July 2020 Newsletter

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Asking Questions Ensures You Will Get the Answers!

“The most important questions in life can never be answered by anyone except oneself." - John Fowles

However, the most important questions about insurance should always be answered by your insurance provider! One of the most critical steps that an investor must take to ensure the success of their real estate investments is that of obtaining the right property insurance. As your property management company, we cannot advise you specifically on what insurance policy to purchase. Still, we feel it is our job to make you aware of common insurance facts and questions that are important to ask your insurance provider. Failing to know what coverage you have could lead to major financial loss in the future. As part of our mission to “Protect your Frontline so that you can increase your bottom line” we have compiled a list of questions for you to ask your insurance provider. Does my property have the right insurance for an investment/rental property? This is THE key question to ask! Many people do not realize that a normal homeowner’s insurance policy is generally invalid within 30 days after vacating the property and converting it to a rental property. A different policy should be put in place as soon as possible. In addition, the best insurance for a rental policy will give you additional coverages, such as loss of rent. The type of insurance coverage for landlords generally falls under the umbrella term “property and casualty insurance”.

What type(s) of insurance do I currently have on my rental property? Building coverage, hazard, and fire insurance, as well as liability insurance, are always needed for the physical property. However, there are additional insurances that can be carried, depending on the location of the property, the age of the property, and other extenuating factors. Other insurances to investigate are flood insurance if you are in a flood plain, sewer backup insurance, workman’s compensation, terrorism insurance, and loss of income insurance. Question your current insurance provider on what other policies are available that would be appropriate for your investment and worth the cost. A big key to obtaining the right insurance is to give your provider ALL the facts – age of the property, condition, area problems, special use, etc. It is very important to be specific on what “type” of investment property you have (for example, condominium, single-family, apartment etc.). Most landlord insurances are for 1-4 units and multiple units above this number are handled on a different basis.

I have outbuildings on my rental property, are they covered? Most policies generally do not include additional structures, unless specified. This is another reason why you need to disclose all the information to your insurance provider and obtain quotes. Is my property covered for loss of rent? Covering rental loss, under the right circumstance (such as a building fire), is one of the pressing reasons for obtaining a good landlord/rental policy. There is no coverage for tenants giving a standard notice to quit and vacating the premises. However, it may cover vandalism during an eviction or vacancy - but you need to ask. Have your agent discuss in detail the paragraphs in your insurance paperwork which pertain to vacancies/income loss and what is your actual coverage. Is my property covered for disasters such as fire, tornado, hurricane, tsunami, flood, and more? Normally, most natural disasters are not covered. However, the insurance company may make a determination that many damages are covered. For example, although a flood isn't covered, there may be coverage for "water damage." Another example, a house fire is usually covered for damage as long as the landlord has not shown neglect which caused the fire. The insurance company will have a list of criteria for what is and what is not covered for extreme conditions under the existing policy. Again, find out the facts, ask questions. How can I reduce the cost of my landlord policy? Landlord insurance is more expensive than a homeowner policy and the main reason for the increased cost is that a landlord doesn't have any control over a tenant's actions, implying additional elements of risk. In spite of the higher cost, landlord insurance can be made more affordable through discounts for having security alarms, especially monitored ones, burglar alarms, deadbolt locks, and fire extinguishers. Ask your agent for recommendations on cost-saving items you can do. Remember, landlord insurance IS worth the cost.  It is of utmost importance and your responsibility to consult your insurance provider regarding your coverage. It is also part of your contract with us that you provide our company with proof of insurance. There are many insurance companies and plans available and it pays to compare coverage. If your agent cannot spare you the time to answer your questions, seriously think about shopping for another agent and/or company. Review your policies at least once a year, require that your agent provide you with the facts, and take out the best possible policy for your specific investment property to protect your investment.

