I chose insurance as my next topic for the blog as I’ve been living in an insurance nightmare for the last four weeks. While I hope none of you ever have to go through the kind of claim process I did, I figured a brief summary should be included being the essence of this blog features all major financial aspects surrounding a first time real estate investment property.
Let’s kick things off with the good news. A check was issued to me last Thursday from the roofer’s insurance company in the amount of $52,517.92. I will say this is, and may forever be, the largest check I’ve ever tried to cash at my bank. Upon reviewing the check, the tellers face spoke a thousand words. She looked up, looked down, looked up, and continued to stare at me like I was Bin Laden trying to open a new checking account and collect my free $100. After two managers were called over to assist with the deposit, it was quickly explained the money would not be available 5-10 business days. Both entertaining and somewhat expected results.
While this may sound a bit happy go lucky, I can assure you the process of getting a check was not easy and took around a month. It first had to be decided whether to use my own insurance to get the job done right and quickly, or rely on my roofers liability insurance. I determined paying the $1,000 deductible, and risking the major increase in my coverage didn’t seem appealing. In hindsight, this may be debatable.
What is important for readers to understand is while your personal insurance will likely replace and compensate to exact “AS-IS” value, contractor liability insurance is not so friendly. In my case all damages from wall repairs, painting, cabinets, and wood floors all took significant depreciation hits in the payout. To be precise the amount removed from the final payout due to adjuster depreciation was $8,175 dollars. If we use plaster repairs as an example my contractor quote was for $15,250.00 and the adjuster used 1% depreciation for every year over 25 years (25%) and paid out only $11,437.50. To be fair to the adjuster he was lenient in some other areas such as the total amount of flooring and cabinets being claimed, but nonetheless depreciation was huge hit and not expected.
If the depreciation wasn’t enough to throw gas on the fire the fact that my contractor made a profit on the claim boggles my mind. Riddle me this. You hire someone to install a new roof. They screw up badly, cause significant damage to the house, and while they file an insurance claim they sneak in a line item for ~$1,750 of profit on repairing the damages. The home owner gets depreciated, while the general contractor gets paid profit. Lovely.
Before I dive into my next rant too early, I wanted to also mention that the general contractor is charging for additional work he did without notice during the project. Needless to say things are ramping up and may be heading towards arbitration. Get excited as there will likely be a topic on Mechanics Liens and contracts coming up shortly. Wish me luck.
