Tailwind Talks

My Rental Property Burned Down - I Still Made $100K +

• Cole Baltz • Season 1 • Episode 10

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The unexpected call every property investor dreads finally came my way—a complete fire loss at one of my rental properties. Standing in the charred remains, the acrid smell of smoke overwhelming my senses, I faced the sobering reality that despite owning multiple properties, I had absolutely no experience navigating insurance claims. What followed transformed my understanding of property protection forever.

My decision to hire a public adjuster proved pivotal. Though his 10% fee initially seemed steep, his expertise navigating the complex claims process nearly doubled my payout—turning what would have been a $90,000 settlement into checks totaling $195,000 on a property I had purchased for just $75,000. The financial windfall ultimately funded approximately six new duplexes, dramatically accelerating my portfolio growth from what began as a catastrophic phone call.

This experience taught me crucial distinctions between insurance coverage types. Having replacement cost versus actual cash value coverage made a six-figure difference in my outcome. Similarly, rent loss coverage provided an additional $9,000 for six months of projected lost income. These policy details that I had previously glossed over while focused on acquisitions became the difference between breaking even and substantial profit.

For those hesitating to enter real estate investing due to fear of disasters, consider this: proper preparation makes even worst-case scenarios manageable. The question isn't whether you can perfectly predict and prevent problems—you can't—but whether you've positioned yourself to handle them when they arise. As I discovered, sometimes the most profitable outcomes emerge from the most unexpected situations. The only way to experience this kind of serendipity is to be in the market in the first place, taking calculated risks with appropriate protections in place.

Speaker 0:

I knew eventually it would happen to me and it finally did. I had a property burned down and thankfully nobody was hurt, but I lost the property in the process. I turned a $75,000 property into $190,000 worth of checks and this is exactly how it went down. Property manager reaches out to me and says, hey man, you had a fire last night. It sounds like it's pretty bad. Nobody was hurt. And I was like, okay, at least nobody was hurt.

Speaker 0:

But what do I do with this property now? I've never dealt with this. I've never had to even make one insurance claim before. So what do you do? And they said, go check out the property, see what it looks like and I'll include some pictures here so you can get an idea of how bad this was. But I go and check out the property. I'm like, okay, this, really this guy a bunch. He's awesome, he's a dog, he's going to get after it for you and his name is David. If David's listening dude is awesome. Basically, reach out to him and talk to him about the situation. He'll come out, look at the property. And, sure enough, he came out, I think maybe a couple hours later with me.

Speaker 0:

We walked it together. We smelled like a campfire, after walking in it for 10 minutes burned down, was just covered, so it was a grim sight. Plus, everything had been just totally soaked with water from the fire department and then boarded up. So the property was a mess. But talking to him he was like yeah, basically he's the first person that really explained to me like the insurance company is not looking out for you, the insurance company is looking out for themselves and they're trying to limit the amount of money that they have to pay you because that obviously impacts their bottom dollar.

Speaker 0:

Talking to him through it, I realized, okay, this guy is pretty knowledgeable. He had a huge insurance background, he'd worked in the industry and then he switched over to being a public adjuster for people, and I'm not a huge fan of insurance companies to begin with. So I was like you know what this guy might be good to have in my back pocket so he can represent me, because I don't know all the rules, I don't know all the laws. I didn't even know my own policies. I don't know what I'm insured for, I don't even know what I'm covered for. I just knew I had insurance on these properties. Right, I always have insurance on the properties, but I didn't really do any deep dives into what am I covered against, what am I not covered against?

Speaker 0:

It sounds crazy, but I was just focused on buying more deals and trying to make cash flowing deals and keep feeding the business, and I'm also working a job as a pilot full-time and a military pilot part-time, so my bandwidth was stretched way too thin to be thinking about oh, is this policy like the adequate coverage? I don't know, I thought it was. I had a basic idea of it. I was like, oh, we'll let it ride and that's just the truth. Like I know that doesn't sound super professional to some people, but that's just the truth. When you're managing multiple, like we're going to take care of you, we're going to make sure that you're represented properly, this and that. And he's like, just based on what I'm hearing, I'm guessing maybe $80,000, $90,000 would be the payout for that. And I was like, okay, still a coverage and the value of the property, that's what you're going to get paid out for.