Do I need different insurance for my condo if the HOA has insurance for the building? Typically in a condo development, the HOA or COA carries an insurance policy for all of the buildings, common areas, etc. however a misconception is that the individually owned units are covered under the community’s insurance policy. Generally speaking, the governing documents will list the areas covered and, usually, that is defined as "studs out" or "sheetrock out" coverage of the building. The owner is required to carry a policy that covers the owner’s individual unit's fit, finish, and contents. The policy is commonly known as an H06 policy however some insurance carriers call them by condo policy or something similar. The easiest example would be, in the event of a catastrophic loss such as a fire that destroys a building within the community. The community's insurance policy would pay to rebuild the entire building however the owner of the individual units would be responsible for finishing out the interior of their unit. The construction company would either get the interior to the "frame stage" or the "sheetrock stage" depending on the governing documents and then the owner is responsible for finishing out the interior of their unit.     While obtaining this much information may seem overwhelming it is important to know what your policies cover and what they do not. By asking these questions you will be able to identify any gaps within your coverage in order to ensure the future success of your portfolio no matter what uncertainties life throws your way.

Jay Hartley MPM®, RMP®  Owner - Managing Partner Office | 817.377.3190 Direct | 817.288.5546 Cell | 817.308.1309 Frontline Property Management, Inc. 3000 Race Street, Suite 132 Fort Worth, TX 76111 Visit our Website

Personal Development How to Maintain Motivation in 3 Simple Steps

Here’s the thing. If you do everything else right—you have a strong “why” (a strong reason for doing this), you have a plan in place, you’ve got good deal flow coming in, you’ve got your process in place, you’re analyzing deals, you’ve got a source of financing—and everything works, you still may not end up buying anything because of your lack of persistence or motivation. And that’s not a dig on you. I’m the same way. How many times have you started a diet and then failed at it? How many times have you started a new fitness thing and failed or a new business venture and failed at it? Not failed in a crash and burn way, but failed simply because it just slowly died out because you lacked the motivation to continue. In real estate, you may have to work a long time before you land your first deal. And so you can't just rely on landing deals to build motivation. You've got to rely on something else. So, let me give you three ways to build motivation and stay persistent. 1. Mastermind Groups: A mastermind group has been super influential in my life. I’ve been a part of a number of them. Some have been wildly successful because we’re consistent with it. Others have fallen apart because we were not consistent with it. So you want to get into a good group of people, who are consistent and persistent about meeting together and holding each other accountable. 2. Practice Journaling: The second thing that I do to maintain persistence long-term is to journal every single day to track what I’m doing. I’m not talking about like, “Dear diary, today was a horrible day.” I’m talking about tracking in a journal. I don’t care if you use mine or somebody else’s, but journaling—or tracking your actions—is something that’s important. In it, I write my goals. What is goal number one? What is goal number two? What is goal number three? And then for each goal, what is my weekly objective for that goal? What’s going to keep me on track on that goal? And then, what’s your most important next step?

I call that “MINS,” my most important next step. In other words, what do I have to do today, right now, to get me closer to my week, which is going to get me closer to my goal. What’s your schedule look like? Did you drink water today? Did you work out today? Did you read today? What are you grateful for? I also track my habits on a regular basis. I track all of my habits. Did you read 10 pages today? Did you exercise today? Did you meet with your team today? So, in my journal, there’s a habit-tracker in here, as well. And again, I don’t care if you use mine or somebody else’s journal or if you create your own. But having a regular journal to track your progress is huge.

3. Performance Coach: And finally, the third thing that’s been really influential in my life is having a performance coach. Again, I don’t mean $20,000, $30,000, $40,000 coaching. I’m talking about a performance coach. Now, they are not cheap. They might cost you several hundred dollars a month. I’ve heard of coaches costing several thousand a month.

And maybe you’re not at that level yet. That’s fine. The first two options on this list are super cheap or free. This third one, I pay for performance coaching, because now it’s just like the mastermind. Somebody is holding me accountable. But instead of a group, it’s one person every other week saying, “Brandon, last time we talked, you said you’re going to do A, B, and C. Did you do it? Why not? Let’s go deep. What happened in your childhood that made that not possible?” Like, they go really deep. A performance coach helps you identify your goals and your “why” and keeps you accountable to that on a regular basis.

