There is a Nationwide Insurance Scam targeting real estate investors. Is anybody going to take notice? An investor client of mine recently purchased a single family house for investment purposes. When this investor ran his proforma numbers to determine if this was a viable investment for him or not he included the usual expenses, principal, interest, property taxes, HOA fees and insurance for the property. Insurance for rental properties is commonly know as rental dwelling insurance or fire dwelling insurance.
The purchase price of this rental property was $135,000. This particular rental property was located in the DFW real estate market and was one of the many Dallas foreclosures. The investor who had not purchased a rental property in a couple of years factored in $450 for rental dwelling insurance, what he has paid in the past for similar priced properties. When he contacted his insurance company he was shocked to find that the cost of the premium he was quoted was a whopping $960! How is the possible he thought? The home he lives in was worth $475,000 and his insurance only cost him $980 for a property that is worth almost four times what his new investment property was worth!
The investor called his insurance company and inquired about this huge discrepancy in premiums especially since rental dwelling policies only cover the building while his homeowners insurance policy covers the building and all or his personal belongings. He was shocked again by the insurance agents answer “the premium is higher for your rental property than it is for your home because tenants don’t take as good of care of the property as a homeowner does“. The investor then asked, does the insurance company cover tenant damage or neglect. The insurance agent responded, no. REALLY? Several calls to several insurance companies yielded they exact same response.
The “fix is in” the insurance companies are not only scamming hard working investors who are risking their money to help bail out the real estate industry they are conspiring to commit fraud by fixing prices. If you are a victim, contact your States Insurance Regulator and States Attorney’s office an file a compliant.