Insurance Costs for Multi-Family - How to predict costs

[Aaron Lawson]

Hi all,

How do you 'ballpark' evaluate your insurance costs on multifamily to determine if you are getting a decent market price? Is it simply looking at the ratio of insured value-to-annual premium? Is there any sq ft or other basis for comparison that you use? 

Thanks in advance,

Aaron

[Juan Vargas]

A “rule of thumb” that I’ve used before is 1.25% - 1.5% of purchase price. Now, obviously this is just a rule of thumb and it varies drastically from property location, condition, etc. 

[Gino Barbaro]

@Aaron Lawson

The best advice is to shop a few brokers in your market, and compare apples to apples.  We finally found an excellent broker, he's not the cheapest but not the most expensive, but he is very responsive and is always looking for ways to save money.  He also makes sure we have comprehensive coverage.  An employee stole from us last year, and it was covered with no deductible. We had a fire on one of the units, had business interruption and got paid.

All markets are different in pricing, a general rule of thumb is around 250 per unit.

Best

Gino

[Yousif Abudra]

@Aaron Lawson I agree with @Juan Vargas in that we use ballpark percentages for the initial screening.  And these vary by state.  For example FL and TX near the coasts have higher percentages due to wind/water coverage.  And if you are in a flood zone or earthquake region and decide to cover for those the percentages need to be higher as well.  But these percentages are only used for initial screening.

We immediately shop the market for insurance brokers if we enter into contract as we refine our numbers, as @Gino Barbaro mentions.

[Scott Skinger]

Thanks guys, had this same question and this is very helpful. However, I would like to put these "rules of thumbs" to test on a sample property and get your feedback. I 100% understand that state, county within state, building type, age, depth of coverage, etc., etc., etc. is going to make every property unique, but it would be great to come up with a rough rule of thumb that will allow a conservative estimate. Consider the following:

12 unit in somewhat rural Wisconsin, 6 separate duplexes on one piece of land, priced at $849K.

OM Insurance cost: $6200 (seems high)

Broker proforma: $3000

1.25% - 1.5% rule from @Juan Vargas: $10,612 to $12,735

$250/unit rule from @Gino Barbaro: $3000

The WI apartment deal isn't a traditional apartment building so I tried it on one more building. I analyzed, a 52 unit in Indiana going for $2.65MM:

OM actual insurance cost: $13,619

1.25% - 1.5% rule: $33,125 to $39,750

$250/unit rule: $13,000

Thanks for the feedback!

[Todd Dexheimer]

We ask for the financials that show the actual insurance costs. If it is under 1% then we use 1.25% in our projections. As you are in the due-diligence phase you should get a firm quote on the pricing to be sure that your underwriting is in-line. 

[Scott Skinger]

@Todd Dexheimer This makes sense but do you find that the numbers are comparable? I can see where a mom & pop building has had insurance with the same retail company for 10 years and never bothered to get quotes. But what about larger buildings, 50+ units...are the numbers you are getting from your broker usually comparable to the what the seller was paying?

[Andrew Campbell]

You've got to be careful looking at current numbers--particularly as you look at bigger properties. If you are just getting started, you don't have the scale of the bigger groups who may be on a master policy and have a premium much lower than what you'd qualify for.  Brokers love to put those numbers out there, but they won't be achievable for you. 

I view our Insurance agent as a strategic team member--anytime we start to get serious about a deal they will run reports, even help us pull comps and get creative about what the right coverage is. 

We've also been using $250/door as a rule of thumb, but I believe those numbers are going up this year based on the amount of loss/claims incurred last year with the Hurricanes in both Texas and Florida. 

Good luck!

[Todd Dexheimer]

@Scott Skinger Usually broker numbers are a little light. As for the actual number from the seller on a big property, if you know they own just a couple buildings, then the pricing will be similar and often times cheaper. The best bet, especially with your first few buildings is the talk with your agent for an estimate

[Jeff Greenberg]

We immediately go to our broker as soon as we are getting close to an LOI. We don't trust the sellers numbers and insurance rates are always going up. Start early as it takes time to get quotes.

[Travis Rasmussen]

@Jeff Greenberg

Would you be willing to recommend your broker? We are currently looking for one in CA for a 7 unit. 

[Jeff Greenberg]

IM me for info.

[Christina L.]