Real Estate Investing Basics 5 All-Too-Common Rental Property Emergencies Plus, How to Prepare for & Prevent Them!!

If you own rental property, your job might seem never-ending at times. As soon as you unclog a toilet or finish repainting a unit, another project springs up out of nowhere. While deterioration and maintenance is a regular part of the job, sometimes you might feel like you just can’t get ahead. Even when keeping everything in tip-top condition, dilemmas and crises can occur at any moment. What’s worse is these emergency scenarios have a way of creating even bigger setbacks in terms of both money and time. To ease the burden, be ready to address them. Here are a few emergency scenarios you can and should prepare for in advance. 1. Gas Leak: If a tenant complains of an odor of rotten eggs in his or her apartment, it may signal a gas leak. Failing to address the issue could result in a gas explosion or carbon monoxide poisoning—as well as lawsuits, fires, and expensive repairs. Obviously, this emergency requires your immediate attention. The best way to prepare for this scenario is to provide your tenants with their gas company’s contact information. Instruct them to call the company if they experience a gas leak. Have this information on hand, as well, just in case your tenant is unable to call or not home when the gas leak occurs.

2. Fire: In 2018, there were 86,500 apartment fires, accounting for 17% of structure fires. While the likelihood of one occuring on your rental property is low, you should still have a plan in place in case there is a fire. Doing so can improve emergency response time, saving your building and the lives of your tenants. Prepare tenants for such an emergency by requiring them to have renters insurance and memorize escape routes. Placing escape maps in each unit and holding annual fire drills can also help your renters better understand what to do in the case of an apartment fire. Moreover, you can prepare yourself by installing smoke alarms, providing tenants with fire extinguishers, and testing outlets regularly. 3. Power Outage: In most cases, you probably don’t consider power outages emergencies—although your tenants might feel differently. For instance, in the case of extreme weather or a blown fuse, an immediate response isn’t necessary, especially if the outage occurs after hours. However, your tenants who live to watch Netflix and can’t stand their phone battery dipping below 50% might demand immediate attention. In most cases, fixing a late-night outage like this can wait until morning. However, if a power outage results in a stuck garage door and your tenant must open the unit to retrieve their car, you must respond quickly and show them how to manually open and lock the garage door safely. Additionally, you’ll have to reset the door once the outage is over. However, you can prepare in advance for such a situation by walking tenants through these processes when they first move in.

4. Flooding: Hurricanes, tsunamis, and torrential downpours can happen at any time, especially if your rental property is in an area where these extreme weather patterns frequently occur. If water infiltrates your property and floods units, you’ll want to act quickly to prevent mold growth, which can cause allergic reactions and illnesses. A fast response is also important in avoiding structural damage—something that can cost thousands of dollars to fix. Prepare for floods by having the number of a plumber and electrician on hand at all times so you can call them at the first sign of trouble. You can also work to prevent floods by periodically cleaning gutters, updating plumbing systems, and even using sandbags if extreme weather is in the forecast. 5. Inoperative HVAC: Often, failure of the air conditioning system or heating isn’t a pressing emergency. Most people can live in mild discomfort for a few hours or even overnight. However, if it’s incredibly hot outside and the AC stops working or it’s a frigid winter and the heat malfunctions, these do qualify as emergencies. Without a working HVAC system, tenants—especially the aging or those with health conditions—can easily freeze or overheat. As HVAC systems do tend to malfunction in extreme temperatures, it’s important to prepare for these emergency scenarios before they occur. Have an HVAC repairman whom you can call to repair the system on short notice or learn how to repair issues yourself to respond to tenants quicker. When it comes to your rental property, it’s generally better to be safe than sorry. Simply assuming nothing will ever go wrong is a recipe for disaster because, inevitably, an emergency scenario will arise at some point. Therefore, it's important to have plans in place for multiple situations. Doing so enables you to respond faster, which can save lives in the event of a fire or gas leak. Plus, quick response times may reduce the amount of damage to your property, saving you time and money on repairs. Moreover, you'll likely please tenants, encouraging them to renew their lease year after year, providing them with a quality home and yourself with a stable income. It's a win-win!

