Insuring Your Flip Amidst Renovations

 How to Insure a Flip During Renovations.

Every property needs insurance, but flips are an unusual type of property to insure. When buying homes to fix and flip, your goal is to perform renovations until the property is move-in ready for a buyer or tenant. You still need insurance to protect the home from things like fire, vandalism, and on-premise liability, but an investment property under renovation is not the same as insuring a primary residence.

Your flip properties need insurance. The question is what type of insurance and how to secure the right amount of coverage. That depends on your situation, risk factors, and exactly how extensive your renovations are going to be. Fortunately, we've worked with a lot of home flipping pros and can provide more than a few useful  tips on how to insure your flip.

 

Why Flip Insurance is Different from Home Insurance

Why can't you get normal home insurance? Insuring a flip requires different policies because:

• It is (probably) not your primary residence
• The home is under renovation
• The home may be vacant (unoccupied)
• There are different risk factors

Normal home insurance is designed to protect a family trying to live a normal life inside a primary residence. It covers unexpected damage like broken pipes and roof leaks. A flip is a property under construction, and your need for coverage is significantly different.

 

The 3 Types of Insurance You Need for a Flip

There are three types of insurance that are the most useful when flipping a house: Dwelling, Builder's Risk, and Liability insurance. You always need liability coverage, and the depth of your renovations will determine whether Dwelling or Builder's Risk coverage is more appropriate.

Dwelling Insurance

A Dwelling Policy is an insurance plan that protects a home from typical risks that do not relate to construction. Dwelling insurance likely includes coverage for things like fire and smoke damage, storm and hail damage, theft and vandalism, lightning strikes, weight of snow, falling objects, vehicle damage, or exploding pipes. In other words, perils that might happen to any house, even if it is properly maintained.

Dwelling insurance covers your basis for accidents, acts of nature, and misdeeds by others. It does not cover personal possessions inside the house.

You can secure dwelling insurance during light renovations, but let your agent know when each project begins or ends to ensure full coverage as your risk levels fluctuate during the flip process. If you only need to do light surface-level renovations, you may not need more than Dwelling and Liability insurance.

Builder's Risk Insurance

Builder's risk insurance is the best choice when the home is currently under construction. This policy is designed to protect construction projects. It covers basic structural property damage like fire, lightning, hail, theft, and so on, so you're covered even if you need to switch between dwelling and builder's risk insurance based on the intensity of your renovations.

It also covers not just the property but also your building materials, supplies, and equipment used or stored on site. This ensures that if vandals steal your equipment or water damage ruins your building materials, you can get the value back in an insurance claim.

Builder's risk insurance may also cover loss of income, loan interest, and real estate taxes if a covered disaster causes construction delays.

General Liability Insurance

General liability covers the risk of an unrelated injury occurring on your property. Seek a general liability umbrella policy which will pay the necessary liability should someone slip-and-fall or worse on your property. This does not cover your contractors or workers, but may cover visitors, neighbors, inspectors, potential buyers, and other unrelated to the construction itself.

Vacancy Insurance 

If the house will stand empty for any duration of time, consider also securing vacancy insurance. This provides additional and specialized coverage for homes that are not currently occupied and not closely monitored.

Alternatively, if you are doing a live-in flip, you may be able to secure normal homeowner's insurance for the time between completed renovations and the home sale.

 

Coverage Details to Watch For

When building your flip insurance policies, know your terms. Disaster coverage and exclusions aren't the only details to look out for. You should also know the difference between the types of form and value coverage.

• Form Coverage

  • Basic Form Coverage - Only covers listed causes of loss
  • Special Form Coverage - Covers all causes of loss except listed exclusions.

• Value

  • Actual Cash Value - Only covers the current cash value of the property - which will be lower because you are mid-renovation.
  • Replacement Cost Value - Covers the full cost of replacing lost materials or restorations after property damage.

 

When and How to Insure Your Flip

The best time to seek out flip insurance is before you buy the property. Identify flip-friendly insurance providers like Obie and NREIG (National Real Estate Insurance Group), who specialize in the nuances of insuring an under-construction flip.

Bring your full renovation plan to a few insurance agents and shop for the best insurance plan for your needs. This way, your policy can begin the day you buy the house, so you are fully covered immediately, and your coverage plan is complete with no risk of interruptions as you progress through your construction phases.

 

Working With Flip and Rent Pros

If your goal is to rent properties that you have flipped, Leaf Management is ready to assist. We specialize in skillful property management and working with flip investors. We are ready to join forces to optimize your flip and rent investment plans.

2024 Q4 Housing Market Predictions

 

What to Expect From the Housing Market in 2024 Q4

Whether you're flipping homes or expanding your real estate portfolio, the best time to expand your investment home portfolio is when the markets are properly aligned. As a buyer, you're likely looking for good mortgage rates and temporary dips in home prices so you can buy low, then sell high. So what does the housing market look like right now, and what can you expect from 2024 Q4 housing market trends? 

