How Much Insurance for 9300sf Commercial Building?

[Darrell Lee]

Buying a 100 y.o. 3 story commercial building, 9300s.f. plus 2,000s.f. basement. 

Not a typo... Paying $20k plus all closing costs for seller and me the buyer. About $10k so $30k total initial investment. Will spend $50-100k in renovations. Completely vacant at the moment, but after rehab I should have 66% leased in short order.

Haven't gotten an insurance quote yet, but the insurance guy (his office is across street from my building and used to insure for the seller) estimates replacement cost at $1.1mil and if I want to insure for cash value he suggests $800k. Sounds expensive in either case, but he's still working on a quote. I'm closing the deal in a couple days so I gotta come to a decision quickly.

What are your recommendations for insurance for me? And liability umbrella? Property in Vt.

Thanks.

[Jason Bott]

@Darrell Lee

In the insurance world, the players (insurance companies) for office space are completely different from ones who will write rental property.  You should be able to get some very competitive pricing from both the direct writers like State Farm and the independent agents, so check with both.

Regarding the ACV coverage, you will only be paid the depreciated value of the part of the building that was lost.  So with a 100 year old building, they will be able to argue a large depreciation percentage when paying your claim. Example, $100,000 fire loss, less 80% depreciation = $20,000 claim payment.  That being said, you may only get offers with an ACV option.

The other coverage you may want to put more focus on is call Building Law and Ordnance.  Claim example, you have a fire and all your door widths are not ADA compliant.   The city will require you to rebuild to the current code, but your insurance company will only replace what you lost, which was a noncompliant doorway.  If there is increased cost between the old doorway and the new ADA door, that cost is not covered unless you have the Building Law and Ord. coverage.  These older buildings can have all sorts of uncovered costs to bring them up to code.