I have been carrying the liability insurance on terms deals (buyer can not use the property until paid off) but am wondering if I should change up the contract to have the buyer pay for insurance on more expensive lots. Do you have this convesation during the sales process, or simply have the contract specify buyer must have insurance on the property and how do you enforce? Does it impede your sales process?
@suitedconnector you could handle the insurance the same way you handle the property taxes. If you’re collecting an extra amount each month and managing a little escrow account so you can make sure the taxes are paid, you could do the same thing with the insurance and just bump up the payment a little higher to account for this annual expense.
If you’re dealing with a solid buyer (if you’ve done a credit/background check and you know they’re serious about making the payments), it wouldn’t be hard to write it into the contract and expect them to handle it… but that’s the problem, a lot of these buyers on smaller deals aren’t that reliable (better to just increase their payment and get the money from them each month so you can make sure the bills are being paid when they come due).
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@retipsterseth What do you normally do? Add it to your note payments or require the buyer to provide proof of coverage?
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@suitedconnector I’ve always added these types of costs to the note payments, collected it, and managed the escrow myself. If you do this, be sure you’re keeping very good records about where the money is being held and what the balances are, so you can provide this information easily if the borrower ever asks for it (which they’re entitled to do, since you’re basically managing their money for them).
If you’ve got the right bank accounts set up and your loan servicing agent (or payment collection software) is breaking this out for you as it should, this isn’t hard to do IF you have the whole infrastructure set up right from the beginning.
Most borrowers will never ask for it, but if they do, this isn’t the kind of thing you want to just start figuring out a few years down the road after you haven’t been keeping track of things very well.
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@retipsterseth and @SuitedConnector,
Are you two (and maybe others) buying liability insurance for each of your land parcels that you’re selling on time? Why? What are the risks that you’re insuring against? It’s vacant land, right?
Thank you!
Paul
@retipsterseth I’m just now starting my first terms deal. What kind of things should I be setting up now to save myself some trouble down the road? Sounds like the first step is a separate savings account to hold taxes in escrow? What else? I literally just have an ACH account and that is it at this point. Thanks