Actual cash value landlord policy for 5-unit

[Daniel85]

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.

Adjusterjack I would be beyond happy to do this, but I am not being given this option. The only insurer I found for my 2-3 unit properties that allowed me to pick the coverage amount was country financial.

For my 4, 5 and 6 unit properties I am being forced to use whatever their system shows as the replacement value. I work as a developer and have a small 28 unit rental portfolio i hold for net worth preservation. I know what it actually costs to rebuild and the number they are giving me is absurd.

To your point about regretting replacement. Perhaps I am in a unique situation but I am in a gentrifying area of a big city. If there ever was a complete loss the land is incredibly valuable and highest and best use wouldn't be the current usage. My bank just requites it to be insured for the loan amount.

 

[adjusterjack]

For my 4, 5 and 6 unit properties I am being forced to use whatever their system shows as the replacement value

Forced by who?

Forced how?

Why doesn't Country Mutual write your larger buildings?

Have you asked about Dwelling Fire policies (DP 1, 2, or 3) at ACV with a separate liability policy?

Are you buying through one agent? If so, you might want to try another independent agent or several if you haven't done so already.

There are thousands of property/casualty insurance companies out there. You should be able to buy insurance the way you want it.

Oh, wait, if you are trying to insure a building with an RC of $500,000 for $50,000 because you only owe $50,000 and the land is worth $2,000,000 well, no insurance company is going to do anything like that for you.

 

[Daniel85]

I have tried with several local insurance agents. By forced to I mean they are only offering up to me to insure it for the replacement cost their system generates.

I am not able to select a lower amount of coverage for my 4 and up properties and I only found one insurer that will let me select for my 2/3 unit properties.

My situation is not as extreme as your hypothetical example. The most extreme is likley my my 4-flat where I owe 670 and I'm being given replacement costs of 1.3-1.5Mil. For my other properties the loan amount probably close to 50-65% of my replacement cost.

I would be open to even 70 or 80% of the replacement or just doing actual cash value.

If you are able to do this I am happy to give you my info and have you quote my whole portfolio.

Forced by who?

Forced how?

Why doesn't Country Mutual write your larger buildings?

Have you asked about Dwelling Fire policies (DP 1, 2, or 3) at ACV with a separate liability policy?

Are you buying through one agent? If so, you might want to try another independent agent or several if you haven't done so already.

There are thousands of property/casualty insurance companies out there. You should be able to buy insurance the way you want it.

Oh, wait, if you are trying to insure a building with an RC of $500,000 for $50,000 because you only owe $50,000 and the land is worth $2,000,000 well, no insurance company is going to do anything like that for you.

 

[VolAgent]

I have tried with several local insurance agents. By forced to I mean they are only offering up to me to insure it for the replacement cost their system generates.

I am not able to select a lower amount of coverage for my 4 and up properties and I only found one insurer that will let me select for my 2/3 unit properties.

My situation is not as extreme as your hypothetical example. The most extreme is likley my my 4-flat where I owe 670 and I'm being given replacement costs of 1.3-1.5Mil. For my other properties the loan amount probably close to 50-65% of my replacement cost.

I would be open to even 70 or 80% of the replacement or just doing actual cash value.

If you are able to do this I am happy to give you my info and have you quote my whole portfolio.

Its because they have been trained to defend against the inevitable lawsuit that is going to come.

You missed a key piece that Adjusterjack mentioned, a total loss is extremely rare. And when you have a partial loss, the insurance company will apply depreciation before paying the claim. As an example, the $50,000 loss may only get a check for $20,000, leaving you to come up with the other $30,000.

 

[Daniel85]

I have a pretty healthy amount of liquid reserves at around 400k, having said that I am not looking to underinsure my property. At the same time, I am looking to not overinsure it which is the only option I've been given by local agents. Really if I had a claim that would only amount in 20k, i wouldn't file it. I would be more concerned about the loss raising the premium across all my policies.


I don't know the basis for the replacement cost they use but it is not at all in line with my experience. It could be that since I am real estate professional and I have established relationships with trades and discounts on material purchases I can do it for less. But per sqft amounts they are using is to an extreme.

