Insurance for a cheap rental

[Account Closed]

I'm in the process of looking for a new insurance company. I've been wanting to do this for some time now...but the final straw was today. I'm closing on a rental tmrw that I'm paying 16k for...after minor rehab, I'll be all in for 20k. They want to insure the thing for 81k replacment cost, at a price of 384/year. Another company said they can do cash value of 30k, for 97/year. I've always heard replacement cost is the way to go yada yada yada...How does the depreciation work if the building burns down and there's a total loss? What if it's just a 5k loss? It seems crazy to pay 4k over the next 10 years for insurance on a property that i'm only paying 16k for..any ideas or suggestions?

[Nathan Emmert]

Originally posted by Jason Vazquez:

It just so happens I work for an insurance agency and have experience writing rental dwelling policies. Think about it this way. In the event of a total loss, if you insured yourself for the amount you purchased the property at, would you have enough to replace the structure? This is why you have to be careful with under insuring yourself, either by stating a low cash value or inadvertently through depreciated value.

If you have enough properties to get blanket coverage through a commercial policy that will be the most cost effective option. A good broker will know if his carriers insure on replacement or depreciated basis.

Jason, this is the disconnected between insurer's and investors that pisses investors off. You talk to us about replacing the building, making it exactly how it was, cost of materials, blah blah blah. You know what investors see when they look at the building? A cash flow stream. If that cash flow stream burns down, they want enough money to acquire another cash flow stream of equal value. There is no emotional attachment. We don't care about the brick siding or the beautiful intricate wood work, we care about the ability to capture X number of dollars in market rent. If I'm making $2,000 in rent and the market is full of properties that would generate $2,000 in rent for $120,000... I want a policy for $120,000, not the $540,000 it would cost to build exactly the same building I currently own.

Understand your customer's needs and you'll better service them.