Real Estate Investing – Roofs and What They Mean to You

Typically when we think about The Year of something, we think of Chinese calendar years.  They refer to animals such as the Year of the Monkey or the Year of the Tiger.  In this case the Year of the Roof has nothing to do with Chinese calendars.  However, it could be the beginning of a new and shocking reality in real estate investing, especially for rehabbers.

Earlier today I got a call from a very successful rehabber who was lamenting something we had never seen.  It seems the investor had sold one of his rehabbed properties.  The inspection had been completed.  He was headed to the closing. On the way to the closing a not-so-funny thing happened. The insurance carrier for the homeowner's policy called.  They asked for the "age" of the roof to be verified.  It seems they didn't want the inspector's estimate of remaining life.

The age of the roof can be verified by the contract with the roofer.  More accurately it is done with a closed out permit with the city.  However, some cities don't keep records past a specific number of years.  So let's say that 10 years ago a roofer installed a shingle roof with a 25 year life.  Logically this should mean the roof has about 15 years remaining as a useful life.  But this is not the case because the roof's guaranteed life is subject to a depreciated replacement credit as the roof ages.

The insurance company in this case had decided that roofs are a substantial source of their claims.  Not claims for the roof itself, but for damage to contents when the roof fails (leaks).  However, an insurance company inspector will typically give the homeowner a credit to repair his roof instead of replacing it.  The insurance company mentioned above had taken a different tact.  I suspect that it has to do with the average amount of time homeowners stay in their property.  Currently it is about 5 to 7 years nationally.

If the insurance company accepts a roof with 10 years of remaining life, this life span is usually an estimate by an independent contractor.  And it is not a contractor chosen by the insurance company.  History has told the insurers that their probability of water damage to the home's content is very high after 3 – 5 years.  These claims average over $15,000.  It can be much higher if structural damage results.

The average rehabber faces a huge expense if he has to replace the existing roof on his rehab project.  In fact, the roof replacement is usually the largest single cost in a rehab.  In the past, it was very simple to just overlook this potential problem or patch minor leaks.  What if an insurance carrier won't insure the property unless it has a new roof?  Many rehabs start out with a budget.  Hopefully their expenses stay within the forecasted limits resulting in a profit for a rehabber.  But if permits have to be pulled for a new roof, the extended rehab time can double or even triple total completion time.  As a result, there is an increase in carrying costs.

In summary, if you are rehabbing a property, you should take into account the possibility of having to replace the roof.  Do this even if it looks good and there are no leaks.  As a distant second option, see if you can get a licensed roofing contractor or engineer to specifically "attest" to the remaining years of the roof's life expectancy.

change your life mentoring click button j 300x236 1

To your limitless success,

Dave Dinkel

Real Estate Mentor Program Founder

Visit davedinkel.com for full privacy policy, terms of use, etc.  Be sure to contact us through the website at davedinkel.com if you have questions or concerns ([email protected]).  Results mentioned in this presentation and any video, article, and/or material related to Dave Dinkel and his associated businesses are not typical nor are a guarantee of any earning potential.  No advice is to be construed as legal, accounting, or professional advice EVER.  Please consult related licensed and qualified professionals before taking any action.  No person(s) mentioned in the articles and /or shown on videos received compensation in any form for their opinions.

Real Estate Investing – Roofs and What They Mean to You

Typically when we think about The Year of something, we think of Chinese calendar years.  They refer to animals such as the Year of the Monkey or the Year of the Tiger.  In this case the Year of the Roof has nothing to do with Chinese calendars.  However, it could be the beginning of a new and shocking reality in real estate investing, especially for rehabbers.

Earlier today I got a call from a very successful rehabber who was lamenting something we had never seen.  It seems the investor had sold one of his rehabbed properties.  The inspection had been completed.  He was headed to the closing. On the way to the closing a not-so-funny thing happened. The insurance carrier for the homeowner's policy called.  They asked for the "age" of the roof to be verified.  It seems they didn't want the inspector's estimate of remaining life.

The age of the roof can be verified by the contract with the roofer.  More accurately it is done with a closed out permit with the city.  However, some cities don't keep records past a specific number of years.  So let's say that 10 years ago a roofer installed a shingle roof with a 25 year life.  Logically this should mean the roof has about 15 years remaining as a useful life.  But this is not the case because the roof's guaranteed life is subject to a depreciated replacement credit as the roof ages.

