Building optimization - insurance companies one of the main things I do with minister investors…
Optimization of buildings - insurance companies
One of the main things I do with investors who buy buildings with me, beyond of course finding the deal, negotiating and bringing financing under US conditions, is ongoing transaction management and building optimization throughout the life of the property up to refinance or sale.
In the last week one of the main challenges has been insurance - expensive insurance can significantly hurt cash flow.
In the building in question, when we received the Profit and Loss report that we used to get the financing and carry out the NOI calculations, the monthly insurance payment showed about $ 700 a month. Great price for the size of the building we are working on.
When I was looking for insurance, I got 1900 bucks a month! (22800 dollars a year !!!)
What is the difference? The existing owner's seniority with the same insurance company, the number of buildings he has with the same insurance company, the number of claims he has had in the past, etc. (which is why it's important to remember that there is definitely an advantage to size in multi-family properties). Suppliers and insurance, so as we buy more buildings in the same area, the wave of investors for Misha will benefit that we will get better terms in insurance, management, repairs, materials, etc.).
It is therefore important to remember that the numbers in the report are not numbers engraved in the rock - the buyer's numbers can be very different from the numbers you will have as buyers, and the same is true of the taxes paid by the existing owner and management company. (This is especially true when entering a new area and we have not yet accumulated the seniority of many purchases and maintenance over time).
The insurance company will also look at how many years your company has existed, and the parameters of the building. If you have started a new company for the benefit of that building it can make an impact, then show your seniority in the field in other ways. Also a very old building, which has aluminum electrical wires (there are ways to fix this without replacing all the wiring in the whole building), smoke detectors that work on batteries and not with electrical wiring, and it does not have: alarm thieves, camera system, lighting system outside the building for smuggling thieves And burglars, fire extinguishing system - Sprinklers and other such parameters (the list is long) can greatly affect the insurance you will receive, so one of the recommendations is that after closing you can make these upgrades that demolition is not too expensive and ask for re-offers and thus increase the overall cash flow of the building. (Of course you have to check the cost of each such investment against the return you will receive from it with a discount in the insurance)
The company will also look at the age of the main systems in the property - the age of the roof, the heating system, the plumbing (plywood or metal) and the electricity (breakers or fuses)
Another important parameter that affects the price of insurance is the amount of the deductible - can start from $ 1000 and reach up to $ 25000 - as the deductible increases, the monthly price decreases.
Smart property owners will not use insurance even in the event of damage to 5000 or 10000 dollars since their premium will go up in all buildings and they only use insurance in exceptional cases of fire, storms or Total Loss, so it is worth considering a high deductible to improve cash flow.
In addition it is important to decide whether you want to cover only the amount invested in the building and the current value of the building depending on your purchase amount, or also the replacement value of the building - i.e. the cost of rebuilding in case of irreversible damage to property - in this case the premium will be significantly higher 40-50 units We are talking about sums that can reach as much as ten million dollars, even if the building cost you two million dollars.
So I went into work and started running local connections and reaching out to more agents and yesterday I sent over 20 emails and phone calls to every insurance agency that exists in the area. This morning about 5 agents working on offers came back to me and with one of them came the news that I was able to reach the largest private insurance company in the area that most investors work with but its name is not known at all so it was difficult to reach from the internet. Extensive connections in your work area - getting to know the right people can save you a lot of money!
I started checking out feedback on this company and asked about it in a number of places - the biggest importance is what level this company has in terms of payment ethics - and not just the monthly savings. When there is an insurance case, it is important to work with a company that will also pay!
Everyone recommended it as a good and recognized company, so we got an offer of about $ 800 with a deductible of 5000 dollars, with the existing owner having a deductible of 10000 $ for almost the same amount he owns over a hundred buildings.
That is, we have progressed in something else towards the closing. Now the same thing needs to be done with the management company - I will share the correspondence and negotiations with you soon, and after the purchase fight the tax cuts and make basic renovations as I described in the property to lower the cost of insurance even more.
Due to the confidentiality of working with investors I can not share more specific details about the specific investment, but this information can certainly improve your current flow of the building - it is important to remember that beyond the work of increasing income by renovating and raising rents, washing machines, birthday room for rent, Drinking machines, parking, advertising on the building, etc., it is very important to reduce unnecessary expenses and optimize in any way possible - especially if the goal is refinancing after several years or 1031, because the value of the property in multi-family properties is determined primarily by the cap rate and cash flow of the property.
Initial Scoop - We are organizing for the conference of the big forum of the year at the end of May and there we will expand more on this desperate and many other topics with the best experts - early sale coming out soon - remember all conferences to date were completely Sold Out and people bought seats standing, so stay tuned The trigger because the tickets are definitely limited., What's more, the first buyers will enjoy a lower Tier discount - prices will go up in each Tier until the conference itself.
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