Friday, June 28, 2013

Insurance for Real Estate Investors

Distressed Property Insurance

As our group started out as specialists in distressed properties, one of the problems we came across was insurance coverage for asset and worker protection. We thought if the Bank won't insure it, no one else will. But let’s look at it from the Lenders point of view.

167 Street Living Room Unit 2 Rehab Duplex
Why would you Insure this Property?

Investors always preach, leverage someone else's money not yours. That's true but Lenders are taking a risk. What happens if an injury occurred on the property or the asset burns down? The Lender is either stuck with court costs, fines, hospital bills or his money is gone due to the lack of insurance. So FYI...Lenders are going to make you insure the property. We rather get our own policy than make forced payments to the Lender's insurance policy.

Depending on your exit strategy, you will eventually need some type of insurance.

Front View 1184 Rehab Duplex
Would You Insure This Property?

Below is an outline of some of the coverage’s we implemented while bringing properties back online:

Types of Insurance Coverage or Services

  • Builders Risk Renovation Policy - Provides coverage that protects a person's or company's interest in materials, supplies and equipment used in the rehab or construction of an asset should these items become lost or damaged.
  • Liability Insurance - It protects the property owner in the event he or she is sued for claims that come within property boundaries. The policy is designed to offer protection against third-party insurance claims, like contracted workers or tenants.
  • Windstorm - Most policies issued today DO NOT cover damage from high winds. It is very difficult to get a windstorm rider due to the size of the deducible, ranges from 10K to 15K.
  • Flood - Damaged caused by rising water. Broken pipe or hoses causes damage to interior of unit or building. Flooding caused by storm surge.
  • Fire, Theft and Vandalism - During rehab you can expect one of these three items to occur. Are you protected from these likely events?
  • Insurance Loss Consultants - Provides Claims Representation to Policyholders. If you experience an event that financial hardship will occur, the insurance company is going to use every resource available to limit the payout amount and the policyholder is expecting the repairs to be done with no out-of-pocket expense, including the deductible. Insurance Loss Consultants make sure that the investor receives the largest benefit to which they are entitled under the insurance policy.
  • 4 Point Inspection is required if an investment property that your company or contractor is restoring is older than 30 years or being refinanced. Insurance companies will want to check the following four systems before issuing a Homeowners policy:
    • Roof
    • HVAC - Heat, Ventilation and Air Conditioning
    • Electrical
    • Plumbing
  • Our Contacts - These are companies that specialize in issuing policies that are going to protect you against the hazards of being a real estate investor.

In the beginning of the rehab depending on your exit strategy, insurance might not be needed but you will eventually. Remember, any property has value even if you can't see it. Are you prepared to lose that value if you don't insure it?

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Written by Bob Burns.
Bob Burns at MREIAs speaker podium.So Raise Your Glass!
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+Real Estate Investor
Telephone #: 305-586-5280

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Monday, June 10, 2013

Cleaning & Securing an Investment Property Adds Value

As soon as we close on an Investment Property, we want to implement our Exit Strategy. The faster you get this distressed investment property back on-line the less money you are losing due to holding costs and the quicker the asset will cash flow. Every step we implement adds value to the property.

The first part of bringing the property back on-line is to Clean and Secure the property. This adds the most value to the property with minimum overhead. Below is an outline that describes the basic process of cleaning and securing a real estate investment property. By the way, most of these steps you can do it yourself.

Clean and Secure Process

  • Removal of debris from Interior & Exterior of House - If the investment property has been abandoned or on the market for a while, chances are there has been a buildup of debris and the property was broken into and trashed. The property becomes an eyesore and the city is just waiting to pounce on the new owner.
    • Dumpster container picture from Ocala property.
      Dumpster for Debris
    • Order a Dumpster - Depending on the amount of debris, you may have to order a dumpster. Delivery and removal are handled by the Dumpster Company. You just pile in the debris.
      • Can be very expensive.
      • Neighbors will help themselves by using your dumpster to pile in their debris.
      • Permit Fee is built into the price. The City keeps track.
        • Suddenly, city inspectors will begin to show up to see what you are up to and do you have the proper permits.
      • Neighbors can see the dumpster on the premises. They will report you to the City.
    • Finish cleaning and get rid of the dumpster as soon as possible. Less attention.
  • Recycle Materials - Every house contains items that you can recycle and receive money for these items. We are serious! You can start pulling cash out of the property right away.
    • eBay - You can place in eBay's Classifieds an ad selling items you found inside the property. It Works!
    • Metals - based on cost per pound.
      • Non-Ferrous - You know the metal that doesn't let a magnet stick to it.
        • Copper, Brass, Aluminum, Lead, Tin, Nickel, Gold, Silver
        • A/C Coils, Radiators, Batteries, Pots, Stainless Steel, Motors, Transmissions, Bathroom Fixtures, Electrical Wire.
      • Scrap - Less money. Pull wiring and motors off of appliances and recycle them separately.
        • Iron, Steel, Sheet Metal, Rebar
        • Old Appliances, Water Heaters, Non-Copper Pipes
        • Dryer & Stove Electrical Wiring
          • Three prong cords - Found on ranges and dryers.
  • Make sure all access points are secure
    • Doors with locks
      • Locksmith - You made need one if you are not handy with installation
    • Windows are covered with wood, rejas (metal bars) or original window.
      • If glass is cracked or missing must board whole window.
      • Board on window must be painted & uniform with other boarded windows.
      • If there are iron bars on the bedroom windows, they must have breakaways. Minimum size 20 x 41 inches.
      • If all windows are boarded, air holes must be drilled into plywood to provide ventilation.
      • Independent Securing Service - If you don't want to board up your property by yourself.
    • Secure your Outside Water Access - People will steal your water, especially if your neighbors have well water and you are connected to the City Water System.
  • Landscaping

