There are two different ways that rental property owners can insure their rental properties. Each has its own challenges and rewards. Order for you to make an informed decision on your insurance rental property, you should know the advantages and disadvantages of both.
Here we will discuss the approach value. market value: Or Actual Value: Some insurance companies will allow you to provide your home with the market value, which is what you sell to the open market. Actual cash value is the replacement cost less depreciation. There are several computer programs available to find this number and all insurance agents have access to them. The most popular is by Marshall and Swift. Advantages: The pro of this is that you can buy an old house in an area may be a lower value of the city for a fraction of what it would cost to rebuild again today.
We all brick house huge three dishes decorated with wood trim, hardwood floors that are no longer in the "in" section of the city. The cost to build such a house can be $ 500 - $ 600 000 thousand dollars, but the market value is only $ 125,000. Using the market value or the value at time of loss can assure you for a much lower cost, hoping a much lower premium. The thought here is that if the house burns to the ground you simply remove debris, and sell the lot open and use the insurance money to buy or build elsewhere. Disadvantages: Cost savings on insurance premiums insurance for your rental property is usually not worth the effort unless you get the market value of at least 50% of the cost of reconstruction. Otherwise, the difference in premiums is simply not worth it in the fall.
The biggest drawback of this approach is a partial fire. Say that the kitchen burns causing smoke damage and damage to foundations partial home. Kitchens, especially to match an old and are very expensive, not to mention all the smoke damage and water. Now, count some foundation problems small or larger fire walking on the walls and in the attic and now you're done. You have a large protion of the damaged building and the insurance money is not enough to really correct. Say that the cost of entrepreneurs, in the example above $ 140,000 are you insured for $ 125,000. Now that you have to pay the cost of demolition to remove the whole building both good and bad, clean and backfill the hole and you get all the empty lot and $ 80 - $ 90,000 dollars.
However - this is the kicker, you still own the bank the sum of 125,000. Your short. You either have to declare bankruptcy if you incorporated or sell another asset to arrive at the difference. Bottom Line: Beware the type of the market value of your insurance policy for rental property.
The premium may be attractive, but there are some serious drawbacks that you should consider. Talk to your agent. Do you give a comprehensive analysis of the advantages and disadvantages, and now you can make a better informed decision ....
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