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.

Considerations for Turnkey Operators

For turnkey properties, we offer both package (property and liability) coverage options as well as stand-alone premises liability. Regardless of the amount of time you have invested in the property, it is important to minimize your exposure and protect your assets.

Decide between Two Loss Settlement Methods

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. With Actual Cash Value, you can insure your property to a much lower valuation per square foot*, but depreciation** is figured into the one settlement to which you are entitled in the event of a loss. Replacement Cost gives you the ability to recover the depreciation that was deducted from your initial claim’s settlement. In return, you are required to insure your property to a higher valuation per square foot.

To be eligible to recover any depreciation, you must first do the following:

  1. Exhaust the initial settlement check you received from your carrier on the repairs.
  2. You pay out-of-pocket for the remaining repairs left.
  3. Once these repairs are complete, you submit the receipts for your expenses to your property carrier, and they will reimburse you up to the depreciated amount taken from you in the onset of the claims process.

* Accepted values vary from carrier to carrier.

**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 is the roof – which depreciates at an accelerated rate (due to the constant exposure to weather).

Determine What You Would do in Case of a Loss

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 essentially pay 25-30% more for coverage while still limited to one settlement check from your carrier.

NREIG structures your coverage with a business model in mind. For locations that you stay on as the management company following the sale, we 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, our residential Insurance Program has the coverage options that are right for your business.