The difference between replacement cost vs actual cash value insurance on a rental property is the difference between rebuilding and walking away. Actual cash value pays you what the building was worth at the moment it burned — depreciated, market-adjusted, and almost never enough to put it back. Replacement cost pays to rebuild what you had.
Craig Marlow, a Long Island agent and small multifamily investor, learned this on his best-producing property: a three-family in a high-end Binghamton neighborhood that caught fire when a tenant smoked on the back porch. The carrier paid about $130,000 — roughly what the house was worth. It was not enough to rebuild.
Below: what that policy choice actually cost him, what replacement cost would have changed, and the other two protections he now runs on every door — a separate LLC per property and a guarantor on every lease — plus the unit-count rule that keeps a vacancy from reaching his own bank account.
Key takeaways
- Actual cash value pays depreciated market value, not rebuild cost. Marlow’s Binghamton three-family paid out about $130,000 after a fire — not enough to reconstruct the building.
- Confirm your policy type in writing with your carrier. Marlow didn’t know his was ACV until after the loss, and he describes it as the most expensive lesson of his investing career.
- Never buy a single-unit rental if you have low risk tolerance. Two or three units means one nonpaying tenant doesn’t force money out of your own pocket.
- Put a guarantor — parent, sibling — on every lease. Marlow added this after a tenant stopped paying and took a year to remove.
- His beginner entry math: roughly $30,000 down on a $150K–$200K two- or three-unit on a city’s outskirts, using a lender that qualifies the rents instead of personal income, targeting $500–$600/month.
From the Real Estate Pros Show
This article draws on an interview with Craig Marlow of Marlow Realtors on the Real Estate Pros Show, hosted by Scott Bursey.
What Actual Cash Value Cost One Landlord After a Fire
Marlow’s strongest-performing rental was a three-family in a high-end Binghamton neighborhood. In his words, it was the worst house on a good block — his tenants were the worst tenants compared to everyone else around them. One of them was smoking on the back porch. The house caught fire and burned down.
Nobody was hurt. That is the part that matters most and the part he says first. The financial part came after.
The carrier paid out roughly $130,000, which was approximately what the house was worth. It was not approximately what it cost to rebuild a three-family structure. Marlow was left holding a check that couldn’t put the building back and a lot in a neighborhood he liked.
His own account of why: “I cheaped out and I didn’t realize this. I cheaped out on what they call actual cash value insurance instead of replacement cost insurance.”
Two things are worth separating there. The first is that he shopped on price — insurance is one of the smallest line items on a rental P&L, and it is the easiest place to shave $40 a month without feeling it. The second, and the more dangerous one, is that he didn’t know. He wasn’t weighing a tradeoff and accepting the risk. He found out what kind of policy he owned at the worst possible moment, with an adjuster explaining it to him.
Asked for the most expensive lesson of his career, this is the one he named. His takeaway was flat: on all of his houses, he needs replacement cost coverage.
What Replacement Cost Coverage Would Have Changed
Marlow’s read on the counterfactual is specific: with replacement cost coverage, the carrier would have rebuilt the house from scratch. He would have ended up with a brand new building in a good neighborhood, the ability to raise rents to match that new construction, and a clean reset on the tenant base that caused the fire in the first place.
That is his assessment of his own situation, not a guarantee of how any claim resolves. Replacement cost policies come with their own terms — coverage limits, whether the limit was set high enough to actually cover current construction costs, code-upgrade provisions, and in many cases a requirement that you actually rebuild before the full amount is released. A replacement cost policy with a limit set years ago against old construction pricing can still leave a gap.
The practical step is not complicated. Ask your agent, in writing, which of the two you have on each property and what the dwelling coverage limit is. Then ask what it would cost today to rebuild that structure at current labor and material prices in that market. If the second number is bigger than the first, you have a problem whether your policy says replacement cost or not.
