After the decision -making process laid out in last month’s article, our home was selected and it was decision time; self-insure… or not.
I decided to self-insure, purchasing the home in the Keys in April 2012 and subsequently transferring a property I had owned for a few months into my Insurance LLC. All was well until August 30, 2017, five years after I bought the Keys house.
A “tropical wave” off the coast of West Africa became a Category 2 hurricane and was named Irma. She danced her way across the Atlantic, eventually becoming a Category 5 storm as she approached Cuba. As all Florida Keys residents do, my wife and I kept constant storm watch using our iPhone weather apps. In the early hours of September 10, the models had Irma passing east and north of the Keys, but as the hours passed, the models changed their predictions and soon showed Irma heading directly toward our Island. By that afternoon, it was obvious that we were going to take a direct hit.
Don’t think I wasn’t second guessing my brilliant analysis. The eye of the storm had my name on it! Too late to reconsider now! From the safety of our home in New Mexico, we watched our Keys home via a remote camera system as the storm began. At 9 PM, 12 hours before Irma’s eye slammed the Keys, we watched coconuts and 2×4 fence planks fly past the camera like paper in the wind. Our normally dry front yard looked more like the shallow Caribbean water that surrounds the Florida Keys. There were foot high waves crashing into the jungle in the next lot. The street was pulsating with “stuff” ranging from boats to appliances to lawn chairs, all being blown down the street by the 80 mph winds. Then, Irma snuffed out the power and the camera system went dark. For the next 5 days we were blind and deaf.
At dawn on September 11, Hurricane Irma made a direct hit on Cudjoe Key, about 15 miles from my home on Ramrod Key. The eye of the storm was about 20 miles wide with 130 mph winds. She proceeded directly over my house. Later that day, Irma waltzed back out to sea and in her wake left thousands of Keys residents without power, water, internet, roads and amenities. 5 days later, when cell service was restored, I got a call from my friend and team-member-contractor who took the time, in spite of the mayhem, to have a look at my house and assess the damage: $15000 – $20000.
How did I do? During the 5 years elapsed since I bought the house, I had collected about $28000 in net rents from my insurance home. That covers the damage. Both properties have probably appreciated but not enough to worry about. I still have “Day One” appreciation in my pocket and have not paid any taxes on it, unlike the rent. I’m still depreciating these appreciating assets thanks to Uncle Sam, so let’s say that I did OK. It would be nice to declare victory, but now Hurricane Marie and another tropical storm are bobbing and weaving in the Atlantic. The hurricane season has 2 months left, and that’s just this year!
What’s the point of all of this? Well, this was my first direct experience with a hurricane, so I had to share it with someone! But seriously, it showcases the power and flexibility of real estate. In the real estate market, there are ALWAYS opportunities that can be had significantly below market value. ALWAYS. No matter what the market is doing, there are always, in every community, properties available below the market to those who are willing to commit, to learn and to take planned action. What you do with your fortune is up to you. I chose to take some risk and use the money that could have protected my investment in order to invest. I’m a risk taker.
For us wholesalers and flippers, “Day One” equity is the key to prosperity. At OTA Real Estate we teach how to find properties that few people know are for sale. We seek to eliminate competition by finding these off-market properties. Only then can we consistently have profit margins that allow us to wholesale or flip. That equity is what pays the bills as wholesalers and flippers. Or hedges the risk, as in this example. If you let your imagination run, I assure you that YOU can think of plenty of ways to use “Day One” equity.