Actual cash value landlord policy for 5-unit

Daniel85

Expert
29
I'm having issues with getting absurdly high replacement costs policies for my 4/5/6 unit properties. All properties are well maintained, but I'm being forced to purchase and absurd amount of replacement cost that far exceed twice what the property is worth.

I've owned 28 unit rental portfolio now that I have started building since 2010 and have never filed a single claim.

If there ever was a fire at one of the properties and the ACV paid off my mortgage I would be happy to own the land outright.

Is anyone aware of ACV policies for 4/5/6 unit buildings?
 
You should have the option of insuring the properties for the amount you want to insure them for. You might lose some benefits within the policy for doing so. Have you asked your agent to drop the coverages to the levels you want? I work for State Farm and I know that we can do this assuming the properties are eligible. So I can’t imagine other companies wouldn’t be able to do the same.
 
You should have the option of insuring the properties for the amount you want to insure them for. You might lose some benefits within the policy for doing so. Have you asked your agent to drop the coverages to the levels you want? I work for State Farm and I know that we can do this assuming the properties are eligible. So I can’t imagine other companies wouldn’t be able to do the same.

Are you sure you can do it for 4 units and up?

I was only given the option to drop insurance amount to the loan amount by Country financial, but they could only do this for up to my three unit properties. For my owner occupied 4-flat and my 5 and 6 unit rental buildings, they are making me go with replacement cost.
 
Daniel85, what you really need to do is find a good agent. I notice you have come here with a lot of questions an experienced ethical agent should be helping you with.

To specifically address your question, a good agent should advise you on how insuring a building for less than it's cost to rebuild (regardless of the unrelated market value) will affect the actual payout. Coinsurance, along with other things in the policy, will affect how much you actually receive when a property is underinsured. Depending on how the policy is written, the common claim issue you may encounter is the insurance company basically saying "You went out of your way underinsure this building. We shall now undepay your claim". The agent may get in some hot water too. So, you will have trouble finding a good, honest, ethical agent that wants to go along for this ride.

Forget market value, forget that. What we are dealing with is the actual cost to rebuild. That is what the insurance valuations are about. Furthermore if it's an older building, ordinances and laws require it to be rebuilt in a way that is generally more expensive.
 
I've tried with several local agents with no success.

My goal is to insure the property for the loan amount, which is what I do with all my 1-3 unit properties
 
I'm also in a unique situation where at these properties the current structures are not the highest and best use for the land.
 
Daniel85, what you really need to do is find a good agent. I notice you have come here with a lot of questions an experienced ethical agent should be helping you with.

To specifically address your question, a good agent should advise you on how insuring a building for less than it's cost to rebuild (regardless of the unrelated market value) will affect the actual payout. Coinsurance, along with other things in the policy, will affect how much you actually receive when a property is underinsured. Depending on how the policy is written, the common claim issue you may encounter is the insurance company basically saying "You went out of your way underinsure this building. We shall now undepay your claim". The agent may get in some hot water too. So, you will have trouble finding a good, honest, ethical agent that wants to go along for this ride.

Forget market value, forget that. What we are dealing with is the actual cost to rebuild. That is what the insurance valuations are about. Furthermore if it's an older building, ordinances and laws require it to be rebuilt in a way that is generally more expensive.

I'm having a difficult time wrapping my head around your position. I specifically am posting my comment here, because I am looking for an agent with access to insurance policies that local agents are unaware of. I don't see why it is unethical for me to seek out an actual cash value policy.

I have for a example, a 3.5 story 4-unit building that is 6,900 sqft including the garden level. It is absurd to me that I am forced to buy a 1.3-1.5 million dollar replacement cost policy. This is for several reasons, but firstly that the property would not cost anywere near that amount to completely rebuild and even if in a very extreme situation of it there was a complete loss the highest and best use is as a single family home. I would much prefer my insurance paying off the loan and owning the land out right.
 
I am not positive on 4 units and up. I will do my best to find out. There is nothing unethical about insuring a building for ACV from the clients side or agents side as long as the client understands. I see where you are coming from.
 
I agree with Markthebroker that you guys should find yourselves local independent agents who represent a variety of companies.

That being said, there is a simple solution to all your desires for ACV coverage. Buy a DP-1, DP-2 or DP-3 on each property for the amount of coverage that you want that will satisfy your lenders.

Many lenders will require Replacement Cost so if you want the loan you buy the coverage.

If you are paying cash for your properties, or your lenders will accept an ACV policy, you can insure to the ACV of your buildings on DP policies and then get a separate liability policy that can list all your locations.

Understand, though, that statistically the chances of a total loss are slim. Most property losses are partial, even extensive losses. When the inevitable claim comes and the insurance company knocks off 20% to 40% of your repair cost for depreciation (that's what ACV does), you're going to wish you had that Replacement Cost policy. :yes:
 
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