All Forum Posts by: Daria B.

You know a similar thing happened in Kansas City (more specifically Jackson County, MO) regarding property taxes in 2023. They just skyrocketed. We're having to reorient our entire portfolio and sell pretty much all our big houses and condos because they don't cash flow anymore. I suspect you'll have to look at Florida real estate in a similar way.

Hi Niranjan,

That’s a great and very common question. Here are some important reasons why keeping a homeowners insurance policy on your investment property may not be the best choice:

1. Limited Liability Protection:
Homeowners policies typically provide lower liability limits, usually between $100,000 and $500,000. While that might be sufficient for a primary residence, it often falls short for rental properties, which carry higher risks. In contrast, landlord policies are designed specifically for rentals and usually start at $1 million in liability coverage per occurrence.

2. No Coverage for Lost Rent:
Landlord policies typically include Loss of Rents coverage, which reimburses you for lost rental income if the property becomes uninhabitable due to a covered event. Homeowners policies generally do not offer this protection.

3. Coverage Gaps and Exclusions:
Homeowners policies often exclude claims related to tenant-caused damage and other risks unique to rentals. This leaves critical gaps in coverage that a landlord policy is specifically designed to address.

Cost vs. Coverage:
Many investors are tempted to keep a homeowners policy because it seems more affordable. However, these policies do not provide the appropriate protection for rental properties. Choosing a lower premium at the expense of proper coverage can lead to denied claims and serious financial consequences.

Additionally, if you continue to insure a rental property as owner-occupied, the insurance company could deny any claims based on material misrepresentation, which is a form of insurance fraud. This could leave you personally liable for damages that a landlord policy would have otherwise covered.

Hi Niranjan,

That’s a great and very common question. Here are some important reasons why keeping a homeowners insurance policy on your investment property may not be the best choice:

1. Limited Liability Protection:
Homeowners policies typically provide lower liability limits, usually between $100,000 and $500,000. While that might be sufficient for a primary residence, it often falls short for rental properties, which carry higher risks. In contrast, landlord policies are designed specifically for rentals and usually start at $1 million in liability coverage per occurrence.

2. No Coverage for Lost Rent:
Landlord policies typically include Loss of Rents coverage, which reimburses you for lost rental income if the property becomes uninhabitable due to a covered event. Homeowners policies generally do not offer this protection.

3. Coverage Gaps and Exclusions:
Homeowners policies often exclude claims related to tenant-caused damage and other risks unique to rentals. This leaves critical gaps in coverage that a landlord policy is specifically designed to address.

Cost vs. Coverage:
Many investors are tempted to keep a homeowners policy because it seems more affordable. However, these policies do not provide the appropriate protection for rental properties. Choosing a lower premium at the expense of proper coverage can lead to denied claims and serious financial consequences.

Additionally, if you continue to insure a rental property as owner-occupied, the insurance company could deny any claims based on material misrepresentation, which is a form of insurance fraud. This could leave you personally liable for damages that a landlord policy would have otherwise covered.

Hi Kim, 

Insurance in Florida has got expensive over the past few years.  

My group and I work with buyers in Florida and every deal is different for coverage costs.

Many factors are considered such as location & proximity to coastline, construction type and materials, roof type, age / condition, home age and condition, home value and rebuilding cost. 

Citizens insurance is often a last-resort option but tends to be more expensive due to fewer underwriting restrictions. 

JC

Need some guidance on insurance for one of my properties. I either drop it, pay the exorbitant premiums, or reduce it somehow and only have liability, if I can. 

I have always had what I call full coverage in case of something happening to the property I would not be out a total loss.

There is no mortgage or note so I own it out right. It’s 20 yr old (2005). I’ve have this property for several years always evaluating insurance each year.

For several years it was under American Integrity until my then broker quit (2023) and sold it to another broker and AI would not do an agent change. This meant I had to go with another company and the state insurance Citizens was what my new broker could get, also cheaper premium.

Then last year Citizens dropped a bunch of people and we were pushed to what ever insurer they could push it to - I had no say in the matter of course this is what they do.

With Citzens they only would max coverage for personal liability to $100k and my umbrella (separate policy) required $300k on rentals. So, I paid (over paid) for additional with another insurer for liability just to appease the umbrella req. 

The AI underwriter said the agreement with Citizen’s depopulation is that liability must stay at 100K and cannot be change on the initial depop transition. That’s just rubbish. 

I don’t understand how they are even dictating to AI what to do with their business.

I’m thinking I can drop some of these coverages but like I said I’ve always had full coverage.

What are other people doing for insurance coverage? Is their a large population paying for replacement in case of a tragic event or not and only doing liability?

Currently, I have this following DP3 policy that will be the renewal:

SECTION I – PROPERTY COVERAGES LIMIT OF LIABILITY PREMIUM

Coverage A – Dwelling $265,400

Coverage B – Other Structures $5,308 Included

Coverage C – Personal Property $5,000 Included

Coverage D – Fair Rental Value* $26,540 Included

Coverage E – Additional Living Expense*:

*Coverage D and E combined, limited to 10% of Coverage A for the same loss (see policy).

SECTION I – DEDUCTIBLES:

In case of a property loss, we only cover that part of the loss over the deductible(s) stated:

All Other Perils other than Hurricane Deductible:

HURRICANE DEDUCTIBLE: 2% of Coverage A Sinkhole Deductible: Not Included

$2,500

$5,308

SECTION II– LIABILITY COVERAGES

Coverage L – Personal Liability

Coverage M– Medical Payments to Others

$100,000 $0.00

$2,000 Included

☺️

I know of a few options if you wanted to shoot me a DM. 

I know of a few options if you wanted to shoot me a DM. 

@Daria B. it sounds like you were the seller, you have the credit, and you did a 1031. If that’s correct, here’s my non-expert opinion. 

You lowered the amount you had/have to buy with your exchange. (You only have to buy as much as you net from the sale, this lowered your n.) 

You reduced the amount of untaxed capital gains you’re carrying forward but you didn’t create an expense or a deduction today. I BELIEVE this credit would be treated just like covering buyer’s closing costs. 

Certainly talk to your CPA or your 1031 QI, both of which should have had a 10 second explanation at the tip of their tongue. But that’s how I would expect it to play out. 

Quote from @Daria B.:

Quote from @Dominic Mazzarella:

Quote from @Daria B.:

Hi

Repairs were going to be paid for before closing, as the seller having some other time sensitive activities needing to be met, my agent and I decided to grant a seller credit to the buyer for these repairs. Otherwise the hold up of the sale and going back-and-forth we wanted to avoid.

Because it’s now on the closing statement, are these a deductible repair expense like it would have been had it been before closing that would normally just be under schedule E as a repair expense.

Cheers.

Since the seller credit is now part of the closing statement, it’s generally treated as an adjustment to the purchase price rather than a direct repair expense. That means it likely wouldn’t be deductible under Schedule E the same way an out-of-pocket repair before closing would have been. Instead, it could impact your cost basis in the property, which would affect depreciation and future tax calculations. Has the property closed?

Yes, last year and that’s all over with now. I thought about this when I was getting all my documents together for this years taxes.

Impact cost basis, how may I ask?

Since the credit was applied at closing, it likely reduced the buyer’s cost basis rather than being deductible as a repair expense. Essentially, instead of being able to write it off immediately, it lowers the purchase price for tax purposes, meaning depreciation will be calculated on a slightly lower amount over time. If you’re still sorting through your taxes, it might be worth running it by your accountant.