The insurance company in this case had decided that roofs are a substantial source of their claims.  Not claims for the roof itself, but for damage to contents when the roof fails (leaks).  However, an insurance company inspector will typically give the homeowner a credit to repair his roof instead of replacing it.  The insurance company mentioned above had taken a different tact.  I suspect that it has to do with the average amount of time homeowners stay in their property.  Currently it is about 5 to 7 years nationally.

If the insurance company accepts a roof with 10 years of remaining life, this life span is usually an estimate by an independent contractor.  And it is not a contractor chosen by the insurance company.  History has told the insurers that their probability of water damage to the home's content is very high after 3 – 5 years.  These claims average over $15,000.  It can be much higher if structural damage results.

The average rehabber faces a huge expense if he has to replace the existing roof on his rehab project.  In fact, the roof replacement is usually the largest single cost in a rehab.  In the past, it was very simple to just overlook this potential problem or patch minor leaks.  What if an insurance carrier won't insure the property unless it has a new roof?  Many rehabs start out with a budget.  Hopefully their expenses stay within the forecasted limits resulting in a profit for a rehabber.  But if permits have to be pulled for a new roof, the extended rehab time can double or even triple total completion time.  As a result, there is an increase in carrying costs.

In summary, if you are rehabbing a property, you should take into account the possibility of having to replace the roof.  Do this even if it looks good and there are no leaks.  As a distant second option, see if you can get a licensed roofing contractor or engineer to specifically "attest" to the remaining years of the roof's life expectancy.

change your life mentoring click button j 300x236 1

To your limitless success,

Dave Dinkel

Real Estate Mentor Program Founder

Frequently Asked Questions

1. What Should I Do If a Seller Ghosts Me?

If you feel you have been ghosted, act decisively and quickly. If you have tried texting and calling, it's time to drive by the seller's location. I always take the recorded Notice of Interest or Memorandum of Contract to leave, so the seller knows it exists. Go by at a time when you know they will be there and don't be confrontational, just get the facts.

In our experience with new investors, the chances of losing a deal with no contract is likely over 85%. Verbal commitments do not apply in contract law; get everything in writing, especially contract changes.

Different 'gurus' have different opinions, but our experience is finding motivated sellers and then a buyer for your deal. Ideally, you should be finding motivated buyers from day one, so you are ready when you find a seller. Buyers are easier to find as you can see at https://davedinkel.com/products/

Prevention only comes about by thinking a Black Hat wholesaler will be coming after your deal. First, educate the seller that an unscrupulous investor may come by and illegally offer more money, have the seller sign your "Notice to Homeowner," stating that he understands he cannot accept another offer.

There is nothing illegal about changing their mind, it is called seller remorse and occurs about 25% of the time. However, if they have signed your contract, it can't be cancelled for any reason unless acceptable to the investor/buyer.

If price is an objection, you need to find out how important it is to sell fast and for cash. If the seller isn't under a time constraint, has a money issue, or has a personal dilemma, he may not agree to the price you need. Offer to help move and build it into your price before you make your offer. However, never give the seller money; only pay the moving company, and only after closing (escrow with a closing agent). If fear is the seller's issue, break it down into what the real problem is and answer their objections one at a time.

You can get to the root of motivation for a seller by asking a few questions. First, "Why are you selling?", "How soon can you close?", and Are you ready to sign an AGREEMENT today, if not, what do I have to do to make you comfortable?'. The answers to these questions will determine the truth about your seller's motivations.

The best times to involve your attorney in your deals are to have him review your contracting, review the signed contracts from the seller and end buyer, have him open escrow and start the title work, negotiate with city or counties for lien reductions or mortgage payoffs with lenders, and to close the transactions." Your attorney is not the adversary; it's the opposing party's attorney who is a deal killer, and having your attorney allows him to help overcome this obstacle.

The key to successful prospecting and bringing back deals that didn't close is to follow up until the property is transferred in the public record. Some of our deals have been where the seller came back to us months and years later because they felt comfortable with us and not the other "pushy" investors who contacted them.

Your contract's most important clauses are inspection period (as long as possible), when the EMD must be deposited if at all, your ability to access the property, any added clauses specific to the property that will protect you against seller claims later that were verbal only.

Visit davedinkel.com for full privacy policy, terms of use, etc.  Be sure to contact us through the website at davedinkel.com if you have questions or concerns ([email protected]).  Results mentioned in this presentation and any video, article, and/or material related to Dave Dinkel and his associated businesses are not typical nor are a guarantee of any earning potential.  No advice is to be construed as legal, accounting, or professional advice EVER.  Please consult related licensed and qualified professionals before taking any action.  No person(s) mentioned in the articles and /or shown on videos received compensation in any form for their opinions.