Dealing with Disaster
It’s now been a little over nine months since we were returning from the New Orleans Investment Conference on November 6, 2019 and received a text message as we were landing in Seattle that we have had a major fire at one of our apartment complexes in Abilene Texas.
Of course, this wasn’t the first fire we’ve dealt with in our 40+ years of investing in real estate, but it was certainly the biggest by far. (In fact, we we’re just wrapping up from one that had happened in our local market six months before that.)
Once we landed in Seattle, we were able to get online and pull up several local news stations that covered the story to get an idea of the level of magnitude of what we were going to need to be prepared to deal with. It was reported that 20 residents were displaced and that the damage was estimated at $325,000. They were correct in reporting that all but two residents did not have renters insurance and were left with no belongings and nowhere to go but the other estimates were far from reality. As an owner, this takes a big emotional toll to learn of those that you were helping out by providing a roof over their heads had to endure such losses. Fortunately, no one was injured.
As it turns out the damage was more than 10X their estimates and more than 40 people were without housing or belongings. Twelve units were completely destroyed and had to be torn down. Another 16 units received severe smoke damage and loss of utilities and have been completely stripped to the studs. We are currently in the process of going through a complete re-build including electrical, HVAC, roofing, plumbing and much more. These will be brand new on the inside and ground up construction on the 12 units that were torn down will begin soon.
Obviously, this is a huge project to oversee from 1800 miles away which literally involves daily updates and conversations with many different players involved, but I write this to share some insights that will hopefully be helpful to you in case you find yourself in a similar situation due to a fire, flood, tornado, hurricane or other natural disaster that could happen to your investment or personal property.
Although you may have heard this before, having a strong team in place is critical if you plan to come out of this with your head above water. The first thing we did was hire a Licensed and Bonded Public Insurance Adjusting firm to represent us rather than attempting to work directly with the adjuster from our insurance company. They have a team of adjusters that work toward maximizing the claim settlement well beyond the fee they charge for their services. The company is also familiar with the local market and was able to recommend a reputable general contractor who has experience dealing with losses this size and larger. Even though both companies are based out of the DFW area, they have a wide reach and have relationships with architects, engineers, and vendors in the Abilene market.
By already having a strong relationship with our property management company in that market, we have been able to oversee the project remotely without having to make frequent trips there.
The project is far from complete and has taken way longer than anticipated due to not only the pandemic which limits the number of workers, but also the arduous back and forth battle on reaching a settlement with our insurance company. That being said, we are still extremely pleased with what the team has been able to accomplish for us so far.
In summary, here are some bullet points to consider when it comes to making sure your investment property (or personal residence) is adequately covered in the event disaster strikes:
- Full replacement of the property as a result of any act of God.
- This includes adequate abatement coverage!
- Loss of rental income – This is HUGE!!
- Liability for tenant, employee and visitor injuries.
- Theft or vandalism.
- Invading the right to privacy.
- Allegations of fraud, misrepresentation, and other intentional acts by employees or vendors.
Finally, encourage your property management company to REQUIRE renter’s insurance from all of your residents. Tenants have been known to complain about this, but in the event of a loss, their belongings will be insured, and they will be guaranteed housing (usually at a local hotel) until they are able to find another place to rent. This is incredibly cheap for the value it brings in case a loss occurs.
If you have questions about any of this or would like to learn more about taking advantage of the financial opportunities that lie ahead, please email me at the address below or schedule a call.
Investing for Impact,