Replacement Cost Insurance

[Jeff Thoman]

I am buying my second investment property. It's an old school building that's been converted to a 14 unit apartment building. The property has a positive cash flow. But, the previous owner was seriously under-insured according to my independent agent. I'm buying it for $265,000. But, the insurance company says the replacement cost is $2M and wants me to insure it for 80% of that. Otherwise, I'm considered co-insurance, and they will prorate any claims. I had a similar problem on my first property, which is a 5-plex, but on a much smaller scale.

Anyone have any thoughts - is this expected or am I getting ripped off. It's a big hit on my NOI.

Thanks,

Jeff