I have a number of Sub2 properties. Most of the Insurance has expired. The Insurance I was using was in the original owners name. All has expired. I now need Insurance on the properties. I have call a number of Insurance Companies in Fayetteville NC. All has turn me down. Reason why: I’m not on the mortgage laon.
Do any investors knows of a Insurance Company that will give Insurance on sub2 properties. I currently located in Fayetteville NC.
All the Investors out there please help if you can. Thank you.
Please realize that the former owner’s insurance policy became worthless as soon as the owner gave you the deed, so basically you were unprotected all that time.
You may end up purchasing two insurance policies. The first is a renewal of the previous owner’s policy to satisfy the mortgage company. The second is a policy in your own name with no mortgagee clause.
This is a great question. What I do is when I get the deal signed up Sub2, I call up the insurance company currently on the house to see if I can be added as “additional insured”. Most insurance companies will say ‘hell no’. I still do try however to do that first. Once they tell me ‘no’, I go to my local insurance broker who sets me up with insurance. Expect to pay up to 15% higher than the original insured pays. This of course will need to be factored in as you are talking to a seller on the initial phone call. So if I’m talking to a seller, and I’m asking them all the questions and we get down to insurance, and they say they’re paying 100/mnth (hyperthetically), when I’m working PITI and lets say my planned exit strategy is rent-to-own, I know that I need to factor in an extra 15% as a baseline (or 115/mnth for insurance). This is very important of course right on the initial phone call with the seller because this way you can work your numbers right off the bat. This way if you plan a rent-to-own exit, you know how much you need to charge your tenant/buyer to ensure you’re cashflowing the way you need to. What a nasty surprise it would be if you didn’t factor say 15% extra and you find out later. Then your stuck. Now additionally, while you’re getting this insurance with your local broker, make sure to tell your tenant/buyer (if you are selling on a rent-to-own) to they are required to get their own contents insurance. I make it a requirement on my Sub2’s because if the tenant/buyer causes some sort of insured loss (i.e vandalism), I can get their insurer to pay and not mine which is not affect my premiums. Of course as soon as their contents policy is active, I get them to get me their policy number, to which I pass off to my insurance broker. But yeah, rule of thumb is try getting on the original owner’s policy as “additional insuranced”. They likely will say ‘no way’, to which you just get a policy with your insurance broker so that you are covered. Need to make sure the policy you get covers FLL (fire, lightning, limited explosion). In the majority of cases you don’t need to get all the extra coverages. It will only hike up your rate un-necessarily.
Great post Ray!! As I’m trying to learn this as well can you give me a little more guidance on what to do and what to say when you buy your own insurance policy?
Another words if I just called up my insurance broker and said I want to buy an insurance policy on xyz street… Do I tell them I won’t be living there? Does it matter that there is still another policy on that house. What kind of details to I tell them and what shouldn’t I say right upfront. Also Do I have to provide the actual names of the occupants living in the house? Would I be buying a landlord policy or an owner occ policy?
I know there’s a lot of questions here but I’m really new to Sub2.
Yes, the policy that you’d be buying is a landlord policy. Hence the rate being higher. As far as what to say to your insurance broker, just be straight up with him or her and tell them exactly what you are doing and how you did it. Keep in mind they may not understand if you don’t go through telling them everything since Sub2’s aren’t common. But you’ll get the insurance bound. Make sure you get pictures and have all the basic information of the house beforehand so that you can bring it into their office. From their, once you’ve told them everything, they will give you a quote. What you’ll find is after one of two of these Sub2 deals with your insurance guy or girl you will get much better rates. Make sure also to bring in the Sub2 paperwork so that they can see it (i.e power of attorney, trust agreement etc). Interesting though, I always know those who are in the game by the types of questions they ask. The fact that ray ray asked this question tells me he is for real and actually doing these creative deals and not just another poster trying to takes notes and nothing else. Good going man! Now, in answer to the question ‘if it matters that there is another policy on the house’, this is the reason I suggested doing the due diligence by calling the current insurer and trying FIRST to get on as an additional insured on the current policy. If they say “no”, you step back and find out how far ahead the current owner paid for insurance. A lot of home owners have policies attached to their cars say, and therefore just pay every month. Some however pay the insurance for the whole year in one shot. Obviously if the owners paid for the whole year and there is coverage, this is different. However you need to consider the fact that insurance and all the paperwork is now yours. You are the owner as of the date you get the deed or aquire ownership and the insurance should accurately reflect this. Do you know what I mean? For me personally, I don’t care if there is insurance on it before I got there. I go to my local guy for my own insurance, then that I there is no question and I’m in the right always. Not to mention the current insurance company will likely decide to cancel if they feel something is awry. Just sharing how I do it, perhaps others can chime in if they feel they need to. Scott, tell the broker exactly how you are selling it (i.e rent-to-own), and that you don’t live there. Be perfectly honest. The broker is on your side, but also needs to understand all the material facts about what he is trying to bind insurance wise. Would you falsly tell your car insurer that you don’t have a souped up engine on your car if you in fact did? You are required to tell the truth or they can cancel the policy if they wish. It’s called ‘material fact’ in the insurance world.
