How Big Should Your Umbrella Policy Be?
- At August 31, 2019
- By AvivaGittle
- In Insurance, Personal Finance, Real Estate
0
This is the first of several articles I wrote for this client who manages a website about all things insurance. He likes a lot of facts and figures in his articles.
Your dog is the sweetest puppy on the planet. He’d never hurt a soul. But one day, dear Rover goes on the attack and bites your neighbor’s kid. You’re sure little Tommy provoked him. But Tommy’s parents don’t care. They sue you for $1 million dollars. Your neighbors have a pretty good chance of winning. According to Jury Verdict Research, 13% of personal injury liability payouts are $1 million and up. Better odds than the lottery.
Cheap Protection
A personal umbrella policy is the most cost-effective way to protect your net worth. This insurance coverage kicks in if a judgement against you exceeds your auto or homeowner’s policy limits. Let’s say you have a $500,000 liability limit on your homeowner’s policy. Little Tommy wins a judgment of $1 million. Your homeowner’s insurance company pays the first $500K and your personal umbrella liability company is on the hook for the remaining $500K. All for an average of $150-$300 for the first $1 million of coverage. If you own a business, you’ll need to buy a commercial umbrella policy at an average cost of about $1,200.
The Savvy 10%
Chubb Insurance Group surveyed 200 households with $1 million or more in investable assets. 10% paid out legal judgements of over $100K. Yet, 90% did not have an umbrella policy. Just 10% of them were savvy enough to buy this type of excess liability coverage. They paid a pittance to protect their considerable wealth.
Most of us mere mortals don’t have $1 million to invest. However, umbrella policies are not just for the rich. For many Americans, their house is their largest asset. Yet only about 15% of homeowners have a personal umbrella policy. In part, because insurance agents are not educating their clients about the importance of excess liability coverage. Some people don’t understand what an umbrella policy covers. Or, believe they don’t have enough to lose. Unfortunately, even a renter without a large savings account can have their future wages garnished in order to pay a judgement.
Risk is Everywhere
You don’t have to be a bungee jumper or a racecar driver to have increased risk in your life. Teenaged drivers, pools, and dogs in your home increase your risk of being sued. According to the CDC, car crashes are the leading cause of death for teens in the U.S. Lest you think your dog is more responsible, 4.7 million dog bites happen each year. Be sure to check your umbrella policy – some breeds are not covered.
Umbrella policies also cover slander and libel suits. If you’re job includes reviewing people and companies on social media, you are at risk for these types of lawsuits.
It’s Crazy Out There
The reasons people sue each other range from the absurd to the understandable. One family settled for $475K for a child who removed her headgear during a paintball game in their backyard. In adherence to Murphy’s Law, she was hit in the eye by a paintball at that exact moment. In another case, a student made false statements about her math teacher online. The teacher sued the parents and received a $750K payout. On a much more serious and expensive note, a teenaged babysitter left a 5-month-old unattended in a walker. The baby fell over, hit her head on the floor, and suffered brain damage. The baby girl’s parents were awarded $11 million dollars.
How much can you afford to lose?
Calculating how big your personal umbrella limits should be involves three key considerations:
Value of Assets
It may not be enough to cover your net worth. If you own a $500K home, the mortgage against it doesn’t matter if you’re forced to sell it to get at the equity. It’s better to include the full value of your assets in your calculation.
Risk Assessment
Pools, kids, dogs, and anything else that increases the premium on your homeowners and auto policies should be part of your assessment. While you’re evaluating your risk level, consider what you can do to reduce it. You can’t get rid of your kids, but you could take down that trampoline in your backyard.
Risk Aversion
Some people would rather err on the side of being over-insured. Adding 50% to the value of your assets is a good guideline. Since another million in umbrella coverage will cost just $50-$75 dollars a year, it’s not a hard decision to make.
Can You Scrape Together 82 Cents a Day?
Folks will fork over big bucks to their accountants to reduce their tax liability, but won’t buy an umbrella policy. Yet, for just 82 cents a day you can protect a million dollars’ worth of assets from the little Tommies of the world. Order a tall instead of a venti latte once a week to cover it. Peace of mind in exchange for a little less caffeine. Seems worth it.
