This article was originally published in the January 2018 issue of Think Realty Magazine as part of the sponsored “Investor Review.”
Turnkey operators have unique needs when it comes to how they insure their property investment portfolio. Whether it’s deciding to carry property and liability insurance (or liability only) or determining what building value is sufficient, turnkey operators need an insurance program built to accommodate their specific needs.
TurnkeyGuard offers both package (property and liability) coverage options as well as stand-alone premises liability. Regardless of the amount of time you have ownership interest in the property, TurnkeyGuard provides the coverage you need to minimize your exposure and protect your assets.
When it comes to insurance, there are many coverage options available for real estate investors. One of the most common questions turnkey operators ask is whether Actual Cash Value or Replacement Cost coverage is appropriate for their business strategy. When deciding how to insure your investment property, you have two “standard” options available: Actual Cash Value and Replacement Cost. Actual Cash Value allows you to insure your property at a much lower valuation per square foot (these accepted values vary from carrier to carrier), but figures depreciation* into the one settlement you are entitled to following any property loss. Replacement Cost, in return for insuring your property to a higher valuation per square foot (also varies from carrier to carrier), gives you the ability to recover the depreciation that was deducted from your initial claims settlement.
To be eligible to recover any depreciation, you must first do the following:
- Exhaust the initial settlement check paid to you from your carrier on the repairs.
- The remaining repairs left must be paid for out-of-pocket by you.
- Once these repairs are complete, you can submit the receipts for your expenses to your property carrier, and they will reimburse you up to your depreciated amount taken from you in the onset of the claims process.
*Depreciation is tricky and almost impossible to figure. Everything depreciates at a different level, with the average being roughly 1-2% per year since the latest updates. The exception to this being the roof – which depreciates at an accelerated rate (due to the constant exposure to weather).
* When deciding how to best protect your investment property, consider what you would do if you were to suffer a total loss: would you rebuild the property or would you clean up the land, sell it and move on to your next investment opportunity?
If you would not rebuild, then carrying Replacement Cost is overpaying for property insurance. You are essentially paying 25-30% more (as this is the percentage of increase in premium on average associated with insuring your property to a higher valuation per square foot to garner Replacement Cost) for coverage while still being limited to one settlement check from your carrier following any other property loss.
TurnkeyGuard structures your coverage with a business model in mind. For locations that you stay on as the management company following the sale, TurnkeyGuard will allocate the appropriate ownership interest to these locations, while leveraging your portfolio performance to stabilize your property rates long-term. Regardless of your preference to “self-insure” your property coverage (and choose to only carry premises liability coverage) or preferring to cover both the property and liability coverage, TurnkeyGuard has the coverage options that are right for your business.