In an effort to cut insurance cost, I am looking into switching from Replacement Cost to Cash Value coverage on my rentals.

It's hard to calculate the replacement cost. Say if I am covered at $200000 on a 40-year-old house, I won't know how much the insurance would pay me at a complete loss. ( I am not worried about roof, I am willing to pay roof repairs out of pocket to cut premium)

I bought these homes long time ago at 1/3 the current value. most land values are $70K, one story homes, around 1500-1700sf in safe neighborhood.

How are your experiences? I have never had a total loss in 15 years, only filed hail claims. All my roofs are new,

thank you!

Thanks

ACV policies take depreciation of the various parts of the property into count. So if you have a place that is worth $200,000 that you have insured to only $180,000 and there is a total loss on the place, if the entire building is say 5 years old, you might only get $165,000.

If you underinsure it too much you get into a Co-insurance situation. If you are going to use cash value policies, ask about co-insurance.

If you are looking to reduce your insurance and have an older place, you could possibly save money by shifting from a full replacement policy to a Functional replacement policy.

Thank you Homer! I talked to Texas Fair Plan they will only insure if I deed rentals into my personal name. I don't want to move them out of LLC

I am a Contractor and have many major real estate investor clients. For a fee, I provide an estimate to re-build a structure to original standards. No code upgrades, etc.

One client was told they had to insure their property for 1M dollars. Insurance law in California says it has to be 80% of the rebuilding costs. But my estimate came in at around $675K. It did not include demo and removal of the property after a loss.

I have ACV so depreciation is a factor. My biggest loss is a roof to hail and with depreciation they aren't going to pay much anyway so I just save a ton on insurance by upping the deductible to $5000, I'm considering going to $7500 or even $10K. I've not had a claim in over 30 years and have saved enough in premiums to buy a couple of houses. By the way, I don't replace the roof with just hail damage, that won't cause it to leak 99.95% of the time and replacement is on my dime so I wait until the edges start rolling before I consider replacing it.

MikeA, thank you! I will used the tax appraisal values.

I currently have 10K deductible, roof 10K -15K,so I am not going to file a hail claim too. All my roofs are pretty new. No agent told me about co-insurance issue. thank you!

Those large deductibles are a double-edged sword. If something bad happens and that area is declared a disaster area, then it is a free claim that stays off your clue report.

This is the one part of my business I have never been comfortable with because I don't understand a lot of it.

If I have a house the insurance companies calculations tell me to insure replacement value for $275,000 and it burns to the ground, I get $275,000. I cannot rebuild that house because in the neighborhood it is in, a row house will only rent for $1000. The pay back would never be worth replacing that home in that neighborhood.

But what would the brand new house that you had built sell for?

My agent talked to me and in his opinion if I had a catastrophic accident and the entire place was to be rebuilt I should then just sell.

Makes sense in a way. I could rent the place out again and have a turn key place with nearly no maintenance for years, or I could sell it for a lot more than I had in it to owner occupied and make money on the deal.