Resources:
https://www.insurance.com/auto-insurance/coverage/umbrella-insurance-policy-guide.html
https://www.cnbc.com/2018/03/26/this-hidden-threat-can-devour-more-than-100000-of-your-wealth.html
https://www.insureon.com/small-business-insurance/umbrella-liability/cost
https://www.cdc.gov/motorvehiclesafety/teen_drivers/teendrivers_factsheet.html
http://www.galleninsurance.com/wp-content/uploads/2011/08/10-Actual-Claims-On-a-Personal-Umbrella-Policy.pdf
Is It Time to Cash In?
- At July 20, 2019
- By AvivaGittle
- In Personal Finance, Real Estate
- 0
This article was written for a 1031 exchange intermediary company.
Real estate investors try to look ahead. As we near the end of 2018, many are asking, “Is it time to cash in?” Several markets saw a healthy increase in prices over the last several years. If you were fortunate to buy property in the few years after the Great Recession, you may have a lot of equity that could be used to move up to the next level.
According to CoreLogic, single-family properties across the U.S. with a mortgage had an increase in equity from 2017 to 2018 of one trillion dollars. That is nearly 25% of the total increase of equity for these properties in the 5 years between 2013 and 2018. That’s a lot of cash available for small investors thinking of expanding their investment portfolios.
Prices in some markets are starting to soften. And, interest rates are still quite low. Though some have lamented the rise in interest rates, they are still historically low. You may be able to cash out, for example, a single-family rental in California and buy a duplex or fourplex in a market with declining prices.
The Top 5 Markets*
The markets with the biggest increases in residential property values include Nevada, Idaho, Washington, Utah, and – not surprisingly – California. Some are predicting that prices will continue to rise in 2019. Others predict a housing market crash.
Las Vegas is presently the hottest major city in America. Housing prices rose nearly 14% between mid-2017 and mid-2018. Nevada prices are supposed to rise another 9% into 2019.
Utah is another highly desirable place to live. However, prices in some areas, including Salt Lake City, are considered overvalued.
Top 5 Over-Valued Markets*
San Jose, CA, Seattle, WA, Oakland, CA, Portland, OR, and – third on the list – Las Vegas, NV. You may be thinking, “Say, what? You just told me that Las Vegas home prices are expected to go up in 2019!” Indeed, I did. Rather, CoreLogic did. Zillow thinks so, too. They are predicting an 8% increase in 2019.
CoreLogic defines an over-valued market as, “…one in which home prices are at least 10 percent higher than the long-term, sustainable level…” It doesn’t mean that prices won’t continue to go up. At least for the time being.
This is reminiscent of the Southern California market between 2000 and 2006. Yes, prices were still going up between mid-2005 and mid-2006. But, if you bought in 2006, you were buying at the height of the market. In fact, one investor bought a property at what she thought was a good deal in June of 2006. She saw prices starting to soften and decided to snap up a 2-story condo in a highly desirable neighborhood in Chula Vista, CA. After the housing bubble burst, it was valued at $150K less. Didn’t matter; she was not likely to find a buyer anyway. It would take 12 years for the property to get back to its pre-crash price. But, if you’re property is making money, its value doesn’t matter. You can ride out any storm.
*Stats and predictions from CoreLogic.
All Real Estate Is Local
You may have heard the saying, “All real estate is local.” Google “housing market predictions for 2019” and the results are articles that give national statistics. The median price of homes has increased across the US. New construction is expected to go up, too. Interesting, but not really helpful to the individual investor. National trends can give you an overall sense of what’s happening in real estate. But, what’s happening in Boise, Idaho may be different from what’s happening in San Diego, California.
Hurricane Harvey hit Houston and surrounding areas hard. The homes that were flooded gave investors who “flip” homes a great opportunity. (In case you don’t watch HGTV, investors buy homes that most others don’t want because they need a lot of repairs. They buy them cash, fix them up, and sell them, hopefully, at a profit.)
It was also positive for sellers. Inventory shrank and displaced buyers needed homes. Prices went up in some areas and so did rents. Home prices were cooling before Harvey. Which shows you that predictions are helpful, but a big event can change everything.
It’s All in The Timing
Fact is, it’s nearly impossible to perfectly time a sell and a buy. A more helpful way to make a plan is to determine if it’s the right time in your situation. What’s happening in the neighborhood where you own your properties? What would be your reasons to sell? It’s not just about getting the most cash.
One investor sold a single-family home in a hot area of Southern California in the first half of 2017. If she had waited a year, she could have gotten at least $50K more. In her situation, she needed to buy a personal home. The cash she did walk away with was enough to build a brand-new home and buy a rental in the Houston area. Mortgage free.
