I have a question for you. My insurance Agent gave me two options to ensure my Duplex:
1) Replacement Cost
- if building is damaged the company buys the cost to replace the item
including current labor and material cost
- for example, if a fire occurs and kitchen is damaged and to fix it cost is
$10,000 the company would pay the $10,000 less your deductible
- if you want REPLACEMENT COST coverage you need to insure the building
for what it would cost to rebuild the building from ground up based on today's price for labor and materials
- Company replacement cost estimator shows it would take $328,000 to build the build like it is
2) Actual Cash Value
- this is similar to MARKET VALUE or Replacement Cost less Depreciation for age
- for example, kitchen fire again and to REPLACE the cost is $10,000, however if you
have Actual Cash Value coverage company would depreciate for the age and may reduce
claim with 30% depreciation, so payment would be $10,000 less $3,000 depreciation leaving
payment of $7,000 less deductible
Can you tell me what type of insurance you have? What are the pros/cons of each type?
Thanks as always!
I was faced with the same issue. I looked at it this way, I hold a day job which provides my income to live, so, I decided that right now I will only opt for the Actual Cash Value option. When I get to the point that my rentals are providing the income to live and I am no longer working a day job, then I will opt for the Replacement Cost.
I'd say it depends on the market and your plan for investing.
I have replacement cost on my policy just to make sure in case everything is destroyed I can rebuild and have a brand new building in place.
Thanks for the feedback! My gut leans towards Replacement Costs (rather safe than sorry), but my ROI leans towards "Actual Cash Value" :-) I also have an umbrella policy. I need to speak to my agent to understand how that plays into this discussion..
Hey @Tom Lipps , I am just now getting into a multifamily property and faced with the same dilemma. It seems like this would be a common question. Curious what you and your agent concluded. I too am getting an umbrella policy. My properties are older (1900s) and the rates are much higher than newer buildings. So, the difference between replacement and cash value for ROI is huge. Would love to hear what you went with.
Hi @David A.
I went with @John Frank 's advice above.
One caveat, since I don't have my property in an LLC (yet), I also took out an additional Umbrella Policy. So if any of my insurance policies exceed their limits (personal residence, auto, duplex, etc)., my Umbrella should make up the difference. (I pay ~$300/yr for it).
Thanks @Tom Lipps . I came to the same conclusion as well after talking to a few other investment friends. Running the numbers really brought it all into perspective.
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