By cleaning and securing the property you are adding value to your property right away, preventing break-ins, getting the city off your back and who knows, sell it as is to another investor for a nice profit!

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Written by +Bob Burns.
Bob Burns at MREIAs speaker podium.Clean and Secure!
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+Real Estate Investor
Telephone #: 305-586-5280

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Sunday, June 2, 2013

Do Your Due Diligence before Purchasing

You think you found the property you are going to make some money on but once you close on a property, responsibility for this asset becomes all yours, good and bad. In order to be a successful real estate investor you need to make sure you don't make any mistakes. If you do, it will be small one and easily forgotten when you cash your first check.

Below is a list of items you should be checking before you make an offer.

Due Diligence on Your First Deal

Duplex Kitchen before rehab in Wynwood Miami
Wynwood Duplex Kitchen before Rehab
  • Inspection
    • Upon Entering the property look for visual clues that indicate the current condition of the house.
    • Look for things that should be there but are not.
      • A bedroom without a closest. HUD would not consider this a bedroom.
    • Look for things that are there but shouldn't be.
      • A window inside the house that isn't an exterior window. Could be a porch that was closed in years ago.
    • Looks for points of failure
      • Connections: bathroom fixtures, underneath sinks....
      • Intersections: roof, ceilings and walls, walls and windows, floors and walls, water stains...
      • Windows and Doors: water leaks, holes, broken or cracked pains of glass, widows and doors open and close properly...
    • Black Mold - Indication of moisture buildup.
    • Termites - Big problems for us in Florida and Puerto Rico.
    • Asbestos - Probably present in older homes. Need to check for this.
    • Environmental Hazards - Underground oil tanks for heating, septic systems. Check the property history.
  • Comparables or Appraisal - Before purchasing the property see if you can get your hands on:
    • Recent property appraisal less than 90 days old. Ask the seller if he/she has a copy. Dania Beach Duplex rehab, number 36
      Dania Beach Duplex Rehab
    • Try to determine the After Repair Value ARV by getting three property comparables within a 1 mile radius and less than 90 days old.
    • Use the Maximum Allowable Offer MAO Calculation to help determine your purchase price.
  • Title Search - Make sure you use a Title Company that understands how investors think and work. Every Real Estate Investment Club can recommend one. You assume Tile companies know what they are doing but I have gotten burned many times due to Title Company mistakes. Make sure they check for:
    • Open Permits - This has caused us more problems when we go to SELL an asset in our portfolio. It is usually the BUYERS Title company that finds the mistake and causes delays with the closing. MAKE sure they check for Open Permits!
    • Liens and Violations - Make sure they check for pet violations (Pit Bull), water, city and county liens. Check:
      • The City where the property is located: City of Miami, etc.
      • The County: Dade, Broward, etc.
  • Taxes - Check to see if back taxes are owed. Usually the Seller pays the back taxes but it is good to know while you are negotiating terms and price before you make an offer.
    • Most tax records will indicate if the structure is legal or not.
      • If you see on the tax rolls the structure is listed as a 2 bedrooms and 1 bathroom and on the MLS it is listed as a 3 bedrooms and 2 bathrooms there maybe a problem with the investment property as being legal or not.
  • History - Most counties will have a history of the property since it was built. It will contain information about the property that can be used to determine what has been done legally with permits, liens, violations, former owners, etc.
  • Zoning - You must know the current zoning for the individual parcel of land and its existing structure. You need to know what is the permitted use and current usage. Knowing this information can help you with your rehabbing plans and exit strategy.
  • Survey - You may want to order a survey before purchasing to see if the investment property has any encroachment issues.

These are some of the items we look at before making any decision to BUY. As you gain experience a lot of these items will become second nature and you will be able to apply this knowledge to tweak your success as a real estate investor.

Do you have any tactics you apply before you purchase a property? We would love to hear from you. Write your comments in the comment field below.

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Written by +Bob Burns.
Bob Burns at Bahama Beach Club Ft. MyersBringing It to the Beach Baby!
Bob Burns Print Signature Photo
+Real Estate Investor
Telephone #: 305-586-5280

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