Dave T is absolutely correct…that insurance policy you had in the
owners name was as good as [modified by Moderator]!
What you need in the very minimum is called a 'fire policy" also called a
landlord policy. I use USAA for my insurance and they have no problem
granting policies. Without knowing the whole situation…I’m going to
assume that you’re providing too much information when you go to
get the policy. Simply call a company and tell them you need a fire policy.
There’s a variation called a “vacant dwelling” policy that covers more
than you need and cost more as well.
Do not be “straight up” because most insurance agents are
1-trick ponies who aren’t going to get that you’re doing something
creative. All their brain computes is something sounds strange and
they’ll say NO!
All they need to know is your name, property address, slab or crawl space,
roof type, etc. They’ll usually give you a policy over the phone.
Hang in there doc! This is just a little bit of experience to get under your belt!
I disagree on a few points with what Kelly luvs has said. First Kelly says “I’m going to
assume that you’re providing too much information when you go to
get the policy. Simply call a company and tell them you need a fire policy”. Ha, god forbid he gets a specific question from the broker, then what Kelly? Sooner or later the broker will find out that the home wasn’t purchased conventionally, right? So if you are honest, you’ll get the policy bound just the same as if you provide ‘too little’ information. I’m surprised at your reply here Kelly considering you teach courses. Insurers (like banks) need to fully understand the material facts about what they are binding in terms of risk. They need to know everything as I’m sure you know because it’s spelled out in EVERY insurance contract. Important to take time reading those contracts. If you lie or don’t give all info, the insurer can (if they choose to) cancel the policy you falsely created. Then the best part, that cancellation will be seen by every subsequent broker on your next Sub2 deal. Shame on you Kelly! Over time you will get close with the broker. They will tell you lying or leaving out the truth is a recipe for disaster. If the insurer doesn’t fully understand what they are underwritting there is nothing right about that. Kelly also says “Do not be “straight up” because most insurance agents are 1-trick ponies who aren’t going to get that you’re doing something creative”. Wrong again Kelly! That is why I suggest Ray ray go to his local insurance BROKER. Agents are different than brokers. Just like a lot of things also in this business, you make enough calls, you will find the right broker who either has an existing client base with clients already insuring this way (i.e someone owns multi units or commercial properties), or has the EXPERIENCE to understand. I’m proof you never have to lie to get the job done! Kelly, the best advice to give someone is to do this business properly. Work the phones hard and surround yourself with good knowledgeable people all round. Lying and omitting the truth works too, but so does doing things properly. I feel it is important for ppl to get this point. You can certainly do things wrong and make money. BUT you can also do things correctly (like I do) and make money too. I’d even go as far to say that if Ray can’t do it the right way, he should let the deals go. But I know he’ll follow my advice and make calls. Lastly, in the future Ray just make sure to do your due diligence on insurance the way I showed you above. Don’t try figuring it out once you are actually now commited to the deal. So use this as your learning and get these deals done! Kelly says “All they need to know is your name, property address, slab or crawl space”. Wrong again. What about if Ray uses a trust Kelly, doesn’t the name of the trust then have to be on the house? BUSTED!
After all that writing Chunky, I hoping you’d provide
some sort of useful advice except for “make enough calls”.
That’s the equivalent of hoping and praying and
essentially what RayRay has done already.
You’re crazy to say…sorry… I disagree with, “I’d even
go as far to say that if Ray can’t do it the right way, he should let the deals go.”
Wait…no…you are crazy…insane even!
If that ever happens to you, give me a call. I’ll give you
a real good deal, promise!
And Chunky, I hope you take all my jabs in jest,
after all we’re all chasing paper right?
I always take things ppl like you say in jest…haha. You are entitled to your opinion also too. But the joking around ends when someone asks Ray ray how he bought the house? As I said before, your way may work fine, but it isn’t the right way to do it. Funny, I have absolutely no problem doing it the way I described. Other thing is you still haven’t responded to how Ray ray would go about ‘not giving too much information’ in a situation where he may have signed his Sub2 deal using a trust. So the trust he created lets say now owns the house, he’s done the notarization with the lawyer and now needs to insure it. All joking aside, how does he not inform the broker ‘too much’? Will the broker not see that on the paperwork that he requests to see before quoting him to make sure he’s the owner? How do you respond Kelly? I’m all for learning, so I want to see how YOU deal with that so that I might be able to impliment. Should he not tell the broker too much, or is that none of the broker’s business? HAHA. I’m fine with jokes, believe me ask Michael Q (waves), but I’m also into doing things correctly. My advice to Ray is to not do deals and having homeowners depend on him until he has learned exactly how to do these deals correctly. Kelly is a nice guy by the sounds of it, we simply disagree with the insurance part. But if Ray does what I described in an earlier email, he will have no troubled getting his homes bound by insurance. My 0.02
Well my first question would be why did the original policies expire? It’s been my experience that if the policy stays in the orig borrower’s name, you have a POA, and a landlord’s policy, and are now effectively the property ‘manager’, what is the issue?
