Rental Property Investor · Valley View, TX · Member since 2018 · 174 posts · 87 votes
Just a question to elicit opinions. If as an investor, I would NOT choose to rebuild if something catastrophic (tornado, fire, etc) happened to one of my properties, why not carry ACV instead of RCV insurance. If my $90K home were destroyed except for the lot, why wouldn't I insure for the simple value of the home ($90K) instead of to rebuild it (at $160K) when I could go out and find another $90K home and sell the lot? If I would never want to rebuild my damaged home and can get ACV at half the price of RCV, why not just choose the less expensive insurance? Why insure to rebuild when you wouldn't rebuild? Am I missing something??
Also, will banks always insist on RCV or do any allow you to get ACV with a conventional mortgage? Thanks.
Specialist · Chattanooga, TN · Member since 2019 · 25 posts · 13 votes
7y
ACV doesn't always come close to market value / purchase price. The price difference sounds great on the front-end, but a payout on a claim could be much less than ideal. Depreciation can certainly get the best of you.
Real Estate Broker · 3412 S. Harlem Avenue Riverside, IL 60546 · Member since 2015 · 6k+ posts · 5k+ votes
7y
@Alfred Litton is there really much of a price difference from what you have seen? I have not seen many insurance brokers really cut me a deal when I considered ACV.
Rental Property Investor · Valley View, TX · Member since 2018 · 174 posts · 87 votes
7y
@John Warren. It's huge. Annual premium on ACV with 2% is $775. RCV with 2% deductible is $1600. On 1%, ACV=$920 RCV = $1950. Insurance in Texas is insane!
Insurance Agent · Norwalk, CT · Member since 2016 · 2k+ posts · 1k+ votes
7y
Alfred,
The downside to ACV in the situation you described would be on a partial loss. Say you had damage that was $30,000 to repair. Under RC, you would be paid with a deduction for depreciation first and then, after completing the repairs the company would pay the remainder. Under an ACV policy you get paid the just the repair amount minus depreciation. Say depreciation is 20%, the amount paid would only be $24,000.
Specialist · Chattanooga, TN · Member since 2019 · 25 posts · 13 votes
7y
ACV doesn't always come close to market value / purchase price. The price difference sounds great on the front-end, but a payout on a claim could be much less than ideal. Depreciation can certainly get the best of you.
We right insurance for landlords all over Texas and this is a fairly common question.
You may be able to walk away with just the $$$ from the ACV and do another investment. But it is really a numbers game. If you have a partial damage situation using John's numbers the difference can be pretty big.
Most insurance agents want to write insurance that their clients can afford, in the sense of, if there is a catastrophic damage to your place would it be easier for you to come up with $1000 per year, or pony up $5000 - $10000 for repairs.
Most people don't have the financial reserves to splash $5k-$10k-$20k for a repair. They would rather pay the extra $1000 per year you are referring to.
If you have the cash reserves then maybe going ACV instead of RCV is the best for you. You can walk away from the property if you have to, or you can pony up the extra money to do the repairs IF/WHEN there is a claim. Then you save $1000 per year on insurance.
The other difference is in the $90k and $160k numbers you mentioned. That is $70k. With a current $1000 premium, you are betting that in 70 years you won't have a total loss. It is really about appetite for risk. If you can make the numbers work for you with a partial or total loss, and the insurance savings makes a difference for you, then do what you want.
As an insurance agent who specializes in landlord insurance, I am often surprised at how many people will look at all kinds of other ways to increase rents by $50 per door and NOT look at saving money on insurance. If you are saving $1000 or $2000 per year on insurance that can be $80 - $200 per MONTH of extra money that you get to put in your pocket.
You may not be able to shop around for the best deals on property taxes in Texas, but you can shop for different coverages and different prices that match your investing strategies.