Actual Cash Value versus Full Repair Cost

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Actual Cash Value versus Full Repair Cost

John Jacobs
Indianapolis, IN · Member since 2012 · 74 posts · 22 votes

I am going to be lending to an investor on a single family home. There will be renovation of the home that is $82,500 worth of renovation. The Homeowners Insurance will include Builder's Risk. During this renovation period would you, as the lender, want an Actual Cash Value or Full Repair Cost policy in place?

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Steve HiltabiddlePro Member
Lender · Pennysylvania · Member since 2018 · 139 posts · 68 votes
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@John Jacobs I require my borrowers to have policies that cover replacement cost.  Actual cost takes into account depreciation so complete destruction of a property could leave you under water in terms of the amount paid for the loss. Replacement cost would be what it costs to replace the structure.  

good luck

Steve

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  • Greg ScottPro Member
    Rental Property Investor · SE Michigan · Member since 2014 · 4k+ posts · 6k+ votes
    1y
    The most important thing is to ensure your loan is covered in the event of a loss.  You can wargame scenarios to decide what you think is best.

    On the other hand, that is a pretty sizeable rehab budget.  Let's talk roofing.  If a storm damages the roof before you begin, but a new roof was in the budget, you've lost nothing.   If a storm happens immediately after you replace the roof, the actual cash value is the same as replacement cost, so you've lost nothing.

    The only thing you would have to worry about are items you did not intend to repair
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  • Steve HiltabiddlePro Member
    Lender · Pennysylvania · Member since 2018 · 139 posts · 68 votes
    1y

    @John Jacobs I require my borrowers to have policies that cover replacement cost.  Actual cost takes into account depreciation so complete destruction of a property could leave you under water in terms of the amount paid for the loss. Replacement cost would be what it costs to replace the structure.  

    good luck

    Steve

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  • John Jacobs
    OP
    Indianapolis, IN · Member since 2012 · 74 posts · 22 votes
    1y

    @Steve Hiltabiddle  Steve, Awesome.  That was my impression as well.  John :-)

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  • Owen RosenBusiness Member
    Professional · Clinton Township, MI · Member since 2015 · 676 posts · 259 votes
    1y
    Quote from @John Jacobs:

    I am going to be lending to an investor on a single family home. There will be renovation of the home that is $82,500 worth of renovation. The Homeowners Insurance will include Builder's Risk. During this renovation period would you, as the lender, want an Actual Cash Value or Full Repair Cost policy in place?


     Many lenders won't allow actual cash value or ACV.

    Repair cost or replacement cost?  They are not the same thing.

    Royal Oath Insurance Group4.9203 Reviews
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  • John Jacobs
    OP
    Indianapolis, IN · Member since 2012 · 74 posts · 22 votes
    1y

    @Owen Rosen

    Thank You  John

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