Insurance on MH's?


#1

I am considering lending money to a park owner secured by rental homes he owns. He routinely self-insures and has told me that the added expense of all peril insurance on the homes that would serve as my collateral would make the deal uneconomical for him. I am not concerned about losing a home or two to fire, I am worried about the consequence of a tornado setting down in one of his parks and destroying a large number of homes.

Is it common practice to self insure in this industry? Can anyone suggest a work around for this? What is a typical yearly cost for insurance in this circumstance? Assume the homes are worth $6k apiece.

Thanks in advance for your help.

Rick


#2

Rick,

Insurance is only a good investment when you need it. But as a lender you cannot be expected to hang your money out there without a “what if” contingency plan. What if the borrower just insured enough of the collateral homes to cover your principal investment and it could be adjusted every year at renewal based on the outstanding balance of your note.

Sam


#3

I have been searching for ways to reduce my insurance expense on MH park and rental homes. I was given an idea by an insurance agent that I had not considered; have the tennant buy the policy with park as loss payee. It seems to have a lot of merit for customers who are purchasing renters ins. policy as homeowner premium isn’t that big of a step up. Now I realize this would not be useful for bottom of the barrel type tennants, but would anyone else out there consider this method?


#4

We have all park-owned homes insured except the few that are too old for the insurance company’s underwriting. (This is only three homes, and are lonnie-type.) All of our homes are on lease and options, including the above homes, and we require these people to pay for the insurance as well as all other things - stickers, etc.

Our contract clearly says they must pay for insurance, and we encourage them to take their contract to an insurance agent and get their own insurance naming us as loss payee. So far we have had ZERO people do this. We build in an insurance premium monthly, and tell them upon contract signing how much they pay US per month to have insurance that strictly covers our interests. It is clearly in the documents that their payment is $25-$35 more (depending on the home) monthly. (This document is in Ernest Tew’s Investors Toolbox.)

As much as we like to say we are a homeowner’s community, realistically we have renters. Although we know that some percentage (to be determined) of our buyers will actually fulfill their contracts, many will not. We just had a young lady move out of the home she bought almost two years ago - when Jim first got to Arrow Woods. She had paid almost 1/4 of the home off, including a $1,000 non-refundable option deposit. He now has to do everything in that home that a landlord has to do when re-renting. The same damages are there that Ryan described in his rental home he got back. (The carpet in the bedrooms is disgustingly dirty.)

So, in Alabama our tenants can get their own insurance that will cover us. In Florida that is not the case. When we started in this business they could. Immediately after the hurricanes came through the insurance companies stopped allowing this - we had to carry every policy. Our Florida experience told us that we would NEVER not have insurance - we lost too many mobile homes. Our insurance policies paid off nicely so we were definitely whole. Not only that, we gave our tenant/buyers all additional monies we received above what we were actually owed for the homes. After all, they were the people paying for the policies, and this helped them get a new start after their homes were ruined.

Bottom line: if I was lending a significant amount of money I would expect my money to be protected.