Another investor sold a 10-unit building in California a few years ago. It has sold two more times since then; most recently for double what he sold it for. Sounds like bad timing, right? Except he turned 10 units into 31 units by doing a 1031 exchange into the Houston market. Recently, he was offered double what he paid for his 18-unit residential income property. For him, it’s not the right time to sell. Another investor in his situation might decide to cash in and upsize to a 40-60 unit building.
Do Your Research
Whether you plan to buy and sell in the same market or are considering investing in a new area, research is critical. For example, you may want to buy a small multi-unit in Houston, but there are not many available at this time. (Which is why the investor with the 18-unit is approached by realtors regularly.) Other areas may have more multi-unit properties available, but high vacancy rates. A good real estate agent in each market is critical. They can provide you with the current and historical data you need to make good decisions.
You want to make sure that you compare prices within a market, not between markets. When you live in California, the homes in Texas look mighty cheap. But, the worst thing you can do is overpay for real estate. A house you can buy for $200K is a bargain to a Californian (“I’ll take two!”) But, the market value for that house might be $180K.
The rental market is another critical area to analyze. The financials you receive from a seller will sometimes have “pro-forma” rents. This is where the seller provides “rosy” numbers based on where they believe rents will go in the future. Be careful; the cap rate they claim is sometimes based on pro-forma rents. It’s certainly nice if rents go up in the future, but you need to know if the investment makes money now.
When you’re moving from one market to another, who you rent to may change. Are you moving from the city to the suburbs? How does this change the demographics? Real estate websites, such as Trulia, provide demographic data. One investor bought a multi-unit residential property in an area where Spanish is the primary language for most of his tenants. He does not speak Spanish. Fortunately, the manager onsite does speak Spanish. It doesn’t mean that you can’t invest in an area where you don’t speak the prominent language, but you need to not be surprised by that fact.
You also need to be real about who you are and what you can handle. The financials may be compelling, but the property may not the right investment for you. Perhaps you can afford a 24-unit building, but are you prepared to manage it? If you currently invest in a few single-family homes, expanding to that many units may be more than you can handle. (And if that sounds crazy, remember our investor who turned 10 units in California into 31 units in Houston.)
Deferring Taxes
If the property you want to sell was your primary residence in two of the last 5 years, you may not have any taxes to pay on the gain. An unmarried seller will get a $250K deduction; a married couple a $500K deduction. So, if you net $200K on the sale, you likely won’t pay any taxes. Obviously, you’ll want to consult with your accountant before you sell.
If you do not qualify for a deduction against the net profit, then you should consider a 1031 exchange to defer taxes.
1031 Exchanges
A 1031 exchange is an IRS-defined event. Reading the IRS’s explanation of a 1031 will give most people a headache. They make it sound much more complicated than it actually is. In essence, you are going to sell your property and buy a “like” property. As long as you spend as much or more on the new property, you will not pay taxes on the net gain from the sale.
There are rules that must be followed. However, working with an experienced and reputable “intermediary” will make the process far less confusing. In fact, you must use an intermediary because you cannot touch any of the money from the sale. When you close on your property, the proceeds from the sale go to the intermediary – not to you.
The Rules
A “like” property does not mean that if you sell a single-family residential income property that you must buy another single-family property. Selling pretty much any kind of real estate allows you to buy any kind of real property.
For example, you could sell a duplex and buy a small strip mall. Or, sell an office condo and buy two single-family properties.
You have 45 days to identify up to three replacement properties and 180 days to buy one or more of them. They should be of equal or greater in value. (You can buy a property of a lower value, but you’ll pay taxes on the difference.) The 180 days begins when you close on the sale of the property you are exchanging.
Depreciation will be capped at the amount of the original property. Our investor with the 18-unit building was surprised to learn this. The investor who sold the Southern California condo has no idea because her accountant handles those details. But, it’s something you should discuss with your accountant.
Conclusion
Prices in many markets have gone up. They are expected to continue to rise in some markets. Whether it’s time to cash in depends on your personal situation. Analyze your current investment portfolio. Determine whether it makes sense to buy an investment in your home town or another state. Or to just stay put. National trends and predictions are helpful, but may not apply to your situation.
Consult with your accountant and a good realtor to get the information you need to make a good decision. If a 1031 exchange is right for you, be sure to find a reputable intermediary to make sure you follow the IRS rules and complete the transaction in 180 days.
