Using Hard Money to Solve Florida Home Insurance Issues

By Minsok Oh | LinkedIn

Put simply, insurance is a problem in Florida. In many cases, premiums have gone up 3x since pre-covid.  Going into 2024, the insurance landscape continues to be uncertain – premiums continue to rise, and many owners are not able to obtain insurance. Below, we will take a deep dive into the complexities of Florida insurance problems and examine how using hard money may solve real estate investors’ insurance problems associated with properties that are owned free and clear.

Here are the key problems:

1. High Premiums: Florida’s susceptibility to natural disasters, in particular hurricanes, has resulted in a spike of insurance premiums. Some insurers have left the state, and others’ risk appetite has decreased, leading to increased costs for property owners. These rising premiums are becoming unaffordable for many investment property owners when coupled with ever increasing taxes and maintenance expenses.  Although market rents have risen, they have not kept pace with soring property expenses, most notably insurance costs.

• Insurance Gaps: Insurance policies often have complex structures, and coverage gaps (which are often unknown due to a substantial amount of fine print in insurance policies) result in significant risk for property owners. In fact, some owners may find themselves underinsured and not even aware of it.  Many real estate investors with property damage only find out that they have an ineligible claim long after the property damage has occurred.
• Getting Paid Out: Even if your insurance claim is thought to be covered, the process of actually getting your money can be drawn out and is far from guaranteed. Delays are very common, as the insurance company may request various due diligence documents and look to schedule time consuming inspections.  Furthermore, particularly for larger claims, the insurance company may look to challenge the legitimacy or dollar amount of the requested claim.  Meanwhile, as you are dealing with the insurance company, you may be incurring a host of legal fees, and other administrative expenses.

Here is how Hard Money Lenders can help when dealing with Insurance.

1. Quick Capital for Repairs: Hard money lenders in Florida, such as West Forest Capital, can give you a loan in a matter of days. In the aftermath of a disaster, immediate funds are crucial for property damage control.  Hard money loans can be used to pay a contractor to make quick repairs and not risk further damage to the property.  A quick repair on a rental property also has the added advantage of keeping your tenant in place and not paying for an alternative temporary housing situation, such as a hotel.
2. Bridge Financing for Insurance Claims: While waiting for insurance claims to be processed, owners often face financial strain due to lost rents, or a major reset of a construction schedule.  (For example, you have just completed 75% of a property rehab, and the property is damaged, negating much of the work.  Now, your contractor needs to be paid twice, and you have lost months of time).  Hard money loans can therefore be a financing bridge to immediately pay the contactor, and once the insurance money is received, the hard money loan can be repaid.
3. Flexibility in Use of Funds: Unlike traditional financing options, hard money lenders are not focused on the specific purpose of the loan.  That is, provided the collateral has sufficient value, the loan proceeds can be used for anything. This flexibility allows investment property owners to allocate funds where they are most needed:  repairing property damage, legal fees when dealing with contested insurance claims, or other uses of funds which don’t even need to be associated with the property used as collateral.
4. Insurance Associated Financial Stress: After an insurance-triggering event, the insurance company may immediately raise premiums even before the claims are paid out.  Furthermore, if your property is in an HOA, the association may implement an assessment for all property owners that must be paid to mitigate future insurance events (for example, mandating hurricane proof windows or replacing the roof).  In either situation, a hard money loan will allow for a lump sum payment that will help cover the extra capital requirements.

To be sure, hard money should not be the first consideration for real estate investors with insurance issues in Florida.  The loan interest rates are on the expensive side, around 12%, and the loan must be repaid within a year.  Rather, hard money loans should be thought of as an option – perhaps an emergency option – that is available to real estate investors who own their property free and clear. 

If you have any questions on how a hard money works, or if you have a specific insurance related situation to discuss, do not hesitate to contact us.  We’ve seen just about every scenario and are confident we can help you deal with any insurance issues you might be having with your Florida real estate investment property.