Real Estate Investor · Castro Valley, CA · Member since 2015 · 37 posts · 5 votes
I have got insurance quotes on several single family rentals and the insurance company is putting 3 times the market value for insurance rates on the cost to rebuild/ replacement value, how do I shop for reasonable insurance, the properties are located in Western PA
Hey Michael - most of the time market value has nothing to do with determining the amount of insurance coverage as the insurance companies want to insure the homes to replacement cost. However, there are several companies out there who will write functional replacement cost which works well for homes built prior to 1940. They use today's materials to determine replacement value instead of what they would have used in the early 1900s (i.e. Drywall instead of plaster).
If you would like, I can discuss it further with you and give you some options.
Although I do not recommend it, if you can not afford the Replacement Cost coverage, there are some companies that offer to insure the Buildings on ACV (actual cash value). ACV is Replacement cost minus depreciation. The problems you get when you use ACV are:
1. they deduct for depreciation on partial losses
2. you will not have enough to rebuild in a total loss.
One thing to beware of, some of the policies that are written on ACV are for coverage that is less than "Special Form". That refers to what things are covered.
All the insurance agents coming out of the woodwork, lol... I'm an agent too, but I work in loss prevention so I aim to help you hopefully avoid a loss altogether. ;)
A couple of thoughts. I would agree with the gentlemen above and add...
The "Special Form" which John is referring to...There is also "Basic Form" and the less often used "Broad Form". This will determine the types of losses which are covered under the policy. One of the biggest differences between Basic and Special is that Special includes Theft and Water Damage while Basic does not. Always make sure you understand the coverage you are purchasing (don't wait until you have a loss to ask questions!) That stated, there are also ways to avoid many types of losses if you are proactive...
Mainly I'd like to say this...
The way you insure your investment property depends on your business model, needed cash flow and risk tolerance. If you work with a company that specializes in working with RE investors, they can help you make decisions appropriate to a combination of those factors. Some investors like to take higher deductibles to lower their cost for example... let's say $2500, $5000, even up to $25,000... Some programs also have reduced requirements for RC so that you can get RC coverage if insuring to at least $75/sq ft vs having to insure for $100/sq ft or more... Some companies offer coverage on a month-to-month basis so if you're doing a rehab you only pay for what you need and don't have to pay 3 or 6 months up front and hopefully get a refund on the back end... You may also have different desires or needs if you are doing solely rehabs vs long-term rentals or if your portfolio is a combination of the two... you get my drift... I'm happy to suggest a company to work with, but at the end of the day just be sure you work with someone who understands the RE space and covers your properties to your specific needs.
Oh, also... there are companies that can insure multiple properties located in multiple states on one schedule too... since you are in CA and your properties are in PA. That way if you'd like to invest in multiple states you don't have to have an agent in every state...