On most apartment acquisitions, the insurance quote comes last. It shows up in the closing checklist, somewhere between the title commitment and the estoppels, with a week to go.
By then the price is set, the loan is sized, and the pro forma has an insurance number in it that somebody guessed.
If the real quote comes back higher, you're stuck with it. If it comes back with a 5% wind deductible or a roof exclusion the lender won't accept, you're stuck with a closing problem too.
Owners on their fifth or tenth property have usually been burned by this once. Here's the order I'd do it in.
What the insurance quote moves
- $54,000
- less NOI when 120 units quote $450 a door over budget (illustrative)
- $831,000
- of value that $54,000 represents at a 6.5% cap rate
- 5 years
- of seller loss runs most underwriters ask for
- 7.5%
- Fannie Mae and Freddie Mac named storm deductible cap
When should you start the insurance on an apartment purchase?
At the LOI. Nothing gets bound that early. The point is an honest number before you've committed to a price that depends on it.
LOI signed.
Ask the seller for 5 years of loss runs, the roof age, and any updates to electrical, plumbing, and HVAC. Send me what you have, along with the offering memorandum, and I'll get you a budget number.
Due diligence.
The property condition report and the inspection usually turn up the things underwriters care about. Share them. A real quote needs real answers, and the inspection is where you get them.
Term sheet.
Ask the lender for its insurance requirements now, not at closing. Our lender requirements guide covers what they usually ask for. Quote to that list from the start.
Two to three weeks out.
Pick the terms, confirm the named insured matches the borrowing entity, and send the draft evidence of insurance to lender's counsel for review.
Closing day.
Coverage should be effective the day you take title, so nothing is uninsured between the seller's policy and yours.
Syndicating the deal? The syndication guide covers the LOI number, the named insured, and what to tell LPs.
What do you need to send for a quote?
The more of this I have, the less the underwriter has to guess, and underwriters guess high.
Offering memorandum. Unit count, building count, year built, construction, amenities. It's the fastest way to a budget number.
Rent roll and T-12. Occupancy, vacant units, and the income the business income limit should be built on.
Seller loss runs, 5 years. Every claim on the property. Ask for them in the LOI or the PSA, because some sellers drag their feet.
Roof, electrical, plumbing, HVAC. Ages and update years. Invoices if the seller has them.
Statement of values. Building by building. Our SOV template has the columns underwriters expect.
Lender insurance requirements. The actual list from the term sheet or loan agreement, not a summary.
Borrowing entity. The exact legal name of the LLC taking title. The policy has to match it.
Which insurance findings change the deal?
These are the ones I see move a price, a loan, or a closing date.
Roof age
Past 15 or 20 years, many carriers will only pay the roof at its depreciated value, or won't quote at all. If the roof needs replacing, you want that number in the price negotiation, not in your first claim.
Loss history
A fire, a string of water claims, or a negligent security suit on the seller's loss runs follows the building to you. Carriers underwrite the property, not just the owner. Our negligent security guide covers why carriers price that last one so hard.
Wind and hail deductibles
Coastal and hail-belt properties often carry a percentage deductible on insured value. On an $18 million property, a 5% named storm deductible is $900,000 out of pocket before the policy pays. Fannie Mae and Freddie Mac cap named storm deductibles at 7.5% (Fannie Mae Guide, Section 502; Freddie Mac Guide, Chapter 31), and many lenders set their own caps lower. Our wind deductible calculator runs your numbers.
Vacancy and renovation plans
Value-add means empty units, and empty units change the policy. Vacancy clauses can limit coverage on buildings below a set occupancy, and a heavy rehab may need its own builders risk policy. Tell me the business plan up front.
What it does to the pro forma
Here's the math on a 120-unit deal underwritten at $1,200 a door, where the real quote comes in at $1,650 because of a 22-year-old roof and a fire on the loss runs:
Illustrative
120 units × $450 a door =
$54,000
In due diligence, that quote is a reason to renegotiate. At closing, you just pay it.
What's the difference between a binder and evidence of insurance?
A binder is temporary proof that coverage is in force while the carrier issues the policy. An evidence of property insurance (usually an ACORD 28) shows the lender the property terms and names it as mortgagee and loss payee. Liability usually goes on a certificate (ACORD 25), with the lender as additional insured if the loan requires it.
A quote is neither one, and lenders won't fund on it.
Lender's counsel reads these closely. The most common closing-week fix I see is the named insured: the policy goes to the management company or the owner personally, and the borrowing LLC is missing. Our certificate of insurance guide covers what each form shows.
Should the new property go on its own policy or join the ones you have?
It depends on what you already own and when it renews. There are three usual paths:
Its own policy.
Simplest at closing, and sometimes the right call for a property with a different risk profile, like a coastal building in a portfolio of inland ones. The cost is one more renewal date and one more set of deductibles to track.
Added to your existing program.
If you already have a blanket or a multi-location policy, the new property can often be endorsed on mid-term at a pro rata premium. The carrier has to approve it, and the blanket limit may need to grow with it.
A short policy to line up renewal dates.
Write the new property for 7 or 9 months instead of 12, so it renews with everything else. Then market the whole portfolio together at one renewal.
Most owners with 5 or more properties have never seen their policies side by side. That's the review I offer below: send me the dec pages for everything you own, and I'll show you the premium, limits, deductibles, and renewal dates on one page, and whether a blanket program fits. Sometimes separate policies are the right answer, and I'll tell you that too.
The bottom line
The insurance quote belongs in due diligence, next to the inspection and the rent roll, because that's the last point where it can still change the price.
Under contract, or about to be? Send me the offering memorandum, the seller's loss runs, and the lender's insurance requirements through the form below. Or book 20 minutes and we'll go through the deal on the phone.
This article is for general educational purposes only. It isn't legal, tax, accounting, or lending advice and doesn't create a producer-client relationship. Policy terms, exclusions, and availability vary by carrier, state, and property. Only the policy actually issued determines coverage. Regulatory and lender requirements change; confirm current rules with your attorney, lender, or servicer before relying on anything here.