus a whole life type product was correct on any level. Since moving to Farmers and working with my agent who is a Dave Ramsey ELP and also is in the top 2-5 of agents in the nation for financials for Farmers, I realized that Dave Ramsey is correct on most fronts when it comes to life insurance.

Dave's basic theory is such that if a person were to take out a term life policy for their current and future needs, as they progress through life, they may not have the same needs as they did when they were younger. If you took the rest of the difference between the premiums on the policies and invested it, over time your investments will be larger than what your life insurance needs were and somewhere in there you can decide if you need life insurance or if your investment values will be sufficient that you no longer need the life policies.

We have conservative investments that have life time rates of return since 1934 of more that 10-12%, so that said, if you are consistently funding your investments and have held them long enough they can and will surpass most peoples need on life insurance.

The other key to what Dave Ramsey teaches is how to live debt free, so he teaches techniques to accelerate how to payoff and stop living with debt. If you cherry pick his methods, you may not get the same results. We have hundreds of clients that specifically use his plans and they are living testimonials to the success of this plan.

Where Dave's plans don't always work is if someone gets started later in life and doesn't have the time needed to allow the investments to grow larger than the life insurance need. Or in a case where a person has a specific need to have life insurance on a permanent basis.

Could a whole life type product work for both the life insurance need as well as growing a usable / tax free way of accessing cash to be used in real estate. Yes, but that is to say that so could other vehicles such as a Self Directed ROTH 401K which becomes 100% tax free once its been in place for 5 years or more and your are age 59 1/2. So which is better, a term policy, invest the rest, maybe in the Self Directed Roth 401K, or a whole life product?

I submit that there is no one size that fits all, and many arguments could be made on all sides of the fence. If you follow and actually do Dave's plan, then the answer is term is of great value. You decide!!!

When your talking about insurance, you must consider the insurable interest rule in cases such as this. Insurable interest is such that a person or entity must have an insurable interest in order to insure a property. The owner of the property has an insurable interest because they are the owner. The tenant may have an insurable interest if their lease states that they must insure the building as in cases such as a triple net lease. So whoever has that responsibility is the person that must insure the building. If its the tenants responsibility, then yes, you want to list the building owner as an additional insured.

Insuring the building is not to be confused with insuring the business, however the business can also insure the building on their business owners policy or BOP. The building will need to be insured based on the type of tenant or use of the building, this creates the rating bases for that coverage.

The business typically will have general liability coverage, business personal property, tenant improvements and betterments among other specialized coverages. I would find a quality commercial agent to address all areas of concern.

How are you going to hold title? This will affect your financing options as well as how you insure the property? Don't go lite on liability insurance, also get an umbrella policy. Sit down with a quality insurance agent. They better ask about your assets and your future plans to grow your assets or they will not get your liability coverage correct. The only one that pays in a situation like that is you, so make sure they are doing the job they should.

You have gotten good advice here, but I want to add one more consideration. Most condo policies cover your unit (stud in) the HOA covers the building (studs out) and common areas. There is a part of your policy called loss assessment. Loss assessment occurs when the HOA has a claim on the building or common areas and their policy doesn't have enough coverage to pay for all of the expenses. In this type of situation, they then take the remaining outstanding amount and divide among the numbers of units and send out a bill to the units in the form of a loss assessment.

That said, don't skimp on coverage here. I would have a min. of 100K in coverage in this area, maybe more depending on the numbers of units and the types of claims that could come in?

Having been a mortgage banker for 18 years as well as an insurance agent for 5 years, here is how I see this boiled down.

The primary reason to have the properties in an LLC is for the protection of the corporate veil. In essence, its kind of like an additional insurance policy keeping your personal assets protected. Some people I work with will even go so far as to open an LLC for each home they own. This can be great protection but it comes at a cost. The cost is the time / expense / maintenance / additional tax returns of the LLC. For some, they don't mind the additional costs, so to them this is the correct answer.

Another way that people hold property is on a personal level. Now this is easiest and best for financing to a certain amount of properties owned, so great advantages that way, however a law suit then leaves all these assets exposed to a potential judgement.

No matter how you hold properties you really need to be insured correctly and with more than enough liability protection. What is more than enough liability coverage? Well the answer is that no one with any accuracy can ever tell how much you can be sued for? With that in mind, we then start with how much in assets do you have that needs to be protected? If any of the insureds is also a wage earner as well, then you need to protect 25-45% of the grass wages per year for at least 15 years. Most people forget about their wages, but in an injury judgement, all your assets can be exposed when you have exhausted your liability coverage. In that case, you are responsible for the judgement until its paid off, no other way to eliminate it. With that, you wages can be garnished, you bank accounts can be garnished, so everything you have can be at risk?

The best thing to do is set down with an agent that typically works with higher net worth clients, one that knows how to go through all your current and potential future assets, and then put together a package of coverages that will exceed your assets. Liability coverage is relatively inexpensive, so max out this coverage on your auto / home / toys and then follow it up with a properly sized umbrella policy. Keep in mind that defense costs are also covered over an above the liability limits on your policies. Defense costs can be very expensive, so this is another reason to have strong coverage there.

My guess is that you will find it less expensive to hold them personally and have soldin insurance policies in place, then to put them all in an entity such as an LLC. If you get to the point where you are maxing out on the numbers of financied properties, then consider taking a group of them and putting them in a commercial loan? Some lenders will not count as its in a another entities name, some will because you might have to personally guarantee the loan, so ask your lenders when you getto that point.

Properly insured, you should resolve the vast majority of problems and fears you might otherwise have? My 2 cents!!!

Some things to consider?

I have heard that some companies have limits on the numbers of properties that you own. If you have at or above that limit, then they wont insure you? Another common area of frustration for some investors is that some insurance companies will restrict the type of dog breeds you or your tenants can have. They may go so far as to not insuring a property over the issue?

Another issue that has come up is that you hold and own the property in an entity (LLC, S Corp) because of that you are forced to get a commercial policy, but you would rather have a personal lines policy? Another question is, will the insurance company allow you to insure it to ACV or actual cash value or are you required to insure it as RCV replacement cost value - if so you must insure it for the insurance companies cost to rebuild the property new, which could be much different than what you would like to have it insured for?

What is the coverage that is avaialable when the property becomes vacant between renters? Do you have time frames regarding vacancy? Don't assume, ask and get specific answers!!!

I would have these discussions and more with the agents to determine who to go with? We are all looking for the best price that we can find, but if you don't have the correct coverage or any coverage and your at the point of a claim, that is not the time to figure out that you chose wrong.

I have written both builders risk policies as well as vacant property coverage. Personally I would go with vacant property coverage due to the fact that you also get liability on that type of policy where as builders risk is purely just coverage for the dwelling and contents. No liability coverage. Considering your going to have people on and off the property, can you really take the chance of not having liability coverage?

The builders risk policies are fully earned premium policies. That means that if you are able to rehab and sell or rehab and switch to a landlord policy in say just 2 months, sorry about your luck, you not getting any premium back.

The vacant property coverage that I write is through Foremost, a company Farmers owns, and their minimum premium is $250.00, so I set my flippers up on this policy on a monthly or quarterly basis and that way they pay no more than what they have to or a min. of $250.00 for the time while the property is vacant or it then becomes sold.

As far as doing the policy in an entity, no problem, I just set it up that way, all the rest is the same.