Remember, cashing in is not always about getting cash. There are many reasons to sell and buy investment properties. Worry less about trends and more about what is best for you.
Resources
Some helpful calculators:
https://www.1031x.com/Capital-Gains — a calculator to estimate savings if you defer your capital gains tax with a 1031 exchange. https://www.1031x.com/45-reminder a 45 day calculator. https://www.1031x.com/Tax-Reform-2018-Calculator a tax reform calculator.
Sources:
https://www.foxbusiness.com/personal-finance/home-prices-rising-fastest-in-these-states
https://gordcollins.com/housing/us-housing-market-update/
Is Bankruptcy Your Financial Salvation?
[This article is to promote a local bankruptcy attorney. In the final version, his contact information is added at the end.]
How Bad Can It Get?
You’re rolling along, paying your bills, even putting a bit of money in savings each month. You’re prepared for a rainy day…but not a tsunami. Then one day, tragedy strikes. You lose your job or a family member gets sick and the medical bills start piling up. Now you’re struggling to make your mortgage payments. What can you do?
You’re thinking if things get really bad, you can just file for bankruptcy. Truth is, you’re not really sure what that means. It just sounds like a way out.
Bankruptcy may be the answer to your troubled prayers. There are several different types of bankruptcies.
Chapters 7, 9, 11, 12, 13, And 15 – Dealers Choice
There are six different types of bankruptcies outlined in the U.S. Bankruptcy Code. The numbers refer to the chapters in the code. Unless you’re a municipality or doing business with a foreign country, chapters 9 and 15 won’t apply to you. Although you may own a family farm (not a far-fetched possibility in Texas), chapter 12 is not likely a consideration for you. Most folks have heard about the other types: Chapters 7, 11, and 13. Which type is right for you?
Chapter 7 – Liquidate & Close Up Shop
Think of Chapter 7 bankruptcy as the “you can’t squeeze blood out of a stone” type of financial relief. When an individual just can’t come up with the cash – even given extra time – they will file for Chapter 7 bankruptcy. Businesses can also file under Chapter 7 if they want to liquidate all their assets and close up shop.
In fact, Chapter 7 bankruptcy is referred to as “liquidation.” It’s a way of starting over. Big, bad debt is holding you down and you can legally cry “uncle.” (For those a bit younger, this is when the neighborhood bully would hold you down until you would scream “uncle.” Why that particular word? Why not?)
Can I Keep My Home and Rolex?
Can you keep your home if you file for Chapter 7 bankruptcy? The answer is: Maybe. If you are current on your mortgage and don’t have a lot of equity in the home that can be used to pay your debts, it is more likely. If you have benefited from rising home prices, you may have to liquidate that asset to raise cash to pay off your creditors.
There are many assets that typically cannot be discharged under Chapter 7 bankruptcy. (A discharged debt is one that you are no longer personally liable for. The creditor cannot come after you for it, say, through collections.) It’s a pretty long list and includes back child support, alimony, and student loans. It also includes luxury goods over certain proscribed amounts. So, if you think that you can go buy a 30K engagement ring for your honey prior to filing Chapter 7 bankruptcy and not have to pay for it, think again. Ultimately, it is the judge who gives the final word on whether a debt can be discharged. A judge will not likely think kindly on a person who believes they can get thousands of dollars in luxury goods for free through bankruptcy.
Chapter 11 – Keep The Doors Open
This type of bankruptcy is for commercial businesses who want to remain in business. An agreement is made with creditors to get at least some of their money back without forcing the enterprise to close its doors.
Chapter 13 – Let’s Make A Deal
Chapter 13 bankruptcy is for those who have a regular income and want to pay their creditors. They just need more time and perhaps some debt relief. If you’re in debt up to your ears, want to do the right thing, but not lose your home, Chapter 13 bankruptcy may be right for you.
Under Chapter 13 bankruptcy you can discharge debts that are not allowable under Chapter 7 bankruptcy. Items such as alimony and student loans. A plan to payback your creditors is created and must be approved by a judge. Your payments go through a trustee. Over the life of the plan (usually three to five years), you deal with the trustee who in turn deals with the creditors. Any collection activity must stop and your creditors cannot take further legal steps to collect your outstanding debt.