Its because they have been trained to defend against the inevitable lawsuit that is going to come.

You missed a key piece that Adjusterjack mentioned, a total loss is extremely rare. And when you have a partial loss, the insurance company will apply depreciation before paying the claim. As an example, the $50,000 loss may only get a check for $20,000, leaving you to come up with the other $30,000.

 

[VolAgent]

Then change the amounts. Now the damages are $500,000, but the insurance check is only $200,000.

 

[Daniel85]

I am having a difficult time walking through the extreme nature of your examples, particularly with 60% depreciation. I don't mean to question you anecdotal experience, and perhaps my experience is unique to owning property in a big city where the land is very valuable and often times the existing structure isn't the highest and best use.

Very recently my dad owned a 2-flat where a tenant caused a small kitchen fire in one of the apartments. Much of the physical damage was actually caused by the firemen.

In any case the insurance payout was a very unexpectedly high ACV of180k with an additional 80k if we chose to renovate, but would only be up to the cost of rebuilding. He had purchased the property 4 years prior for 200k. To actually do the repairs would have been less than 180, so unless if I was to illegally doctor up fake receipts I don't know how the 80k towards depreciation would have even helped us.

In the end the decision was made to just accept the ACV of 180k and sell the property as-is.

 

[djs]

People who are experienced developers always think insurance rebuild rates are extremely high, until they run into a loss and start to find out what they didn't know previously. Granted, insurance companies base things on what they project into the future, not the current value, but that usually doesn't change drastically year to year.

Yes, the rebuild costs include 'profit' for the contractors who do the work. Developers usually think in terms of costs, but insurance companies base work on market rates.

It also includes demolition, disposal, permits, architecture, required upgrades, and dozens of other things that tend to get forgotten when someone thinks in terms of 'building' a new structure. Yeah, its a pain when you have a small fire and all the sudden you have to pay to rewire an entire house because of some ordinance change.

Lots of areas have land values that exceed structure values and yes, banks only require structure insurance, realizing the land does not get destroyed in most losses. That part is a non-issue.

What you have to realize though is the premium difference between a good landlord policy at full ACV and the premium at what you want is probably fairly negligible. The payout in the event of a loss is calculated hugely different.

If you insure a $500,000 structure (insurance estimate) for $300,000, if a loss occurs (regardless of size), most carriers will take the loss, subtract your deductible, then prorate based on your 60% coverage of the structure. So basically, if you had a $250,000 loss, they would pay 60% of that after you pay your deductible.

On the other hand, if you insured for $500,000 with a $25000 deductible, you would probably have a lower premium anyway.

Bottom line: Insuring the top end of valuation is much, much, much cheaper than insuring the bottom end of valuations. Premium is not linear to replacement calculations, not even close.

If you are trying to save premium dollars, raise your deductible.

Carriers have apparently lost lawsuits over underinsuring structures which is why they have limits on how much you can underinsure for, if they allow it at all. Agents typically are not allowed to write policies for under the replacement value of the structure (or a percentage in some cases).

Also, it sounds like your Dad had a replacement cost policy, not an actual cost policy. That is where the additional $80K came from, the difference between what they calculated as the difference between ACV and RCV. You get that part of the claim when you complete the work.

 

[Web320]

How many units do you own?

I am going to make an assumption that your properties are all located in IL and possibly even within close proximity to one another. In the event of a catastrophic event that causes significant structural damage on several of your properties, are you comfortable taking on the type of financial risk djs has outlined above in multiples?

Our largest cat. event last year was hail. That in itself isn't surprising until you take into account that we also went through Harvey and Irma. Lots of roofs got replaced!

 

[fed up]

New to the thread but I don't see anything about how the properties are titled. Are they under a personal line or an LLC?. They should be under a commercial policy since it is obvious that you own many buildings and are in it as a business, unless you are rehabbing and selling. Many carriers will allow up to 4 or 5 landlord policies as a convenience to their customer on a personal line. You also may find rates are less as a commercial policy