Does Wall Street Actually Protect Your Investments?
Protecting Your Investments
There is one significant advantage that investing in real estate provides over wall street provided investments… true protection.
Investing in real estate is a great way to generate a steady income stream and build wealth, but it’s also one of the few investments protected by insurance.
More so, investing in real estate comes with TWO types of insurance protections: property insurance and title insurance. When one of my partners decides to invest in real estate through Blue Bay Fund I, there is an essential type of insurance that provides protection that is not available to real estate buyers.
From a passive investor’s perspective, this is a great thing to know. It gives them confidence and builds trust that their invested capital in Blue Bay Fund is the safest investment they can find. This ensures that whatever opportunity my investors are participating in, they are correctly and fully protected, with the total weight of the courts backing their interest in the investment.
Let me share these three types of insurance coverage so that you know what questions to ask when considering investing in an opportunity through the fund or on your own. I will also cover each of these insurances
Property Owners Insurance
Liability | Property | Flood | Business Use
Knowing what types of insurance coverages are available and knowing what those limits are is essential in ensuring your investments into real estate are protected.
Property Insurance Coverage:
Property insurance coverage is also essential and what is most often thought about when pursuing real estate insurance. It covers the costs of repairs to the building and related structures due to fire, hail, lightning, theft, and other perils. This coverage will help ensure that your investment is protected in a disaster.
Being in Florida or any other state that has exposure to “Named Storm” events, investors must know when these types of insurance can be obtained. If an investor has gotten insurance
* When my partners join Blue Bay Fund I, they can participate on the Lender’s side of property insurance. What does this mean? Because we make a loan, we make the rules like the bank. When you buy your house, the bank requires you to have enough property insurance to cover your loan so that if the property is destroyed, the bank gets paid back its loan first. When you invest in loans, through Blue Bay Fund I, secured to real property, you invest the same way banks do. Just like banks, we make rules, and someone else must pay for our protection.
Liability Insurance Coverage:
Liability coverage is one of the most important ways an insurance company protects real estate owners’ interests. It protects the property from legal fees or settlements from claims against it.
This includes claims of negligence or other dangerous behavior that may prove harm to tenants or visitors. Liability coverage is essential for any real estate, especially investments.
Property owners should consider purchasing liability coverage even if the asset is not inhabitable due to construction, even if the contractors working on the property have coverage. Owners never know if a nosey neighbor is peeking around and hurting themselves. We are a nation of lawsuits, so protecting your investments through liability insurance coverage is necessary!
* Just like property insurance, an investor who invests in Blue Bay Fund I, is also protected from lawsuits and frivolous claims. This is because we require that liability insurance be purchased by the property owner, our borrower. When the owner purchases this coverage, we inherit those protections through a legal process called the “Mortgage Clause”. What other investment can you passively invest in where someone else pays for your security and protection?
Flood Insurance Coverage:
Property flood insurance is not required for every asset. However, it’s very important that the owner or buyer of a property understand the flood zones in the local area and whether their property is located in a flood zone. Should the property flood and no coverage be purchased, the owner may be liable for losses and damages, and the insurance company will not be required to cover that loss.
This can be a sticky issue, especially in states that have low elevation points (sea level), large swaths of low ground (marshes and swamps), and flood-prone areas (river edges, ponds, and lakes). Fortunately, Florida has you covered…. we have all of them! Not every spot in Florida is a flood zone, but the simple solution is to ensure you have flood insurance.
Note: Flood insurance DOES NOT cover named storm insurance, nor vice versa! If you have a property with “Named Storm” coverage, which covers hurricanes and tropical storms, and the hurricane sweeps through your area, and maybe your property had NO DAMAGE, yet because it sat in a low area and was flooded, you may be out of luck! There is a high chance your insurance coverage will not extend to flood damage because the storm did not directly cause the damage, but the flooding!
* For Blue Bay Fund I investors, this is another benefit. You have the advantage of being on the lender’s side of this insurance coverage. We have a proper report conducted on the property to make sure that if the property is in a flood zone or within 5 miles of the coast, we can require the owner to place flood insurance on the asset before we approve the loan. Again, one more way you are beyond protected when investing in loan opportunities through the Blue Bay Fund I.
