Wake Up And Smell The Smoke

Saturday morning I woke up alone. Slowly before opening my eyes I began to stretch. Taking inventory as I moved one limb at a time, yes, all the usual aches and pains were still there. I don’t know whether I felt or heard it, but there was a major thump on the bed signaling the arrival of the very large cat, that I share living quarters and a wife with. My inventory had reached my right hand, it was working and I could control it. I slowly reached for my glasses. Forcing my eyes open, I see a very agitated cat pacing back and forth like an expectant father.

Cat is shouting at me, I respond “what” the cat rushes to my head. Now standing four inches from my face he explains loudly in no uncertain terms that Brenda, our wife, is missing and his bowl is empty! I remember now, Brenda left an hour earlier, she’d be back about noon. I tried to explain, but cat got even more upset. It was clear, I had to get up.

Finally 12:15 and Brenda arrived. I kissed her, told her I loved her, and said I’m hungry. The cat demanded to know how dare she leave before his breakfast, and he’s hungry, despite his half full bowl. She said lets go yard saleing and I’ll buy you lunch. I was happy, and with a few strokes to his soft under belly the cat was placated.

Three disappointing yard sales and one garage sale later, none had really wanted to sell the yard, we reached Burger King. Hunger satisfied, we decided to drop in on our friend Jim Dixon. I write about Jim in “One House At A Time / Finding And Buying Single Family Rentals” he’s the maintenance man for one of my real estate investment students. Leaving Burger King we had to wait for a speeding fire engine going our way. Finding two yard sales on our way to Jim’s and still no yard for sale, we heard more sirens. Leaving the second sale we spotted thick black smoke, in Jim’s direction. Jim lives in one of three houses one of our investor owns at that location and that’s where the smoke is! No more distractions, we went straight to Jim’s. Happily for Jim and our investor the fire was a block away.

Real estate Gurus, myself included, tend to write about the sexy parts of real estate investing. Good Gurus do teach the mundane but even we emphasize the exciting subjects. Smelling that smoke had me thinking about insurance! Most of us rarely think about Insurance, but we should!

Here in Las Vegas most homes have doubled in value in the last three years, yet very few home owners and investors have increased their insurance coverage. It’s likely that your mortgage lender is covered by your insurance, they are very careful to protect their interest. But, are you covered for your liability and your equity?

A few things home owners and investors need to know about insurance:

1. You must have it! Insurance protects your liability, your lender, and your equity.

2. You must have an insurable interest, if you don’t really own the property you don’t have any protection for your (potential) equity. If you control a property, by a lease option, option, or sales agreement, you may have liabilities regarding the property but you don’t have insurable equity.

3. You must be “named” on the insurance policy, if your name is not on the policy, you’re not insured!

4. Don’t depend on inflation protection! If your insurance company uses a inflation factor as opposed to a current appraisal you’re probably way under insured.

5. Your lender is only concerned that you have coverage sufficient to pay off their loan.

6. Your real estate agent, your guru, your escrow agent, your attorney, and not even your insurance agent are responsible for you having sufficient insurance!

7. You’ve worked too hard creating equity to lose it through the careless acts of a tenet. Saturday’s fire was caused by an octogenarian on oxygen who had to have a cigarette before getting out of bed.`

Notes to investors flipping houses:

1. You are liable even if you haven’t taken or recorded title. The seller’s insurance never protects you and may not cover the seller for monies you still owe him.

2. Vacant houses are an attractive nuance they draw vandals, squatters, drugies, and young lovers, like bugs to a light.

3. It’s insane to have people working, for you, in an uninsured property. Your cheap help may get extremely expensive if they hurt themselves.

4. It’s hard to insure a vacant property because the insurance companies know the risk. If the insurance companies think there is a big risk, how can you afford to be unprotected?

Flood insurance is not part of your hazard insurance! Lenders will require flood insurance if you’re in the hundred year flood plain. Many of the recent floods were on land never included in any previous flood plan. Water runs down hill, so unless you live on top of a mountain, you maybe flooded someday. Flood insurance is a federal government program, so your insurance agent is not going to be reminding you, you need it. Flood insurance is priced based on the risk factor, if you’re at a high risk it’s costly but cheap. If you’re in a low risk area it’s inexpensive.

So check your insurance before you wake up and smell the smoke.