San Diego, CA · Member since 2017 · 70 posts · 23 votes
I'm buying a turnkey rental in KC MO for 81k and I was recommended REI Guard Home Insurance so I checked them out and got a quote. It was $831 to $892 per year for two different options. This seems sky high to me since I insured my $400k house in San Diego for less than $600 per year??
Does it cost more to insure a rental and should I insure for the full purchase price?
Any recommendations for another insurance company?
Rental Property Investor · Prairie Village, KS · Member since 2015 · 2k+ posts · 2k+ votes
9y
Insurance is more expensive out there! I was shocked at the cost of insurance on the units I just bough in KC. Hail storms take out roofs fairly frequently. That price is actually pretty good.
Rental Property Investor · Prairie Village, KS · Member since 2015 · 2k+ posts · 2k+ votes
9y
Insurance is more expensive out there! I was shocked at the cost of insurance on the units I just bough in KC. Hail storms take out roofs fairly frequently. That price is actually pretty good.
Mortgage Broker · Dallas, TX · Member since 2017 · 657 posts · 275 votes
9y
Hello Joe!
The rules will still apply for insurance as it does for home loans. It will always cost more to insure a rental property that isn't owner occupied due to added "risk." There are many other factors that are considered for premium pricing, which in your case would be the the area and the age of the home. I would assume that you home in SD is new than your rental.
My advise (if you haven't tried already) is to see if your current company insuring your SD home will give you a policy for your rental, which might save you some money through "bundling." Otherwise if you have the opportunity I would try to find a broker in that area, since they will have more resources to use.
Regarding insuring for the full purchase price, that would depend on the type of property you are buying. Is it a condo, SFH, Townhome? You might have bought it for 81k, but would that even be enough to cover the replacement cost if the place to was to be completely destroyed? These are questions that a broker familiar with the area would have a better idea for as they would know what is a good $ amount of coverage per sqft.
Investor · Little Rock, IA · Member since 2015 · 136 posts · 72 votes
9y
I have property in the KC area. REI Guard is the cheapest I have found. Higher crime, poorer areas have higher insurance rates. It sucks buts it's the reality usually.
I was offered $4,000 annual insurance for one of my properties. I finally found REI Guard, but it look a while as I complained and asked around. I have priced a lot of companies and they are the lowest I have found. If you find something cheaper I would love to know.
Investor · Little Rock, IA · Member since 2015 · 136 posts · 72 votes
9y
One other tip, if you have not tried this. Rather that get a policy for full replacement cost you can ask for a cash value policy. Usually it's about double the purchase price rather than the cost of new construction to replace the property in the event of a catastrophic disaster. For an $80k house maybe a cash value product of $160k.
That might be cheaper. It has worked so far for me. If I had a disaster and the house was deemed a total loss I would get the cash value of the policy minus demo costs and mortgage payoff. I might get a little cash back and it wipes out the loan. That's another option to bring the cost of insurance down.
Rental Property Investor · Syracuse, NY · Member since 2016 · 66 posts · 11 votes
9y
I believe the risk of not getting replacement value is if there is partial damage. If the whole thing is destroyed, you make out, but if half of it is and you have to repair it, and the insurance doesn't fully cover it, you could wind up with a large expense.
I believe the risk of not getting replacement value is if there is partial damage. If the whole thing is destroyed, you make out, but if half of it is and you have to repair it, and the insurance doesn't fully cover it, you could wind up with a large expense.
Pete
You would have to make sure that you fall into the 80% coverage of dwelling amount either way. If coverage is lower than 80% of the dwelling then coinsurance would be kicking in, partial or complete loss aside. Granted an insurance company shouldn't be under insuring your home, but this does become a problem when the replacement cost of your home rises and the company does not increase the coverage to match this.
Real Estate Broker · Cleveland Dayton Cincinnati Toledo Columbus & Akron, OH · Member since 2013 · 30k+ posts · 20k+ votes
9y
@Joe Koppel insurance is always going to be higher on an investment property than a primary residence. Much more risk involved for the provider. Tenants are generally much harder on properties than are their owners.
One other tip, if you have not tried this. Rather that get a policy for full replacement cost you can ask for a cash value policy. Usually it's about double the purchase price rather than the cost of new construction to replace the property in the event of a catastrophic disaster. For an $80k house maybe a cash value product of $160k.
That might be cheaper. It has worked so far for me. If I had a disaster and the house was deemed a total loss I would get the cash value of the policy minus demo costs and mortgage payoff. I might get a little cash back and it wipes out the loan. That's another option to bring the cost of insurance down.
