Save Your Properties Value With A Fire
When considering wether or not to file an insurance claim on a property, it may be worth while to run the numbers before doing so. In this instance it may save our client over $300k+ on the eventual sale, from a small $18-$20k renovation.
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Cost To File A Claim vs Out-of-Pocket Cost
In this particular case, there was a fire that took out one unit. The majority of the damage was limited to one bedroom and bathroom, but there was smoke damage throughout the unit so it needed a complete renovation. The total expected cost for this particular case was around $18-$20,000 to complete the job.
If you were to file a claim to get this work covered by insurance, you would likely see a hike in your insurance cost due to now having a fire claim on record. As of recently, insurance costs for multifamily properties in DFW has averaged about $450/unit/year. With a fire claim, our insurance professional that we are in close contact with has informed us that it could likely hike that cost up to around $600/unit/year. On a 150 unit property, that is an increase of $22,500/year in expenses. If you take that and divide it by a 7% capitalization rate, you are looking at a -$320,000+ hit to your eventual sale value.
From this perspective, it makes a lot of sense to use funds from your Capex budget to remediate this unit. Every case is different and varies dramatically in cost, but it may be worthwhile to weigh your options when confronted with a similar situation.
Before & during the initial demo.
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