What is the cost for home insurance based on?

Question

I am thinking of buying properties in other states to use as rental income.
The properties are cheap so i can afford to pay cash the issue how ever is that the rent is also cheap in one case 800 dollars a month that's a total of 9600 a year coming in before property taxes and personal tax so its not like i will make a killing and depending on how insurance companies decide their fees it may break all chances of profit so my question is. How do insurance companies charge you for insurance is it based on how much the property is worth or how much they would have to shell out should something happen ect please explain.

btw i am familiar with liens and back taxes so don't worry about that part i am just not familiar with insurance : (

Additional Details

Yes i know being a distant landlord is difficult so if it makes economic sense to get a management company i will how ever since i am considering buying several properties i am considering giving 1 tenant free housing in exchange for managing and doing some handy work. As for the matter of repairs i am not planning on buying any property that requires any work at all i am only getting move in ready properties and am paying cash for them (theyre all under 60k) how ever this does make me think that a property management company may be necessary and not so much an option. btw ty for the help guys its been very useful keep it coming folks

Answer 1

Best Answer - Chosen by Voters

Listen to Acermill; being a distant landlord is difficult. Been there done that. If you don't have a management company you'll need someone local to check on the property occasionally. You'll also need the phone numbers to people such as 24 hour plumbers.

The cost of the insurance will depend upon the cost to rebuild the property, your credit score, and the risk involved. Location will be the greatest factor with the risk. Often, a "cheap" property will cost much more to rebuild than it cost to purchase, especially if it is located in a depressed area.

Source(s):

Independent Agent

Answer 2

Insurance rates are based simply on risk of potential payout. Hence, if the property is located where hurricane damage is common, your rates will be much higher than in (example) Nevada, where such huge losses are not expected. Any time you consider buying investment property, be sure to check with an insurer to obtain annual rates prior to offering to purchase.

Since you indicated that you are considering buying out-of-state, be advised that being a 'distant landlord' is not easy. If you still want to do so, strongly consider having these properties managed by a qualified rental management company in the area of purchase.

Answer 3

Have you ever been an absentee landlord before? Trust me, it ain't fun. Rethink your plan.

Source(s):

Experience.

Answer 4

You might also repost more questions under the category real estate.

So, far you already have some great answers here.

Answer 5

Depends on how the policy is written! For rental properties, it can be "cost to rebuild", "market value", "functional replacement cost" or "flat". Those are the basic ones.

It also matters if you're buying stand alone houses, or 6 unit apartments, or a rowhouse or duplex.

If you came to me and said you paid $15,000 for a rowhouse, you'd probably be pretty happy with a functional replacement cost policy with $60,000 of coverage - which might cost you $600 a year in Pittsburgh. Or, maybe you've got a small 3 bedroom in Idaho, stand alone, which you might want $100,000 replacement cost coverage for the same $600.

There's no "rule of thumb" - you have to consider the house itself, how much you pay for it, the location, the rents, the cost to rebuild, etc.