RG 067 – Multifamily insurance trips and traps with Darrin Gross
- Darrin is a commercial property insurance broker
- Darrin is also a real estate investor
- He hosts a podcast called the Commercial Real Estate Pro Network
Nuts and Bolts
Darrin has been in insurance since 1990 and got into real estate investing early on when he met his mentors. These mentors showed his the ropes of investing, specifically creative financing and started him on the road to being a full time investor. He’s now based in the Portland area and it’s been 20 years since he flipped his first house. He runs a podcast called the Commercial Real Estate Pro Network where he interviews guests about real estate investing but also uses this as a cover to talk about insurance. Darrin admits that insurance isn’t the most exciting topic in the world however it is important and relevant to so many parts of the investment process.
Insurance in its simplest terms is a contract between the holder and the insurance company that is written by people offering cover and is usually written in their favor. It’s easier to get insurance when the building is new because after 20 years the key infrastructure of the house will star to wear and the insurance company will be aware of this, even if the house has had recent renovations. When finding a policy provider it’s worth working with someone who is focused on property rather than business or auto insurance for example. Darrin recommends that a real estate investor should go through independent agents like him. This is because although direct writers have an understanding of home insurance their knowledge isn’t complete enough to manage older properties or complicated contracts. Another point that Darrin recommends when looking for cover is to make sure that your agent writes in loss of rent into the policy, this is important if you are intending to renovate the property and so you’ll be without rent for a while.
When you’re looking at a property to buy, always think about getting insurance. If the property is over 20 years old there are 4 physical elements to check before you complete the purchase. These are roofing, heating/cooling systems, plumbing and electrics. If you find any of these elements are compromised this will affect your insurance policy so it’s worth trying to factor this into the purchase price. Darrin gave an example of Federal Pacific Fuse Boxes which were put into many houses over the past decade and most have been recalled for being faulty, however you still come across them in old properties and this will greatly affect insurance costs. This is especially important in a multifamily property where you might have several of these broken fuse boxes.
Another factor to check before you buy a property is the local flood map because many of these have been re-drawn in recent years and even if the bricks and mortar of your property isn’t affected by plumbing, if the corner of your lot is in a flood plain this could affect your insurance coverage. Acts of God are separate policies in insurance cover, so if you are in a flood area you may have to purchase extra insurance. It’s also worth checking the climate of the local market so that you can insure the air conditioning in a hot climate or the heating in an area that gets a lot of snow. Insurance covers things which are sudden and accidental which means that if something isn’t routinely maintained it might not be covered, for example the backing up of sewers and drains isn’t automatically covered.
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