Business Interruption Insurance:
Business Interruption Insurance is a critical protection for real estate, especially properties with renters. This type of insurance covers losses due to an insured peril, such as a natural disaster, that interrupts or prevents normal business operations.
This insurance can be used to cover lost income, additional operating expenses, and the cost of hiring temporary staff to help return the asset to normal operations. Without business interruption insurance, losses to an asset's cash flow and performance would greatly diminish the returns provided to investors.
*If you guessed, there is a huge benefit to investing in loan opportunities through Blue Bay Fund yet again! Because we require this type of coverage on any asset that will be used as a rental, we are ensuring that should a disaster happen, and the tenants are not able to live in the property and keep the cash flow coming in, the insurance company will actually pay US, the lender, our interest every month! Guess who pays for this powerful protection? The property owner, our borrower.
Title Insurance
Title Insurance: Why its necessary
Whatever it is, the way you tell your story online can make all the difference.
Owners Title Insurance:
Owner's title insurance is a type of insurance that protects homeowners from financial loss due to problems with the legal ownership or title of their property. Here's a breakdown of what it is and why it's important:
Protection against surprise claims: Imagine buying a house and later finding out someone else has a legal claim, maybe an heir who wasn't properly included in the previous owner's will. Owner's title insurance would cover the legal fees and any financial loss you might incur if this happened.
Typical issues covered: There are various situations where title insurance can help. Here are some examples:
Errors in public records: Mistakes happen, and sometimes, the public record showing ownership history is wrong. Title insurance can help clear up these errors.
Unpaid taxes or liens: If there are outstanding taxes or liens on the property from a previous owner, title insurance can help resolve those issues.
Forgery or fraud: In rare cases, someone might try to sell a property they don't actually own. Title insurance can protect you from such situations.
One-time cost, long-term benefit: Owner's title insurance is typically a one-time cost paid during the closing process of buying a home. While it may seem like an extra expense, it provides valuable protection for your property investment throughout the time you own it.
Lenders Title Insurance:
Lender's title insurance is a type of insurance that protects the lender, not the borrower, in a real estate transaction. It safeguards the lender's financial interest in the property in case any issues with the title arise after the closing. Blue Bay Fund requires Lenders’ Title Insurance on every property we lend. Guess what… the borrower pays for this protection!
Here's a breakdown of how it works:
Protects against title defects: A title defect is a problem with the legal ownership of a property. It could be anything from unpaid taxes to an undisclosed heir with a claim to the property.
Blue Bay Fund's stake is covered: If a title defect comes to light and is legitimate, our lender's title insurance will cover the loss we incur up to the loan amount. This could involve covering legal fees or even having to take ownership of the property if the legal ownership cannot be cleared.
Required for our mortgages: In every case, Blue Bay Fund I will require our borrowers to purchase lender's title insurance to get loan from us secured to the underlying asset. The borrower pays for the cost of the insurance at closing.
Here's an analogy to help you understand it better: Imagine there is a real estate investor buying a plot of land to build a new home on. Blue Bay Fund’s lender's title insurance is like insurance for our loan, which we place on the property title until the loan is paid off. It protects our financial interest in the property in case there is a problem with its ownership, like the previous owner, who was an estate and had an heir come forward and claim they were not notified through proper channels.
There are two sides to real estate investing, owners and lenders. Owners operate from the Equity side of the capital stack. Lenders operate on the Debt side of the capital stack. One comes with a lot of protections, while the other has very minimal protections. Its important to know which side of the capital stack your investing in and to know the risks of that side.
Blue Bay Fund I primarily invest in Debt, by becoming the lender and assuming all the protections of making loans, just like the banks do. If you are interested in learning more about how Blue Bay Fund offers unique and recession-proofing protections for my investors lets talk. You can schedule a call with me below, you can watch my recession-proofing webinar or you can jump right in and join my investor club for free!