You should not have to get a new policy after you own the house. Before closing on the sub2 properties, the insurance coverage should be finalized prior to any deed transfer. If the ins co does not offer a landlord policy, it should be in your contract with your seller to find a co that does and have the seller switch.
Tony says “You should not have to get a new policy after you own the house”. Well you can achieve this a couple of ways. Either go on the existing policy as ‘additional insured’, or get a new policy. Obviously the question as to WHY the policies with these owners expired needs to be explored. But think about it. In Sub2 situations owners are usually in not the best shape financially which is why the usually agree to walk away. I suppose if you feel comfortable then forcing them to get a policy that will work too. The way I see it is getting my own coverage is negligable. So I say first try getting on existing, if that don’t work just get another one. But still I ask you and Kelly the question. What if Ray used a trust to set up his Sub2. Doesn’t Ray need a policy (landlord policy) that accurately reflects this? Of course he does. Maybe I missed it, but it doesn’t seem like you are Kelly are properly explaining this. The policy has to reflect that the trust owns the house. You do this by getting a fresh policy or going on as additional insured. But I’m open to you guys finally addressing this issue, as I’m curious how you would do it. Tony says “If the ins co does not offer a landlord policy, it should be in your contract with your seller to find a co that does and have the seller switch”. I politely disagree. Sellers in Sub2 just want out. You just want them to walk away, maybe even run away. Not saying it can’t be or shouldn’t be done. But in the real world they don’t care. If they didn’t care to let it expire and have no coverage, the majority won’t care what Tony tells them either. That’s real world. Kelly or Tony have not yet explained their rationale as to why doing it the way I suggested won’t work for them. Also Tony, you don’t want to be going to an insurance co asking about the landlord policy. You go to an insurance BROKERAGE. What’s the difference? Insurance co’s only deal with their own insurance products (i.e State Farm). Insurance brokerages deal with many different co’s and not just one. In the same way mortgage brokers do. Tony for arguements sake lets say you order the seller to switch. Fine. Explain how you then get your legal entity to show as the owner. Also, what shows on public record? Because if its the original owner showing on public record, nothing will stop them some day for ruining you deal and maybe putting a 2nd mortgage on the house, right? My bet is neither one of those guys have a solid answer to that question and will not answer. LOL. I’m listening…lol
Chunk it sounds like you have very little experience in this but if I am wrong I digress…
You ask two basic questions you should know the answers to: "Explain how you then get your legal entity to show as the owner. Also, what shows on public record? "
As far as the ins pol, the insured shows the orig borrower as the note is still in their name. Your entity should only be listed on the policy as the ‘property manager’ as it’s converted to a landlord policy. This authorizes the ins co to direct any claims or refunds to you, and to accept any claims and premium pmnts from you (you meaning the legal owner of property).
The public record shows the owner as my co.
If this is done in the beginning there is no running around. The sellers will sign what they need to sign at closing to get out of the property, why would they not want to handle this insurance detail if they have to?