Do Landlords Need an LLC for Rental Property?

If you are a real estate investor or thinking of becoming one, it is imperative that you understand the legal issues involved in order to protect your assets. One of the most important decisions you have to make is the legal structuring of your real estate business—or what is more commonly known as an LLC. Do landlords need an LLC for rental property? In short, it depends on your situation and your investing goals. How many properties do you own? What states are they in? Are you wanting an LLC’s legal protection, or would it benefit your financing options… or do you just want to sound cool and say you own a company? “LLC” is short for limited liability company, a newer form of business entity that offers benefits that partnerships and corporations do not guarantee. It protects investors from themselves and others.

What Is an LLC? A limited liability company is an entity that you can either own solely or partially. The main objective of forming a real estate LLC is to draw a line between your personal and business assets. This way, in the event that you run into any legal or financial trouble, no one can seize your personal assets to pay off the debts you owe. Likewise, it is difficult to use the LLC’s assets for your own personal gain. The main reason to purchase a property in an LLC is to insulate your personal assets from activities that occur at the property. Meaning, when you hold a property in an LLC and run the LLC properly (this is key!), your risk ends at the LLC should anything occur on the property—like a slip, trip, or fall. Requirements for a Real Estate LLC Opening a real estate LLC requires you to do three things: Keep the property in good repair, which protects you (and your business) from being found negligent should something happen. Hold the title of the property in the LLC. If the property is not titled to the LLC, you do not get to benefit from the legal structure of the LLC. Run the LLC as a business in order to maintain your corporate veil. What does “running the LLC as a business” mean? There are a few standards. It must: Have its own bank account to receive income and pay expenses. Maintain standard bookkeeping records. Maintain corporate records (think meetings and minutes) according to the laws of the state of incorporation. Remain in good standing with the state of incorporation. Not commingle business and personal funds.

LLCs for Rental Property: Frequently Asked Questions Do I Need an LLC to Write Off My Expenses? Not necessarily. Let’s say you attend a business conference in Las Vegas. Even if you don’t have an LLC, you should be able to write off expenses like your flight and the hotel. As long as the expenses are ordinary and necessary as they relate to your real estate business, chances are they will be tax deductible.

Can I Write Off Every Penny I Spend? Having an LLC does not automatically make all your expenses tax deductible. You would still need to be able to show that the expenses are business-related. For example, your cousin is getting married in Las Vegas and you are one of the attendees. You fly there, stay in a hotel, and celebrate the weekend with friends and family. No real estate or other business was conducted while you were there. It just so happened that you opened a new LLC for rental property a few months ago. You might think, “If I pay for the cost of these trips with my LLC bank account, I should be able to write off my Vegas trip.” Unfortunately, you would be wrong. Neither the trip nor any of the expenses are related to your real estate or business activities. How Much Will I Need to Pay? All entities are not created equal. Certain states have high entity fees, and others have high maintenance costs. Before forming a legal entity, make sure that you have a clear understanding of what the formation and annual maintenance costs will be. As with anything in investing and business, it is always a good idea to do a cost-benefit analysis prior to forming a legal entity such as an LLC. Only form a legal entity for your real estate business after you have a clear understanding of what benefit you will be receiving and after you ensure that it makes sense for your specific situation.

Disclaimer: This is designed to provide general information regarding the subject matter covered. It is not intended to serve as legal, tax, or other financial advice related to individual situations. Consult with your own attorney, CPA, and/or other advisor regarding your specific situation.