@Aaron Lawson good question. We first get the actual, most recent insurance bill from the current owner (if they have it/will provide it). Since we don't want to put too much trust into those figures, we have our broker, who's been a great asset in our business, provide a quote during the due diligence phase. He hunts for the best deal with the best coverage for us since we have quite a bit of business with him. He's even come back to me months after we've closed on a property with better rates through a different insurer, and in one case the costs were substantially less. In some instances where a property is under-performing, we get a quote based on "as is" condition and then one based on making certain capital improvements within the first year to allow for pro-forma projections. I still like to use the most conservative numbers, though. 

[Garrett Maloney, CIC]

The most accurate way to forecast premiums is to find estimated property, GL, and excess rates. If you know the ballpark rates for a given region or property type, you will be able to more accurately estimate premium. Ask your agent for the rates and plug them into the formulas below. 

Property Premium = "Total Insurable Value (TIV)" divided by 100 x "PROPERTY RATE"

GL Premium = "# of doors" x "GL RATE"

Excess Premium = "# of doors" x "EXCESS RATE"

[Moise Julien]

Originally posted by @Juan Vargas:

A “rule of thumb” that I’ve used before is 1.25% - 1.5% of purchase price. Now, obviously this is just a rule of thumb and it varies drastically from property location, condition, etc. 

Does this rule of thumb apply as a yearly or monthly payment?

[Zaivy Matta]

Originally posted by @Andrew Campbell:

You've got to be careful looking at current numbers--particularly as you look at bigger properties. If you are just getting started, you don't have the scale of the bigger groups who may be on a master policy and have a premium much lower than what you'd qualify for.  Brokers love to put those numbers out there, but they won't be achievable for you. 

I view our Insurance agent as a strategic team member--anytime we start to get serious about a deal they will run reports, even help us pull comps and get creative about what the right coverage is. 

We've also been using $250/door as a rule of thumb, but I believe those numbers are going up this year based on the amount of loss/claims incurred last year with the Hurricanes in both Texas and Florida. 

Good luck!

[Zaivy Matta]

is the $250 per unit monthly or yearly?

Originally posted by @Gino Barbaro:

@Aaron Lawson

The best advice is to shop a few brokers in your market, and compare apples to apples.  We finally found an excellent broker, he's not the cheapest but not the most expensive, but he is very responsive and is always looking for ways to save money.  He also makes sure we have comprehensive coverage.  An employee stole from us last year, and it was covered with no deductible. We had a fire on one of the units, had business interruption and got paid.

All markets are different in pricing, a general rule of thumb is around 250 per unit.

Best

Gino

[Jimmy Hung]

It's not hard shopping insurance because there's so many different insurance companies. And if you close on the property, you'll need insurance so that part is already done.

Given said that, I just got a quote for a 14 unit apartment (2 buildings) for 14k Annual. The property is selling for around 500k, but the insurance is saying the replacement cost is around 4m. The 14k annual premium really kills this deal for me, and I'm seeing what my insurance agent can do with their underwriters. Wanted to get thoughts on this if anyone is familiar with multi family property insurance

[Jason Bott]

@Jimmy Hung if you can find an insurance carrier to offer Agreed Value, you can insure for a lower limit without being penalized for underinsuring.  Even @ $2M, $14k is a $0.70 rate which is an above average rate unless it's costal or in a high crime area.  I'm pretty confident there are other solutions out there for the property.

[Jimmy Hung]

@Jason Bott

Thanks Jason. Do you know of any insurance companies that are known to insure on agreed value? And also, I believe my lenders have to be on board with this as well correct?

[Justin Goodin]

Reach out to an insurance broker for a rough quote. For large multifamily properties you can ballpark and estimate $250 to $350 per door. 

[Robert Ruschak]

Quote from @Gino Barbaro:

@Aaron Lawson

The best advice is to shop a few brokers in your market, and compare apples to apples.  We finally found an excellent broker, he's not the cheapest but not the most expensive, but he is very responsive and is always looking for ways to save money.  He also makes sure we have comprehensive coverage.  An employee stole from us last year, and it was covered with no deductible. We had a fire on one of the units, had business interruption and got paid.

All markets are different in pricing, a general rule of thumb is around 250 per unit.

Best

Gino

Excellent!  

Shop around!

What amount are you paying in 2023? 

[Cedric Van Duyn]

This is a great discussion, glad I found it!

What values are you seeing in the Midwest in 2024?

[Robert Rixer]

Insurance varies wildly, especially the past year the industry has been crazy and a very tough market especially for lower end properties and in states such as CA and FL. Best to talk to someone local rather than a national forum.