Author Topic: insurance deductible for rental property  (Read 2232 times)

StashDaddy

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insurance deductible for rental property
« on: August 20, 2014, 07:43:54 AM »
I realize the mustachian thing to do is usually raise your home insurance deductible to save money and maintain/fix things yourself using Badassity principles.  But is this a smart thing to do with rental properties? 

Currently, I have a 1% deductible on a $400k house that costs ~$1.5k/yr.  If I increase the deductible to 5%, I'm guessing I could save $500/yr on insurance.  But is this a good idea?  After all, renters aren't going to take precaution to maintain a house as well as an owner would...  On the other hand, I can't foresee any reason to have to file a claim besides fire or hurricane damage.  The house is in Houston, TX, and it has already taken the brunt of Hurricane Ike without much damage (its raised up a few feet above potential flood waters).

conpewter

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Re: insurance deductible for rental property
« Reply #1 on: August 20, 2014, 08:34:43 AM »
I've been wondering the same thing.  I have a $5000 deductible on my rental house (just rented in February, so I'm new to land lording)  Most anything that goes wrong I hope that I'll be able to fix, except for the big stuff, as I've always treated insurance as more of a place to go after a catastrophe... I've never made a claim on a house.

Bobberth

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Re: insurance deductible for rental property
« Reply #2 on: August 20, 2014, 03:57:45 PM »
I had a fire in a rental property this summer, first day heading out of town on a 2 week vacation :-( 

I know that I knew, and you know too, that the deductible is what you are responsible to pay for.  But that wasn't really "real" until I faced paying $1k out of pocket all of a sudden.  So imagine getting a call out of the blue that you know owe $1k/$5k/other deductible amount.  Can you handle that?  Insurance will get the property back to normal but you're still responsible for that portion of it.  I had the money, it just sucked that I was going to have to pay it for somebody else's stupidity.

The contractor/board up company that the insurance adjustor hooked me up with did a good job boarding the building up while I was out of town but seemed slimy when I met him once I was back in town.  I really liked the idea of them taking care of everything for me since I had just finished rehabbing two properties this spring.  But then he gave me an item list to take to Home Depot to pick out carpet, paint, lights etc.  When I looked at it, he was going to make more per square foot of carpet than he was going to 'allow' me to have in material costs.  Plus he wanted to do the job for exactly what the insurance company said it would cost.  That included +10% material built into each item plus an additional 10% overall for additional costs and another 10% on top of that for profit.  AND I would have been $3500 out of pocket for the deductible and 'adjusted depreciation' that the insurance company holds back until all the work is done.  The insurance company was giving me about $4k for the carpet, which I had just replaced before these tenants moved in for $1200 so I knew I could easily save my deductible just by calling the same person to come and do it again.  He did offer to knock $1k off the total to save me the deductible, but I could save more with just the carpet.  So I decided I would GC the project and do work on it myself.  Looking back, I'm thinking the insurance adjustor and contractor have a mutually beneficial arrangement.

From this fire, I am going to easily clear $10k from handling this myself.  It will probably be around $12k-$13k but I'm not finished yet so I'll have to wait for the final total.  This is from a $24k total claim.  That includes meeting my deductible and doing upgrades like replacing all the windows, installing a new water heater, optional electrical upgrades and replacing the galvanized water lines.  I've done some of the work myself and I hired others to do some work.  In addition to the generous carpet allowance, the insurance company gave me $3400 for painting and $2400 for cleaning.  I've had some friends and family that needed some extra money come and help me out with those low skill jobs.  Some savings is also coming from not replacing screen doors and other items that don't really need to be done for a rental property.  I also got to learn the permitting system by going through the process myself.

All of this is meant to give you an idea of how things work with a claim.  Yes, the odds of a fire or other claim is very low.  But if you do have a claim, are you going to go with a contractor to take care of everything and you end up writing a check for your deductible for them to handle it or are you willing to do some work yourself-either actual work or finding the subcontractors yourself?  If you can do things yourself, you should be able to easily save your deductible.  After this I am going to raise my deductibles now that I know I can save so much by handling things myself.  At least to $2500 if not $5000 if the loans allow it.

Another Reader

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Re: insurance deductible for rental property
« Reply #3 on: August 20, 2014, 04:05:46 PM »
If your house is mortgaged, the lender may have a maximum allowable deductible.  The lenders generally do annual insurance reviews if they impound for taxes and insurance.  If the deductible is above the limit, you may get a letter requiring you to lower the deductible. 

Blindsquirrel

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Re: insurance deductible for rental property
« Reply #4 on: August 22, 2014, 08:53:21 PM »
  I use the highest deductible I can, if insurance co would let me go to 5K I would do in an instant if it would not hurt you financially, the higher limit is better for the long run I think. Other than liability we are seriously thinking of self insuring as if a house burns to the ground once in 10 years, unless it is over 80 k we are probably ahead.

Nords

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Re: insurance deductible for rental property
« Reply #5 on: August 22, 2014, 09:41:15 PM »
... it just sucked that I was going to have to pay it for somebody else's stupidity.
If you don't mind my asking, what caused the fire?  Are the tenants liable?