13 comments to “A Short Respite From Our New Real Estate Investor Chronology”

David Stejkowski on June 20th, 2008 at 6:07 am said:

• The insurance policy is often a good way to go in deals like this.

  Now, in a larger commercial deal an LLC is still probably the best option, and you can sometimes use states such as Delaware or Colorado or Nevada that have cheaper LLC fees so long as you do not have to also register that entity in the state where you own the property. (That law varies from state to state and often depends on whether owning property is equivalent to “doing business”. Sometimes the answer is yes and sometimes no.) But on smaller deals lenders are often skittish or unwilling to do the deal.

  Also, one thing individual ownership does not offer you is anonymity. If that is a big concern, you can sometimes use a land trust. But smaller lenders have a hard time getting their hands around that concept, just like they do with LLCs.

  In short, Jeff hits the nail on the head: no solution is perfect. But inertia is worse. Lots of insurance should at least help you sleep at night. LLCs are good investment vehicles that may help you sleep too, but don’t be fooled into thinking they are a magic panacea of perfect protection.

Arn Cenedella on June 20th, 2008 at 7:25 am said:

• Jeff:

  I agree totally.
  My liability policy for $1M costs $282 per year. And I can increase coverage amount fairly inexpensively if I want to.
  KISS – keep it simnple stupid!

  Arn

Arn Cenedella on June 20th, 2008 at 7:26 am said:

• ps i need to work on my spelling!

BawldGuy on June 20th, 2008 at 9:21 am said:

• His Legalness speaks.

  See folks? Unless yer doin’ some pretty fair size deal, AND all the states involved play nice, you can opt for the insurance, and relax.

  Thanks so much, David.

Another Investor on June 20th, 2008 at 9:55 am said:

• I completely agree with you and I maintain a commercial umbrella liability policy, as my insurance company will not insure more than 4 rentals under a personal umbrella liability policy.

  That being said, there are some exclusions in the umbrella liability policies that folks should consider. For example, mold issues may be specifically excluded. If your policy excludes mold, someone who claims to have been harmed by mold in your property could sue you and the insurance company will not defend you or pay damages if you are found liable.

  In addition, some companies will not write policies over a certain amount themselves. These policies are underwritten by reinsurance companies, and the cost is much higher. It pays to shop high value policies.

  It’s important to work with a knowledgeable agent familiar with your situation and with insuring rentals. It’s my guess that Bawld Guy has an agent like that as part of his team. I review my coverage at least once a year with my sgent, and I suggest everyone do the same. Oh, and be sure to read all those slips of paper that come in the policy renewal envelope. The changes shown could affect your coverage dramatically.

BawldGuy on June 20th, 2008 at 10:26 am said:

• Arn — No bonus points for perfect spelling.

  I know your cool with $1 Mil, but for the money I’d seriously consider upping that by at least another mil, if not two.

  Don’t be a stranger, OK?

BawldGuy on June 20th, 2008 at 10:39 am said:

• Investor — You’ve got it right.

  The mold issue is almost always handled by the conventional property insurance policy, or a rider. It’s been a tough issue for both investors and insurers.

  And yes, paying attention to ‘the little slips’ of paper is a must.

Advice about LLC’s and Liability for the Real Estate Investor at tvanderwell on SmartHippo.com on June 20th, 2008 at 11:19 am said:

• [...] Jeff Brown of Brown and Brown Inc. has some solid, well thought out advice for the real estate investor. Read about it here…… [...]

David Shafer on June 21st, 2008 at 6:21 am said:

• Great info Bawld one!

Cher on June 21st, 2008 at 9:10 pm said:

• After fooling around with the LLC for a few years, we got tired of all the busy work. It’s fine if you love meetings and documentation etc, but we don’t. An LLC complicates things and cost $800 per year plus more fees to the accountant to file for the LLC.
  If you are in AZ the AMA offers an insurance policy that covers mold and fair housing that goes to 25 mil. We also carry a 2 mil umbrella on SAn Diego property.
  The best way to avoid getting sued is to watch your properties like a hawk and avoid getting tenants that are looking for a rich LL to sue.
  On the application, you can put a question, “Name of your lawyer”.
  Most tenants don’t have a lawyer unless they have sued someone and most of the time you can figure out if their lawyer is the one who is the local “ambulance chaser”.
  Next, get the safety check list from your insurance company and make sure you keep your property free from any hazards. Negligence is the biggest reason for losing a lawsuit.
  We once had a riser collapse in an apartment building. We immediately repaired it, kept the repair bill on file, kept the police report that documented a wild party the night of the “accident”. Then we dispatched our contractor to inspect every single staircase….44 of them. Asset protection is having insurance, stripping equity and being proactive with inspection of your property (or making sure the PM does this)
  As far as annonymity, a land trust doesn’t complicate things too much with a lender.

BawldGuy on June 21st, 2008 at 9:21 pm said:

• Cher — with ya ’till the land trust. Although lenders seem to be more comfortable with them.

  Documentation is key, as you so correctly pointed out.

  Readers: Cher has taught herself so well when it comes to income property management, she’s imported as a speaker on the subject.

Jason Carter on June 29th, 2008 at 5:25 pm said:

• You’ll get a kick out of this. I’ve been procrastinating about filling out my LLC application for months. Mainly b/c they want $1800. But also b/c it’s confusing as all get out and no fun. And I’ve been real busy with other things lately. So I was going to do it today. For reals. So I set aside this afternoon, but as I sat down to do it I figured I’d “procrastinate” a little further and catch up on some of your posts. When lo and behold, I come across this one. Thank you. I think you just saved me some bucks. (And a royal headache) Bucks my fledgling Sominex account can use. I’m going to call my insurance company tomorrow. I’ll research a bit further, but any idea of how to calculate how much insurance protection one should get?

BawldGuy on June 29th, 2008 at 5:32 pm said:

• Jason — Thanks for sharing, you made my day.

  How much should you get? WAY more than you think is reasonable. The cost is so low, it makes sense to get as much as you can afford, or that they’ll allow.

  I’ve never once heard anyone complain they had too much insurance when they needed it.

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