I’ve had Allstate Insurance (ALL: chart, web, Y!) covering my rental property for the last 4 years.  However, last Fall, they sent me a notice that my premiums would go up 52% this year without any explanation whatsoever.

Being the capitalist I am, I understand costs go up over time.  But not 52% at once.

I called for an explanation, and after cutting through the bull, and being passed around to three different people as I worked my way up the ladder, I had a district manager tell me that rates went up on landlord policies due to an increase in fraudulent claims over the past year.

That’s bull!

For one, I’ve never filed a claim, and never had a reason to.  Furthermore, if the company has a problem with fraudulent claims, that’s their problem, not mine.

So I’m doing what every good capitalist would do and exercising my options through my wallet.

Allstate was insuring my single little rental for $950 per year.  Just the structure, mind you, not the contents (that’s what renters insurance is for).  The increase for 2009 brought the annual premium to $1,460 with no increase in coverage.

As a comparison, I insure my personal home with a market value over $150,000 more than my rental, all my personal belongings, AND three vehicles for under the new premium to insure just my rental house.

That just doesn’t smell right.

My new policy is with USAA, whom I carry that home and auto insurance with, and they will insure the rental for the replacement cost, not the value; there’s a big difference.  All the while, USAA’s premium is cheaper than Allstates best quote, even after I assured them I’d not do business with their company unless they offered me something more reasonable.

Allstate’s new premium is based on the market value of the home, while USAA’s premium is based upon rebuilding the same home on the same piece of property with today’s dollars.  So the coverage is for nearly $200,000 more than Allstate would provide.

I’m not buying Allstate’s excuses for a drastic 52% premium increase.  Allstate reported a $1.3 billion net loss, or $2.11 per share, for Q4 of 2008 while expectations were for the company to make $1.35 per share.

In all, I seriously doubt that Allstate needed to raise my premium by 52% due to fraudulent claims.  I suspect they had to raise the premium because they’re not making any money due to poor performance of their own investments.

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Insurance, Real Estate Allstate, Insurance, Rental Property, USAA

I just received a call from one of the tenants at my first rental property. The clothes washer is leaking all over the basement floor.

Just last night I was thinking about how I hadn’t been called to fix anything lately…

Go figure.

So tomorrow I play appliance repair man.

It’s interesting to note that of all the appliances I have bought brand new, I have not had to fix, repair or replace anything. However, initially I bought both the washer and dryer used. I replaced the dryer with a new $200 version from Home Depot less than 60 days after the used dryer was purchased (the warranty was only 30 days). I’ve had to go back and fix a switch already on the used washer, and now it’s leaking all over the place.

I remember the debate when I first bought the appliances, whether to buy new or used, and the overall consensus was that the used appliances were a better way to go, as it would save me money. But now I have to spend another evening troubleshooting a broken washer, and may end up spending money to have an appliance repair company come out and fix it…

I understand the logic behind going with used appliances in a rental unit, but I would have gladly paid the extra $200 for new units up front if I new how much time and aggrevation it would save me down the road.

I suppose that’s what they call “hindsight”.

Rental Property appliances, landlording, Rental Property

After my visit to the termite palace yesterday, the real estate agent told me she’d keep an eye open for more property in the area. The question then became: What is your criteria?

My first rental property ended up setting the bar very high. I bought it from a bank, put less than $10,000 into it for rehab and renovation, and rent it to students. Overall, my net cash flow is $345 per month. So I guess those traits could start the list.

1. The property must be within 3 blocks North of the local University.

Talk about narrowing the field! This is probably the most restrictive of my criteria, but I have good reason for putting it in place. The area to the South of campus is fairly worn down, crime is higher, and it’s generally just a less attractive area. By in large, this means that I couldn’t rent the same house to the South of campus that I could to the North of campus. In short, the margin is smaller.

Additionally, the campus is bordered by two main streets, one on either side. To the West of the main street are upscale neighborhoods that sell for more than $300,000. Not at all conducive to renting out, especially to students.

To the East of the opposite main street is what we call “the hood”. You can find houses for $20,000 but you better bring protection if you care to visit.

So that limits my search to about 9 square blocks.

2. Must be able to purchase for less than $60,000.

The general consensus is that a property should rent for 1% of the sale price. But that if the sales price matches the appraised price.

When you look at renting to students, look at what rent should be per room, not for the overall house. In my area, it’s not unreasonable at all for a single student to pay $300 per month for one third of a 3 bedroom house. So if you have a two bedroom house, the rent should be about $600 per month. Any premium to that should be justified by a service or resource in return.

3. The high dollar issues must have already been fixed.

This is one I’m willing to budge (a little) on.

I’m looking for a place that has already had the plumbing overhauled, electrical box and wiring replaced, and fairly new air conditioner and furnace installed.

I’m willing to foot the bill for a new air conditioner and furnace. That work would have to be hired out, but you’re not looking at a lot of labor expense, and the job can be done in a day, maybe two.

Plumbing and electrical is a major task, one I’m not up for doing myself, and not willing to pay to contract out.

However, if the price is right, I could be swayed on this rule.

4. The place must be structurally sound.

Along the lines of rule number 3, the property must not require major structural work. This translates into big money. Simple stuff like replacing deck structure I can handle, but I’m not willing to replace floor joists and certainly not willing to replace walls because termites ate them out!

5. The property must be a 3 bedroom, and 1 bath, minimum.

The fewer bedrooms, the harder it is to rent. The difference in list price between a two bedroom and a three bedroom house can not be recouped by using my $300 per room rule of thumb. Consequently, you’ll end up asking for a premium in rent for less square footage and end up having to concede more services (lawn service, laundry appliances, etc.).

6. Must be able to rent to students.

The university in the area is fairly affluent itself, and it caters to those who come from affluent families. Accordingly, paying for rent is not a large part of the overall college budget. Therefore, the students that attend this college are a bit less stingy when it comes to negotiating rent. And given the fact that there are few nice (and relatively safe) places outside of campus to live, the premium is somewhat justified.

So what do you think? Are my criteria too strict? Am I missing something?

Investing, Real Estate, Rental Property college students, investment, Real Estate, Rental Property