Value of Building Replacement for Landlord Insurance

Discussion in 'Property Management' started by StaceyLen2109, 23rd Oct, 2019.

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  1. StaceyLen2109

    StaceyLen2109 Member

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    First time investor here and feel like this might be a really stupid question, but here I go.

    I am getting quotes from various insurers for a property in Brisbane we are paying $500k for. The value of the building for replacement for insurance purposes has varied from $399k right up to $530k and then contents on top of that. Am I getting the run around here?

    My quotes for insurance are from $1786 right through to $2020 based on the above (for landlord, building and content). That just seems like a lot of money and when there is such a variance on the building value, I am feeling a little confused.

    I would be grateful for any advice or experiences from others. Many thanks!
     
    Michael Mitchell likes this.
  2. wylie

    wylie Moderator Staff Member

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    What suburb, and is it timber, brick, three bedrooms, one bathroom.

    Old house, new house? Shack or mansion. Needing renovation, or pretty much schmick?

    What is the land value?

    Perhaps $399k might be right. I cannot imagine how $530k can be right if you've just paid $500k for house and land. The land has to have part of the value.

    And check as some (most?) insurers either suggest adding 10% or something like that for clearing of rubble should the house have to be removed. Our policy includes 20% (I think) for this without me having to bump up the figure I choose.
     
  3. StaceyLen2109

    StaceyLen2109 Member

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    Thanks @wylie - Its in the College Way estate in Boondall. 4 bed, 2 bath, 2 garage brick veneer. 95 build standard quality and pretty good nick, freshly painted. We are adding a pergola as it just has concrete and an A/C as currently no air conditioning (odd for QLD). I will look into the land value but just seems high but at same time want to be adequately covered.
     
  4. Paul@PAS

    [email protected] Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    The land value should not directly be relevant and reducing market value by that may yield some unusual outcomes The cost of reinstating the dwelling if its a total loss is the key factor. If you insure too low the insurer may impose a under insurance penalty which further reduces what they pay. Many insurers add on allowances for tipping etc so check with the insurer on what they class as an insured value.

    I would find a good broker that does LL policies. EBM can guide you on the policy so its neither too high or too low.

    Landlord contents often needs guidance and includes window coverings, light fittings and floor coverings and some other fixtures. Maybe outside things too like pool, etc.... Again broker can assist guide you
     
    Perp likes this.
  5. wylie

    wylie Moderator Staff Member

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    I agree with this and hope I didn't mean to suggest you take the sale price and deduct the land value. It isn't that simple as @[email protected] indicates.

    But I'd also think a builder might be able to give you a price per square metre for a similar build, and that could be your starting point.
     
    [email protected] likes this.
  6. Beano

    Beano Well-Known Member

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    Registered valuers do the replacement valuations for insurance purposes
    I get one every two to three years per property
    They are pretty inexpensive ..about $500 each
     
  7. StaceyLen2109

    StaceyLen2109 Member

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    Thanks everyone for your inputs, very much appreciated. I have worked through the value with a couple of insurers now and landed at $430,000 and downloaded a report to keep on file for future reference should any questions be raised if I need to claim. @Beano - definitely will keep in mind to do a valuation every 2- 3 years for insurance purposes, thanks for the tip.
     
    Michael Mitchell likes this.
  8. Pumpkin

    Pumpkin Well-Known Member

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    I find lowering the Excess help reducing the premium significantly. Personally I find anything less than $2,000 is not my time in submitting a claim. You might have a different amount/threshold.
     
  9. Peter_Tersteeg

    Peter_Tersteeg Mortgage Broker Business Member

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    You probably don't need contents insurance if it's an investment property. The tenant's contents are their responsibility.

    For the building insurance, you need to know the replacement value of the building. Not really an exact science, but the lenders valuation may include an 'improvements' value. If it doesn't get the land value from the rates notice, the difference between this an the purchase price is an indicator of the building value.

    You should also run this through a 'reasonable test'. Will these figures actually be about right to replace the building? Also allow about $20k for demolition and site clearing, or check your insurance policy on how this is treated.
     
    Matyd likes this.

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