Speaker 0:

And so ultimately I went with the public adjuster. He represented me for 10% of what I got. That was his fee. And it sounds crazy. It's another example of me deferring something till down the road, giving up a little bit of short-term money for a long-term gain. If I had not had him represent me, I would have made, let's say, 90 grand. Had not had him represent me, I would have made, let's say, $90,000. I got a $90,000 check. Having him represent me, I almost got double that Granted. I had to give him 10% of it, but I still came out way ahead. So to me it was well worth his fee and something I think about for you guys. Don't just assume because all this person's services are expensive, you just throw them out the window. They might be really valuable and they might help you get a ton more money.

Speaker 0:

One thing I learned about this, especially for rental property owners, is having your property insured on a cash value versus replacement costs. I didn't know what I had. Thankfully I had everything at replacement costs. That means they're going to pay you out what it would cost to build your house or rebuild it. If it's a total loss in today's dollars, which was huge, there's going to be a limit. But up to the limit they'll pay that out. And for me that was massive because otherwise, if it was a cash value thing, they would have just paid me out what I paid for the property, which was 75 grand. So I would have come out even, but I wouldn't have made any money, and ultimately this whole situation turned into buying more than probably a dozen half dozen, duplexes out of it. So it really fed the business a bunch just out of something that randomly happened and so so looking back at it, I want to make sure everything's at replacement costs.

Speaker 0:

And the other thing that I didn't think about was having rent loss coverage because the person that was living there was displaced out of their home. They're not paying rent anymore and they weren't paying rent anyways. I think they were about to get evicted anyways because they had stopped paying. But the idea is that you're also going to get cover for those lost rents, for the amount of time it would take you to replace and fix the property, and so in this case I think it had been like $9,000 worth of rent payments just for them not being around. I think it was six months worth of rent.

Speaker 0:

That's something to think about. If you don't have those coverages, it might be worth looking at it and seeing how much it would cost to add that or adjust it. I never thought about it until I actually had a fire and that was the wrong answer, like I, little thing warranted. And had I had it wrong, we could have been in a really bad situation. And, on top of that, have insurance, like anybody. That's telling you not to have insurance to try to increase the cashflow is out of their mind, because if something goes wrong, and especially if somebody is hurt, injured or dies in your property, you're going to be in a really bad situation. I don't care how big your portfolio is, you're going to be at risk of losing it all. So really consider that. I know it's a niche topic, but hopefully there's somebody out there that's never had something like this happen and can learn a quick little lesson from me.

Speaker 0:

Like I said, I'll include a bunch of pictures and videos that I have from the property itself what it used to look like to what it is now. But ultimately we got that check for it. We ended up selling the property to the person that bought it from us. Actually, they just bought it back and they ended up fixing it up. All said, I think our checks totaled out to $195,000 on a $75,000 purchase price and we only put about 20% down on that. So you can do the math there and see like it wasn't the worst deal of all time.

Speaker 0:

Anyways, it was totally random. Some of the stuff in this business you can't plan for that. That was probably one of my best gains as far as a profit on a property, and it's off of a total freak accident that I could have never predicted. Nobody can predict, so some of the stuff is just serendipity, and the only way for you to experience this kind of serendipity is to be in the market.

Speaker 0:

So if you're sitting there hemming and hawing, oh man, should I get in? Should I get in? Should I get out? Is the market topped out? Like I got to wait for it to crash?

Speaker 0:

Part of it is just getting your foot in the door. Real estate crashes take years, if not decades, to play out. So if you're waiting to time out the market and buy the bottom, you're gonna be wasting so much time it's not even gonna be worth it. So I would say don't let these kind of fears. Oh, what happens if I have a fire? I didn't know what was going to happen and I just made it up as I went and I'm still doing all right. So I would use me as an example of somebody that's just shooting from the hip, rolling the dice, and it worked out okay. Granted, I had some protection in place. I wasn't just totally unprotected with this property, but that's something that anybody could easily do.

Speaker 0:

So if that's something that's prohibiting you from getting your foot in the door, take this video as a reason to just go for it, because it's going to be fine. And the way I look at a lot of stuff in life is am I the dumbest person to have ever done the thing that I want to do? And if the answer is yes, then maybe it's not for me. If the answer to me is no, then might as well go for it, but a lot of people make it sound like it's rocket science. It's really not, and in this kind of stuff happening. But if it happens and you've been doing all the things that you need to be doing, it's a non-factor. So don't lose any sleep over it. Don't let it stop you from buying a rental property, and I look forward to seeing you guys in the comments and future videos. Thanks for listening, see ya.