Exemptions – Fido & The Family Bible
Exemptions are assets that the creditors cannot force you to sell. There is a list of federal exemptions and a list of state exemptions. In Texas, you pick one list to work from. The Texas list of exemptions is more generous. It’s also quite interesting. You can exempt up to two firearms, your family bible, and some of your pets. There is a total exemption limit depending on your marital status.
Don’t Go It Alone!
Bankruptcy is not the right choice for everyone, but it may be the right choice for you. Don’t go it alone! Find a reputable bankruptcy attorney to explain your options and walk you through each step of the process. It just may save your home.
How To Get The Best Price for Your Home
Originally posted on www.ShielaHanlon.net.
We know that selling your home is a stressful. For most people, selling their home is the biggest financial transaction they will make in their lives.
Selling your home comes down to three key areas:
Price
You want to price your home at or just below market value. Your real estate agent will provide you with information on comparable homes that have recently sold in your neighborhood. This, in consideration of your personal situation, will help you make the best decision on how to price your home. As your agent receives feedback from prospective buyers and other real estate agents, you can revisit the price, if needed.
Presentation
You want to show your home in the best light possible. And, you want to make
your home appeal to the broadest audience. The more prospective buyers your home attracts, the higher the chance you will sell your home quickly for a good price.
This is the hardest part of selling a home. You have to “de-personalize” the very place that has been a reflection of your individuality; your personal expression of your lifestyle and beliefs. Now, you need to step back and let prospective buyers envision themselves and their life in the home.
Access
You want to make it as easy as possible for buyers to see your home. It’s not easy to do while you’re living there. Allowing a “For Sale” sign to be placed on the property, leaving a lockbox on the door, and keeping the amount of time required to give notice of a showing are all great ways to make your home as accessible to prospective buyers as possible.
Your Home’s Benefits
Every home has at least one key feature that is especially desirable to buyers. Your real estate agent can help you determine what is the best aspect of your home to focus on when staging and marketing your home.
General Staging Recommendations
Suggestions to best show your home to sell quickly in today’s market.
All of these suggestions are to make your home look as big and bright as possible. Why? Because this is what most buyers want.
- Neutralize, de-clutter, and de-personalize to attract the largest potential buyer audience possible. Remember, you want to sell your home! People often have different tastes, different beliefs, different lifestyles, etc. Your goal is to make potential buyers feel comfortable viewing your home.
- The use of each room should be defined. A “multi-use” room confuses potential buyers. When you leave things “up to their imagination” potential buyers may not imagine things in a way that leads to an offer.
- Each room should look as large as possible. You are selling square footage. A 1200 square foot home can “feel” like a 1500 square foot home – and the reverse is also true!
- A prospective buyer should be able to easily move about every room in the home. Nothing should be blocking their way to a window. Especially a window that looks out onto pretty landscaping or views.
The Aroma of Home
We are often focused on how a home looks, but how it smells is nearly as 
important. Smell is a very powerful sense that can evoke pleasant – or unpleasant — memories. You want your buyers to feel that “aroma of home.”
- If you have pets, it is best to have a friend or family member take care of them – or board them – while you are selling the home. If this is not possible, be sure to have somewhere they can safely stay (like a carrier or penned-in area) during showings.
- We get used to the smell of our pets. The smell of a home is very important. I have personally seen buyers walk out of a
home without touring it because they didn’t like the way it smelled.
If possible, keep the areas that your pet(s) can roam around in to a minimum. - If you smoke in the house, stop now. Like pets, a smoker does not realize how smoke residue smells to non-smokers. Switching to electronic cigarettes is one option.
- Use a pleasant-smelling, but not too strong, plug in. Vanilla, cinnamon, and the like are good options.
- Keep a can of Febreze nearby. A little spray around the rugs, bathrooms, and furniture before a showing can do wonders.
Getting Help
You may want to consider hiring help to clean, paint, and repair. Your real estate agent may be able to recommend some vendors. Otherwise, Yelp, Angie’s List, Thumbtack.com and HomeAdvisor are all good sources. Always get at least three bids for larger jobs. Check reviews and references. See Resources below.
You don’t have to go it alone! Partnering with an experienced Realtor® can help you prepare your home to sell as quickly as possible — for the best possible price.
Shiela Hanlon is a Houston-area Realtor® with many years experience selling residential homes, commercial properties, and land. There are many benefits to working with Shiela. Learn more here.
Resources
https://www.yelp.com/
http://www.angieslist.com/how-it-works.htm
http://www.homeadvisor.com/
https://www.thumbtack.com/