You forgot to mention any depreciation that might occur as well. Since this is one of the main differences with cash value policies. The bad thing with this is that material costs and home prices normally increase, but the policy coverage will only decrease. This is only just talking about the dwelling itself, and not any content that might be lost in addition.
Thanks for chiming in Nicholas. You make a good point that materials cost and construction costs increase. My response would be that REI Guard will raise cash value policies if you ask them. What I have is that many of the most well know insurers like, State Farm, All State and Farmers Insurance simply price themselves out of the investment property market in my experience. One of my properties is a four plex build in 1928. Farmers quoted my $4400 a year in insurance and they were the LOWEST of the well know companies. It's not a business many of these insurers are interested in. I think Joe is going to want his property to cash flow monthly. If it does not I don't think he would ever buy it. Insurance cannot become the single great holding cost for the investor. I could not make money with $4000 a year in insurance.
If an investor carries a cash value policy he is covered as far as paying of the mortgage, if it's a severe damage situation but not total loss, then we need cash reserves to pay the deductible. Before insurance kicks in. But insuring that a total new property is built in the case of a catastrophe is not worth in many cases. I would rather have cash flow. If I have to excercise the cash flow policy I would have a paid off lot free and clear and my equity refunded to me. I could reinvest in another property or sell the lot. I believe thinking through a worst case scenario is important. That's my $.02.
San Diego, CA · Member since 2017 · 70 posts · 23 votes
9y
Thanks guys I am coming to the conclusion that REI Guard is the best price and way to go. I got a quote from Geico and they were $1172. This would result in no cash flow. I thought REI Guard was high but I have learned that the midwest insurance is more expensive because of weather issues. I was paying less than $600 for a 400k house here in San Diego, CA so I thought a $81k house would be less than $600 (wrong!)
That is very good information to consider, I guess I look at it from a perspective of caring what actually happens to building itself. Not saying as an investor that you don't care about the building you are renting out, but you are more accepting of the risk than if it were your primary home you and your family are living in. I haven't dealt with too many customers wanting insurance on their investment property since my company was like the others you state and immediately priced out.
One thing I would like to know is which program is allowing you to get an ACV policy for your home? I know conventional loans require that your insurance coverage be in replacement cost terms only, granted i'm more familiar with OOC dwellings. Is this different for investment purposes or are we just finding a private lender that is ok with an ACV policy.
Mortgage Broker · Dallas, TX · Member since 2017 · 657 posts · 275 votes
9y
@Joe Koppel sorry my questions were more towards Christopher and his experiences.
ACV = actual cash value which is the cash value policy he is referring to in his post. There are different types of dwelling coverage that an insurance carrier can provide its customers. Most common is a replacement cost policy, which covers the materials and labor needed to rebuild the home from scratch. This is different from market value which takes into account of land and location; most lenders require you to carry this type of coverage.
A cash value policy will take what the home is valued at and then subtract and depreciation from the covered amount. This would be bad for the lender because a total loss would result in losing money as the home is no longer valued the same in insurance dollars. Which is why they generally don't allow this type of policy.
Investor · Little Rock, IA · Member since 2015 · 136 posts · 72 votes
9y
I am sorry to use language you are familiar with. I hate in when people use jargon and terms I am not familiar with. I am not familiar with the depreciation clause that Nicholas is claiming is present in ACV insurance. That was not how my agent explained it to me. I will perhaps investigate whether that is the case. What I under it to work like, is life insurance for instance. In the event of a death, there is a payout of X dollars. You can raise the cash value amount and pay a little more, or leave it at the same level for any number of years.
Like I said earlier, the typical life, auto, home insurance agent does not offer pricing that makes business sense for investment property/real estate investments. Yes, investment properties are a higher risk for them. But at the prices I was originally quote, no landlord could have a property at all. The cost is so high there would be almost no cashflow.
If your cashflow was $10 a month because the insurance is thousands of dollars a year would you invest in that property. I don't think any of us would.
Investment property is whole different thing and so I think you are better served looking for a cheaper policy that will cover you in the event of the worst happening. But allows you to make money monthly, which is why most landlords buy investment property. Nicholas is saying its bad. But ask around. My experience is, this is what most experienced landlords are carrying. Because its all they can afford to carry and still make money.
Maybe stating that a cash value policy is "bad" isn't the correct word to use. As it is a product that is offered to a certain type of customer in need of insurance. There is a reason why it is "cheaper" than what a replacement cost policy offers and that is because of how payout is calculated in the even of a loss. IE some payout is better than no payout, which would be the case from the item or dwelling being depreciated.
