Buying Houses with Hurricane Matthew’s Damage

The State of Florida and many other states were affected by Hurricane Matthew, leaving many Sellers with problem houses.  I am located in Oviedo, Florida, and being a transplant from Michigan, I have never been in a Florida Hurricane.  All of my houses were blessed with minor damage such as big trees down in the back yard, shingles flying off the roof, branches and trash everywhere. I am very grateful to God for these blessings.  Other Sellers were not so fortunate and my heart goes out to them.  They now have to deal with making a huge decision of fixing the house or selling the house.  Some Sellers may not even have insurance on their house.  However, if they do have insurance, let me explain the process.  

An insurance claim can be long and dragged out with many Sellers becoming very frustrated with the insurance company’s findings.  These are Sellers that may need your help with you buying their house.  First, let me explain the process on Insurance Claims.  Sellers will notify the insurance company of damage to the property along with providing them a list of items damaged.  If the Insurance Company and the Sellers can come to an agreement, then a check is sent to them in their name and the names of all mortgage companies that may have a lien on the property.  Pursuant to the terms of the mortgage that was signed by the Sellers, all insurance proceeds are to be used to re-build the property to make sure that the mortgage companies have an asset that is worth the amount of their loan.   When there are large claims of loss to the insurance company, they normally dispute the amount of the claim and the Seller will have to hire an independent insurance adjuster to assist them in disputing the claim. 

I am going to tell you about a home that I purchased from a Seller that had fire damage.  First off, the Seller had already contacted the insurance company and the claim was approved.  However, the funds were to be sent to the Seller’s contractor in drafts.  My company is a Limited Liability Company, so we were the company that would be the contractor for the Seller.  We had to perform a specific amount of work and then they would send out someone to inspect the work and issue a check to our company.   So … we knew how much money the Insurance Company was going to pay for the repairs to the home.  We knew how much money it was going to cost for the repairs which, by the way, was lower than the amount that the Seller was given on the insurance claim. 

How did I figure out the purchase price of the home?  First, I needed to know the value of the home after all the repairs; this is the After Repaired Value.  I then needed to know my cost for the repairs of the home and the cost for the repairs that the insurance company was willing to pay.  I used a simple formula…I took the ARV x 65% – My Repair Cost = Maximum Allowable Offer.  I also deducted the amount of insurance claim from the amount of my repairs to see how much more I could give the Seller.  Let me give you an example:

• ARV ($100,000) x 65% = $65,000 – My Repairs ($25,000) = Maximum Allowable Offer $40,000
• Insurance Claim $45,000 – My Repairs $25,000 = $20,000 difference
• Maximum Allowable Offer $40,000 + $20,000 = New Maximum Allowable Offer of $60,000

This was a win-win situation for my Seller.  I prepared a contract that clearly stated all the terms and conditions of the agreement and a Deed was held in escrow until the insurance claim was completed and I could purchase the property.  If I would have purchased the property immediately then the insurance claim could be invalid as the Seller no longer owns the home and I didn’t want to take the chance of having any problems.  Should you purchase a property from a Seller who has an insurance claim and you are thinking of acting as their contractor, you will need to read all the paperwork.  A Licensed Contractor may be necessary, as it was in my deal, along with having an Attorney assist you with all the paperwork. 

I hope this thought will help you assist many Sellers that may have to sell, have insurance and need our help.  Be fair with your offer and make a win-win situation and don’t take advantage of the situation.  We all need to work together to help people during these times of need.  Whatever you do as an Investor, it affects all of us, so make it a win-win situation or walk away!

Please keep sending me your questions and topics that you would like to hear about, so I can be sure to keep feeding you with the information that you need in order to move confidently through 2016 and bring your Real Estate Dreams to Life!