Your hilarious! If your only rationale to a difference of opinion on setting Sub2’s up is that a person lacks experience or that they should know what your talking about, your more daft than I thought. It’s a discussion board. I suppose you miss the point of what that is. Questions and replies are often posted for the benefit of discussion and not for specific knowledge for the poster necessarily. Forcing a person in a Sub2 situation to go get insurance and change the policy once it has expired is hilarious. Sure, it can be done. Your proof of that. But any ‘experienced’ person knows forcing someone to get a landlord policy according to your specs AFTER they’ve let their own policy run out isn’t the best way to do it. So I didn’t say your way wouldn’t work in any reply so far. What I said is: given the fact the Sub2 signing is likely because of seller financial problems with the house, the BEST course of action would be to have them sign over the house completely yet keep liability in their names. Secondly, I questioned Kelly for not telling the insurer the relevant material facts. And also wondered how this would all be done in the event Ray had signed up using a trust. So at no point did I say your way wouldn’t work. It isn’t the right way in my opinion for various reasons though which I’ve already pointed out. I personally don’t see how forcing an owner who has let the policy expire is a smarter way to do these. I know it would be WAY harder for Ray ray to do that with his insurer when he canmove easily ask his seller to step back outta the way, first let you do due diligence then if you can’t get on existing policy you just get a new one yourself. Is it possible that your way workss Tony? Of course it’s possible. I personally know what you are talking about when you act as the property manager. For sure that isn’t the best way to do it as the policy in Ray’s example has expired. Insured will have a WAY tougher time getting new insurance. Not to mention the banks. So I understand what you are saying to be clear. I don’t have to agree with it though, and I guess that is your objection. Doesn’ make sense to me that public record shows your co as owner, yet have insurance in the name of the original owner with you as property manager. I don’t see the point of that whatsoever! Furthermore I would question even if that is legally correct. It certainly isn’t right. For example, I setup a Sub2 say with a trust 123 anystreet trust. Force the owner to get another policy (if they can) because there is no policy in place hope to god they get it. Once they do, order them to get policy in their name (which doesn’t reflect your new 123 anystreet trust), and have you as the landlord. Why is that the best way to do it for Ray ray? So I know you can do the Sub2 deal the way you described acting as prop manager. At the very best case in that scenerio it isn’t be best way to do it. Puts too much control still in the sellers hands. Imagine if they DON’T do the insurance the way you asked. This means you lose a potential deal just because you can’t get them to do insurance the way you asked? When for virtually the same cost, you can just get insurance on your own no sweat. I guess your lack of flexible thinking has opened up more deals for investors in your area, not to mention it is possible what you are doing has some potential legal holes. But what do I know. I have very little experience. LOL. Peace y’all!
Well first off watch what you say about folks on this board, especially those that have been here longer than you and have relevant things to say. The powers that be might send you a nasty email. You also tend to ramble and repeat yourself in the same post so I think after this I am not going to read them anymore. They really tend to give me a headache.
I am saying yes, the insurance should never have expired.
I do not do trusts so I cannot be of insight on them.
I would not force anyone in any position to sell me their house S2 or any other way first of all, they are selling on their own free will. They were motivated enough to call me, let me in the house and certainly motivated enough to sell it S2. Getting them to fix their insurance is a small task. Why create more headaches?
IMO a seller having financial issues in no way effects their ability to pick up a phone and fix the insurance. Having said that, it is my policy to do it for them, as it is to be sure their loan is still intact and and in good standing. That is why I get their personal information to make that happen. I would only involve them if they need to get another policy. Have not had to do it yet though.
You said…‘Doesn’ make sense to me that public record shows your co as owner, yet have insurance in the name of the original owner with you as property manager. I don’t see the point of that whatsoever! Furthermore I would question even if that is legally correct. Nothing illegal about this. I am in control of the entire deal
You said this too: I guess your lack of flexible thinking has opened up more deals for investors in your area, not to mention it is possible what you are doing has some potential legal holes. No legal issues here. If it were illegal it would not be done so often. I am VERY creative don’t worry about that. But if I passed on a deal sure there may be another investor to do it. More power to them. It has to make sense to me.
OK i am tiring of this argument because I honestly do not believe you get it but I may be wrong. I hope you do get it. At any rate, I am going to get my coffee, chill, read the paper and maybe go to Denny’s. Have a great day!
Tony says “I do not do trusts so I cannot be of insight on them.” Ok, it is ok that you can’t provide insight on it because you don’t do trusts Tony. But if you don’t do trusts, my point of debate with you has been hyperthetically Ray might have. Therefore, my contention was your way may not be the best. Well at least now we know why it didn’t make sense…it’s because you don’t do trusts. So if you don’t do them, it is possible that your way isn’t the best way, right? That is my point. Sub2’s can be set up lots of different ways. My sample question to you was about trusts, and I knew your answer didn’t make sense, and know we know why. So you debate about something you don’t use and somehow this makes sense? I still think your way of persuation lets call it of getting the homeowner to TRY to get insurance is a faulty one at best regardless of how the deal was setup. It is of no real benefit over my suggestion. For example, do you get better protection? no. Do you save money doing it Tony’s way? no. Is it consistent with the paperwork when using a trust (for example)? No. Still haven’t heard Tony’s response on this. Would his deal no longer be a Sub2 if he couldn’t persuade someone to do the insurance HIS way? Lots of investors I’m sure in your area who could pick up the pieces for ya. Be flexible Tony, I might have given you info that makes you even more money. Just be flexible in your thinking. Tony can only comment on the fact I ramble. Ok, I’ll give him that. I comment however on the merits of what he is saying. Hmm. Another question for Tony for the benefit of everyone here. Tony, when you do Sub2 deals in the way you describe, do you pay land transfer tax? Have a great day.
Look dude, in about your second post u said: "Just sharing how I do it, perhaps others can chime in if they feel they need to so i did. You are surely not a pro at anything, I see it in your posts. You act like a child, so grow up. Now I am off to the bar to drink my sorrows away.
Have a drink for me too. So Tony since you don’t use a trust to set up a Sub2 deal, do you pay land transfer tax when you do the deals as you describe?