If your agent failed to explain this than I do encourage you to look into the policy again. Could I be wrong? Yes. Have I had customers come to me and state they didn't know they had an ACV policy and that it is based on depreciated values? Yes, most definitely.
If your goal is to make money from your investment, which of course it is, then you might be willing to skimp on some things to do so. I would do the exact same thing if my lender allowed me to do so, and I will actually look into this in the future. Would I have it on my primary home? Heck no.
Cleveland, OH · Member since 2017 · 3 posts · 3 votes
9y
Hey!
I'm actually a licensed insurance agent throughout 48 states. The home should only be insured up to the rebuild cost (replacement cost) NOT the purchase price... if the house was to be a total loss, you would still be left with the land and it's value.
A lot of times people think they need to cover it up to the purchase price or the market value.. but instead you just need to insure it up to the cost to rebuild (labor and materials)
Investor/RE Broker · Eugene, OR · Member since 2014 · 3k+ posts · 968 votes
9y
Joe, as others have said, you should expect higher insurance costs compared to your owner occupied. That said shopping around is a good idea, and you might check with Shelter Insurance, as they have some of the best rates in the midwest states that they operate in.
Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
9y
@James Wise and @Nicholas Covington and @Larry Fried it may be true in your location, but I wouldn't make the blanket statement that insurance is more for non-owner occupied. My insurance is considerably less on my properties than my primary home because it doesn't cover personal property. I am insuring homes worth $165K for under $400 a year. Insurance rate is calculated based on risk. Rebuilt costs, location and age of the home factor into the rate.
@Kate Beletskaya in my experience replacement cost is often higher than market price, at least in smaller markets. It could easily cost over $100K to rebuild a house purchased for $81K. In his case the insurance value likely exceeds purchase price. Now, in San Diego it is different. The land holds more value, so his house could probably be rebuilt for $200-300K. Insurance is only on the structure.
Mortgage Broker · Dallas, TX · Member since 2017 · 657 posts · 275 votes
9y
@Joe Splitrock it is not a blanket statement, it is a fact. Non-owner occupied does not only mean investment as you can get a secondary home insured as well. This will be much more money than your primary since it is added risk. Of course insurance would be less for not covering contents, but that's by personal choice because you do have the option to do so.
Stating that you are insuring homes for 165k for under $400 a year has nothing to do with anything really as you can get homes for over 800k insured for less than $200 for the year. Insurance is not tied to the price of the home in any aspect, which you elaborate later on.
The OP is comparing his primary to an investment so in this case we are not really worried about what is insured as far as contents and such. Price is price. If he were to live in the investment property there is a 99.9% chance that it would be less and if not, it would not be relative to the premium amount of an investment NOO property.
Rental Property Investor · Olympia, WA · Member since 2014 · 777 posts · 744 votes
9y
@Joe Koppel Your other option is to increase your deductible. But talk to your agent as their is a tipping point where higher deductible doesn't give much more in premium savings. I carry $1k deductibles on SFR and $5k on commercial.
Also look at the deductibles for specific perils. In Florida I took a higher deductible for hurricanes. Given our particular location the risk is minimal.
San Diego, CA · Member since 2017 · 70 posts · 23 votes
9y
Hey I need some advice here I am getting my home insurance for my rental right now and he is asking: "Do you just want the minimum of $70 per sq ft to be at replacement cost?"
I'm not sure how to respond, any recommendations???
Mortgage Broker · Dallas, TX · Member since 2017 · 657 posts · 275 votes
9y
@Joe Koppel TBH that is a horrible question to ask a customer as it's the agents responsibility to adequately cover the property. Now if that is the average coverage $ per sqft for the area, then I guess that would do.
So I guess you could ask them if they feel that would adequately cover the property in your area for at least 80% of replacement cost. Generally you would want closer to 100%, but if you are trying to save some money then 80% is the min. I normally insured homes for $83 a sqft but I was a national agent that wrote for over 35 states, so i had to have a basic guideline.
The main thing I really suggest is to just ask the agent your questions and voice your concerns, if you feel comfortable with the answers than that's all that matters because ultimately you are paying for peace of mind.
As far as deductible goes, that's a personal choice. Want a lower premium? Go with a higher deductible. Which is what I probably recommend for an investment. Remember to refer back to your lender requirements, because they generally have cap for how high of a deductible you can set. Normally this isn't hit but you should just be aware of it.