Is a umbrella policy the best way to go? If so, what $ amount would be appropriate and how many homes does it usually cover?
Thanks
Great question to a very complex issue. Many investors wrestle with the issue of how to take title to a property to minimize liability issues. Some investors create, LLC’s, Corps, etc. Others, myself included employ a large umbrella insurance policy to transfer the risk. My insurer will go to $10 mil, but I carry 5 mil. The policy can be written to cover all your properties. It’s only for added liability protection, so you will still need coverage for other losses. My umbrella costs around a grand a year. Compared to putting properties in a LLC or corp. it gives me much more flexibility in how I finance the property. There are +++ and —. Talk to your insurance agent.
-h
So the umbrella is just a liability policy, not a property loss policy?
yes, liability only.
That sounds interesting. I would like to get more info on the pros and cons of an umbrella policy verses an LLC.
On this subject, I differ with what many of the “gurus” out there are promoting. I call it a “real worldism.” Gurus see black and white. I don’t know about you but to me real life is a little grey. When my real estate holdings approach 70 units I may consider buying in a corporate name. One of the biggest challenges facing investors and especially newbies is financing. If you’re borrowing, as most do to buy a property, you will have, by far, more options as an individual. I know of private investors and hard money guys who will lend to a corp, but for most buying as an individual is most practical. So, for this reason I employ the umbrella or excess liability insurance coverage. It’s so easy. When I buy a property I call my agent and he adds it to the policy. Let me also say that I only add properties I plan to hold. Properties I flip I add to another type of coverage.
This approach gives me the flexibility I need to finance and the added protection if a tenant sues me. The biggest con and it’s a big one… you could debate that my other personal assets are at risk. LLC is suppose to limit this liability. That’s it. From my view the biggest pro and the biggest con. By the way, been to court twice won both times. I have friends who are lawyers using the same stategy.
-h
in my research, I have not been able to find a carrier that will go above 6 properties.
with insurance vs. LLC, they are two different animals that will work in different ways. The key is to build a multi layer defense system to keep the barbarians out of your pocket/bank acct/assets
Call Allstate. The base price plus $15 a property and no limit to number of properties . I think you need $300k underlying liability limits on all and $500k on your auto. It’s rediculously inexpensive. Costs probably vary by state. Sweet.
-h
Thanks Housebroken. I talked to my Allstate agent and he said that it wouldn’t benifit me until we had about 11 properties. How is your policy structured?
Thanks
That doesn’t make sense. Is he confusing blanket coverage with excess liability (umbrella) coverage? There’s really nothing to structure. You purchase the umbrella and purchase the landlord policy. Add the property to the umbrella. It makes sense from the very FIRST property. Ask him why you should wait 11 properties.
-h
I do great with Allstate. One policy covers my liability and the rest cover each property individually.
I also agree about no LLC until there is a lot of assets to protect. I got bashed from some liability oriented investors for saying that.
When first starting out, if there is negligible equity, there is nothing tangible to be won in a lawsuit except the limit of you rliability ins.
I have 9 properties in my personal name and it is so much easier with insrance and lenders, even banking … Even tenants pay better to a person instead of thinking they are paying some invisible, faceless company somehwere.
Just my opinion, but I have only done about 23 RE transactions in the past 2.5 years. What do I know? 
Jeff, I would tend to agree with you becuase I see far too many people who are completed wrapped around the liability/entity structure axle, but not ever done a deal. Yes, you can get sued, but the chance of getting “cleaned out” is pretty small. For every investor that happens too, I bet there is 10,000 investors (or more) who get killed becuase they get into crappy deals, don’t watch the finanicals and have limited resources to get themselves out of the pickle.
Liability protection is important, but its just one of many facets to consider in REI
Yeah, but if they don’t diddle with building their team, creating an impenetrable myriad of liability entities, and any other litany of time-wasting activity then they might actually have to go out and LOOK at a piece of property…maybe even in person (SHUDDER!)…
Keith