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What is a CLUE Report?

A C.L.U.E. (Comprehensive Loss Underwriting Exchange) report is used by insurance companies to help determine what rate you will pay for homeowner's insurance on your new rental property.

Many people make a rough guess of insurance costs when figuring out the potential expenses and cashflow of a rental property purchase. This is always a mistake.

As part of the insurance underwriting process it is highly likely your insurance carrier will obtain a CLUE report on the property you intend to buy. If this property has had claims in the recent past (typically 7 years) it is almost certain you will end up with a higher quote (maybe much higher) than you might have expected otherwise. Since most carriers utilize CLUE reports shopping around probably won't help a whole lot in reducing the rate to something comparable to the same house with a clear CLUE report.

But the house you want to buy is in a nice neighborhood. Multiple claims happen mostly in rough neighborhoods, right? Wrong. I'll illustrate from personal experience.

Several years ago I owned a property in the Desert Ridge area of Phoenix. For those familiar with Phoenix Desert Ridge conjures up visions of high end shopping, lots of nice restaurants, family neighborhoods, good schools, and one of the most beautiful Marriott resorts in the world. Yes, it's a nice area.

My house was located in a small subdivision in the heart of Desert Ridge and was positioned such that it had one neighbor to the left and one sort of crossways across the street. Behind was a small feeder street into the neighborhood and to the right was a main thoroughfare (Tatum Blvd). In all, what this added up to was some road noise from Tatum Blvd (although not too bad due to the high block wall around the property as is the norm in Phoenix) but some pretty nice privacy due to only one direct connecting neighbor. The bad news was thieves apparently liked the privacy factor as well!

In exactly two years this home was broken into three times. The first time a neighbor became suspicious because the burglar had knocked on a few doors prior to breaking in to my house, claiming to be looking for his cat. She watched him thru a window (from almost a block away) and saw him jump the side gate to the back yard after peering in the front window. When the thief had finished going thru the house he jumped the back wall only to land right in front of a police car sent to back up the cop who was knocking on the front door at the same moment. This break-in resulted in an arrest but no insurance claim as he didn't get away with anything and only did minor damage to one of the back doors.

The second break-in was about a year later and that burglar got away with some stuff and so a claim was filed with the insurance company. The third one was right at the two year mark and shortly after that I sold the property (enough was enough).

The lesson here is that any future buyers probably got something of a shock when getting an insurance quote on this property due to these prior break-ins. Also, even if I had just called in to my insurance company ASKING about a claim but didn't actually file one it is highly likely that info would be on the CLUE report as well and would count against the property.

In short, check with your insurance agent early in the process of buying a rental property (or any other). If you have an inspection period that is the time you should get this info. It can save you a lot of grief later in the process!

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