All Forum Posts by: Sarah McCluskey

@Jay Hinrichs thank you for your comment. You validated my concerns. I have some other investor friends who have told me that if it cash flows well, and I buy and hold, not to worry. But I agree with your point.

I should add that If we want to move forward we would counter the seller at $20k lower...because of the inspection / basement issue. However, this seller is extremely difficult to negotiate with, he sold one next door with the same issues last year for a few thousand dollars less (didn’t have AC). So I’m pretty confident he will not come down on the price. And quite honestly, if we don’t take it, it won’t be hard for him to find someone else who will deal with the basement issues at this price.

Currently under contract for a 3 bed upper/lower duplex. It was a FSBO listed around market rate, but I know if it went on MLS it would've gone for more. 3 bed duplexes are hard to find in my area to purchase and to rent, so demand is there.

During inspection the crack we were a little worried about in the foundation turned out to be a much bigger problem than anticipated. Entire basement leaks. Estimate to rebuild bowed wall, install interior drain tiles and sump pump, is $20k. It will also need a new driveway which is currently sloping towards the house, which is the reason for the bowed wall. 1950s home with original windows, but they work. Air conditioning units 30 years old, will need to be replaced soon. Roof will need to be replaced in the next couple years. Bathrooms are in rough condition, was planning on giving them a facelift.

All in, I’m estimating $30k right away, and probably another $20k in the coming years.

Here are the numbers.

- purchase price $151k

- rent: $2200 total

- property taxes $4500

- insurance $800

- initial repairs $30k

- additional repairs $20k

- will be hiring property management company for 10% of rents

- setting aside 10% for repairs

- setting aside 20% for capex (future roof)

- cash flow $530/month

- cash on cash return with initial $30k in renovations is 9%

To me, the numbers work from a cash flow perspective. Where I’m getting caught up is that the property will not be worth the $200k I will have put into it total. I’m planning on buying and holding, not selling, but I still don’t know if it’s a bad move.

This would be our first rental property. But I don’t know if I should back out because of the unexpected $20k that came up from the inspection....

Thoughts? Is it a bad deal to put in more to the property than it’ll be worth, even though the cash flow is good?

@Jason Bott so you are saying I wouldn’t need additional insurance to cover the assisted living business? Sorry, I’ve just gotten such conflicting answers from different insurance companies that I don’t know who to believe anymore :-(

@Kathy Henley thank you for your response! Yes, they have a business license with the state. I’ll look into the insurance further.

I was looking at putting an offer in on a duplex, but am getting mixed information on the insurance needed - that could make or break the deal.

The current tenants are running an assisted living business out of hte duplex. The nurses stay upstairs during their 24 hour shifts, and the 3 bedrooms on the first floor unit are used for assisted living patients.

They have been doing this for 304 year and their rent is currently below market rate. Current landlord has owned hte property for 40 years and shrugged his shoulders about extra insurance. He said he never told his insurance company about the business they were running.

I called my contact at State Farm and they told me no extra insurance is needed, and that the business is responsible for holding insurance.

I called another insurance contact, and they said that assisted living facilities have extremely high risk, therefore high insurance premiums that they have to run through as commercial. And that if an accident happened, they would first sue the business, then sue the homeowner, and that their business insurance would not cover me. To insure this, he quoted $10k a year. He wasn't trying to sell me on it, he was actually trying to tell me to walk away from the deal and the risk.

Obviously this is a huge discrepancy in what I'm being told and the cost that could make or break this deal.

Does anyone have experience in this area?

@Jason Bott also. You mentioned the landlord policy may be slightly more due to renting to a business, but that the insurance may be $2500-$5000. Are you saying that is what the yearly landlord policy would be? That seems significantly higher than a normal landlord policy of $600-$800 per year.

@Jason Bott thank you. I see you’re located close to me! What company do you work for?

I was looking at putting an offer in on a duplex, but am getting mixed information on the insurance needed - that could make or break the deal.

The current tenants are running an assisted living business out of the duplex. The nurses stay upstairs during their 24 hour shifts, and the 3 bedrooms on the first floor unit are used for assisted living patients.

They have been doing this for 3-4 years and their rent is currently below market rate. Current landlord has owned the property for 40 years and shrugged his shoulders about extra insurance. Said he never told his insurance company about the business they were running

.

I’m talking with other investors, they mentioned insurance is more, but they pass the premium on through to their renters.

I called my contact at State Farm and they told me no extra insurance is needed, and that the business is responsible for holding insurance.

I called another insurance contact, and they said that assisted living facilities have extremely high risk therefor high insurance premiums that they have to run through as commercial. He quotes $10,000/ year.

Obviously this is a huge discrepancy that could make or break this deal.

Anyone with experience in this area??

@Sarah Langley

One thing I think many people are unaware of is that insurance policies are also written to avoid them covering you where possible...the biggest thing here is if the lawsuit claims anything fraudulent (you covered it up), most insurance policies, including umbrella, won’t cover you. And the unfortunate thing is, anyone can claim fraud with no facts to back it up. And to fight it, will cost you a lot of legal fees, and insurance won’t pay for those.

This comes from my personal experience.