For a small portfolio this is a once-a-year, half-hour task. Marlow’s experience is the argument for doing it before a claim rather than during one.
I cheaped out on what they call actual cash value insurance instead of replacement cost insurance. They gave me what the house was worth, about $130,000, and I did not have enough money to rebuild it.
— Craig Marlow, Marlow Realtors
Never Buy a Single-Unit Rental: The Two-Door Rule
Marlow runs a hard rule on acquisitions: every rental has to be two or three units. Not a preference — a filter he applies before he looks at anything else.
The logic is cash flow survival. If one unit goes vacant or one tenant stops paying, the remaining units keep the property afloat without money coming out of his own pocket. A single-family rental has exactly one income stream, and when it stops, you are covering the mortgage, taxes and insurance personally for however long eviction takes in that state.
He ties this directly to his own tolerance for risk, which he describes as low. His framing is that a base — in his case a teaching salary plus his real estate commissions — is what lets you take calculated risks elsewhere. The two-door rule is the same idea applied at the property level: build the redundancy in at purchase so a single bad tenant is an annoyance rather than a monthly bleed.
The companion warning he gives new investors is overextension. His own 22-year-old son owns one rental and wants to refinance it to buy the next one, which is how portfolios get built — and also how they come apart. The danger, as Marlow puts it, is buying so much that when something goes south and someone stops paying, you no longer have the ability to keep it afloat and you are dealing with foreclosure.
The two-door rule and the overextension warning are the same discipline. Both assume someone will stop paying. One of them did.
The Tenant Who Wouldn’t Pay — and the Lease Clause He Added After
One tenant stopped paying rent because, in Marlow’s words, she knew how to play the game. Getting her out took a year.
She didn’t just stop paying. She filed an order of protection against him, claiming he was harassing her. Then she went out to bars on weekends handing out his personal cell number, telling people the downstairs unit — occupied by a perfectly happy tenant — was becoming available and that Craig wanted to show it to them. He was fielding roughly 15 texts a weekend from strangers asking to see a vacant apartment that didn’t exist.
The two units above and below her kept the property paying its own bills for that year. That is the two-door rule working exactly as designed.
Two changes came out of it:
- A guarantor on every lease. A parent, a brother, or a sister signs alongside the tenant. Marlow’s reasoning is that a professional nonpayer is perfectly happy to let you chase them, knowing there’s not much you can do. When a family member is on the hook and the tenant knows you can go after them, the behavior changes.
- Buying in landlord-friendlier states. He shifted most new acquisitions to Pennsylvania — better for landlords than New York on his read, and still within driving distance of Long Island. Drive time is a real criterion for him, not an afterthought.
Eviction law and guarantor enforceability vary by state, so have your attorney draft the clause for the jurisdiction you’re buying in. The principle holds regardless: give yourself a second name to collect from before you need one.
Entity and Coverage Setup for a Small Portfolio
Asked how a new investor protects what they’ve already built, Marlow gives three answers in order.
- An individual LLC per property. Every one of his houses sits in its own LLC with its own designated name and its own DBA. The purpose is distance — a tenant can sue you personally over something that happens at a rental, and the entity is what stands between that claim and everything else you own.
- The correct insurance. Replacement cost, confirmed, on every property. This is the Binghamton lesson, and it is the one he says cost him the most.
- Two units minimum. So that one nonpaying tenant never reaches his personal account.
The setup is deliberately unglamorous and it is cheap relative to what it protects. An LLC per door adds filing fees, separate bank accounts, and bookkeeping overhead — real friction, but manageable at four to eight properties, which is the range Marlow operates in.
Two caveats worth stating plainly. Entity structure has tax and lending consequences that differ by state and by how your loans are written; some lenders restrict transferring a mortgaged property into an LLC. And an LLC does not substitute for adequate insurance — it is the second line, not the first. Run both the entity structure and the coverage limits past your own attorney and your own agent before you copy anyone’s stack, including this one.
