Insurance

[Mark Paup]

I'm buying my first multi unit its 4-3 plexs built in 1950. My question is on the insurance should I insure them for Replacement or Actual Cash Value? 

[Aaron Vergason]

I'm not an insurance agent, but I have asked this same question to a couple of them.

The general answer is this:  What would you do if you had a total loss?  would you rebuilt on this property or take the money, level the lot, and buy something/ somewhere else?

Where I'm currently investing, We can buy properties for approximately 25% of the rebuild cost.  So I can buy a decent duplex for $75,000.  Building a new duplex would cost me $300,000.  In this case, I would insure the property for ACV which would probably be 150k to 175k.  If I had a total loss, I would take the 125k to 150k depending on the "depreciation" they give me when the adjuster comes out for the roof, heating system, etc. and just go buy another duplex in the area for a similar $75,000 or maybe buy a larger property with my $125,000.  I wouldn't rebuild because I can easily buy similar duplexes for much less money.

If you are in an area where the land itself is worth as much as the buildings on the land, then I would insure it for Replacement cost, because if you have a total loss, you would want to rebuild at that same location.

Hope this helps.