Rebuilding Dry Powder Without Selling More Doors
Marlow is down from eight properties to four. He sold to fund a large renovation on his primary residence in Northport, and his rental income went from the $10,000–$11,000 a month range to about $7,000 a month. He wants to be back at eight within three to five years.
His current strategy is cash accumulation, not acquisition. He won’t refinance at 7.5% — he considers that too expensive to service for cash he isn’t deploying yet. Instead he’s pulling HELOCs against existing equity, holding the proceeds, and waiting for a correction in the multifamily and rental market. When it comes, he expects to pick up two to five properties, with particular attention to short sales involving PMI and foreclosures from people who overbought.
He has already identified four properties in Scranton, Pennsylvania that he cannot currently fund. That’s the position: deals located, capital not yet rebuilt. He’s also weighing a partnership with his parents, who are 90 and holding money in CDs and stocks, on the argument that the rentals would beat the CD yield.
For someone starting from zero, he gave a Stony Brook student with $30,000 this math: find a two- or three-unit priced at $150,000 to $200,000 on the outskirts of whatever city you’re near, put the $30,000 down, and use a lender that qualifies the loan on the property’s rents rather than your personal income. Target is $500 to $600 a month in cash flow. The student hasn’t landed one yet — Marlow is still helping him look — but the structure is the point: rents cover the debt, so you don’t need a salary to qualify.
Frequently asked questions
How do I tell whether my landlord policy is actual cash value or replacement cost?
Look at the dwelling coverage section of your declarations page — it will specify ACV, replacement cost, or extended/guaranteed replacement cost. If the wording is ambiguous, email your agent and ask them to confirm in writing for each property, along with the dwelling limit.
Then do the second half of the check: ask what it would cost to rebuild that specific structure at today’s construction prices in that market. A replacement cost policy with a stale limit can still leave you short.
Should each rental property have its own LLC?
Craig Marlow runs an individual LLC with its own name and DBA for every property he owns, specifically to put distance between a tenant lawsuit and his personal assets. At a portfolio of four to eight doors, the filing fees and separate bookkeeping are manageable.
Whether it’s right for you depends on your state, your loan terms, and your tax situation — some mortgages restrict transferring title into an entity. Have an attorney who practices in the state where the property sits review the structure before you file anything.
What does a guarantor on a lease actually accomplish with a nonpaying tenant?
It gives you a second party to collect from, and more usefully, it changes the tenant’s calculation before they ever stop paying. Marlow’s point is that a tenant who knows how to work the eviction system is perfectly comfortable letting you chase them — but much less comfortable when a parent or sibling is on the hook.
He now requires a parent, brother, or sister on every lease. Enforceability varies by state, so have the clause drafted for your jurisdiction rather than pulled off a template.
Why avoid buying single-family rentals if you have a low risk tolerance?
Because a single-family rental has exactly one income stream. When that tenant leaves or stops paying, you cover the mortgage, taxes and insurance personally until you re-tenant — which in a tenant-friendly state can take a year.
Marlow’s rule is two or three units minimum, so the remaining tenants keep the property paying its own bills. During his year-long eviction fight, that’s exactly what happened.
Can you buy a small multifamily without W-2 income if the rents cover the mortgage?
Marlow tells his students yes — there are lenders that qualify the loan based on the property’s rental income rather than the borrower’s personal salary, so the down payment is the main hurdle.
His worked example: roughly $30,000 down on a $150,000 to $200,000 two- or three-unit on the outskirts of a nearby city, targeting $500 to $600 a month in cash flow. Terms, rates and reserve requirements vary widely by lender, so price it with two or three before you make offers.
The bottom line
Pull your declarations pages this week and confirm, in writing from your agent, whether each property is covered at replacement cost and whether the dwelling limit matches current rebuild costs in that market. It is a half-hour task, it costs nothing to check, and it is the one line item where shopping on price can turn a fire into an exit.