This overview will provide a useful look into rates, trends, demand, and seasonal patterns to guide your investment decisions.

 

Home Prices Continue to Rise

As could be expected, housing prices continue to rise. Dips are more unusual than the steady march of increased property value.The gain rate in May was 5.9% from 6.4% in April, which indicates the price increase is slowing, but has not decreased.

Median home prices reached a reached a record high of $426,900 in June 2024, also marking 12 straight months of price increases.

It is also expected that if mortgage rates drop to a desirable level, buying will pick up, and home prices are likely to see another jump.

New Home Prices are Set Low

Interestingly, you may see reports that the median home price is dropping. This is because housing developers see which way the wind is blowing. They are offering homes at lower prices with buyer incentives, counterbalancing the steady continued rise of resale housing prices.

Forbes reports that 31% of builders reduced prices in June along with incentives to further lower new home costs. This means new homes in new neighborhoods are becoming consistently more affordable than resales in established neighborhoods.

 

Mortgage Rates Slowly Cool Down

Mortgage rates have been slowly dropping since the 8% peak in October 2023. The average 30-year fixed mortgage rate dipped below 7% in June and has been trending toward 6.7% as of early August 2024.

The rate of sales has decreased in all four major real estate regions in the US (Northeast, Midwest, South, West) compared to 1 year ago.

The continued drop in mortgage rates will make buying more financially desirable, which may cause market acceleration. Buyers and sellers who have been putting off home purchasing due to the high mortgage rate are more likely to rejoin the market if rates continue to drop.

The Commission Changeover

In case you haven't heard the news, the standard 6% real estate agent comission rule has been overturned. Now, agents can charge any commission they choose, buyers will be responsible for their own agent fees, and different agents or brokerage firms will develop their own unique billing policies. Be prepared to navigate this changing landscape if you hire a real estate agent going forward.

 

Demand for Homes Exceeds Supply

Housing inventory continues to fall short of demand. THere are consistently more buyers than sellers, and even rapid new developments have not yet balanced the scales. This matter has been exacerbated by high mortgage rates, causing homeowners to delay selling properties that currently have a better mortgage rate than they could secure today.

 

2024 Q4 Housing Market Trends for Home Flippers

What do these trends mean from the perspective of the home-flipping investment strategy? 

• The dropping mortgage rates will allow you to spend less on interest while flipping each house.
• The low housing market supply is good news for those bringing "below the bar" homes back to the market. With an overwhelming demand for homes to buy, especially in the more affordable price ranges, flipping shabby houses back into starter and family homes, you are sure to have a waiting audience of eager buyers.
• The trend for newly built homes is worth considering, but likely does not pose serious competition for restored houses in established neighborhoods.
• The new real estate commission rules should be considered. Be sure to hammer out the details with your agent before you sign with them, if you use a real estate agent for your house hunting. If you hunt using other means, this may not be a concern.

 

Planning Your Housing Market Strategy 

Investment properties and house flipping rely on good market conditions or unique favorable opportunities. If you plan to turn your investments into rental properties, Leaf Mortgage can help you build a profitable strategy in selecting, flipping, and then efficiently managing your growing portfolio. Contact us today to learn more. 

Keeping Your Rental Ready

 

10 Non-Essential Updates That Keep Your Rentals Ready

Between tenants, every rental property owner knows that updates are essential. Most focus on essential updates and repairs. However, too much focus on things like appliances and floor quality can leave the home looking dated and underperforming on the market. What you might not realize is that "non-essential" updates are an affordable and highly effective way to modernize a home, improve its profitability, and make it more appealing to long-term tenants.

These 10 non-essential rental updates can keep your properties ready to attract new renters each year.

 

1) Fresh Coat of Paint

A fresh coat of paint makes any home or apartment feel newer and more modern. You can update the interior color palette and easily cover scuffs left by previous tenants. Securing a good painting team who knows how to do edges and baseboards with quick precision is a valuable investment when your goal is to impress new tenants and improve the quality of each rental property.

 

2) Faucets, Handles, and Showerheads

Don't wait until the chrome starts flaking to upgrade the plumbing features. All it takes is a few twists of the pipe wrench to keep your faucets, handles, and showerheads up to date. Dated old bathrooms get a new vibe when new hardware is installed, while showerheads and the kitchen sink can updated to compete with the latest rentals on the market at a very affordable price for each update.

 

3) Door Knobs and Drawer Pulls

A dated kitchen can also be easily updated with three simple changes. Repainting (or revarnishing) the cabnets can update the kitchen color scheme. Replacing the cabinet doors can immediately modernize the kitchen style. You can also modernize by replacing the cabinet handles and drawer pulls, which often reveal a home's true age.

The same can be done for the doorknobs throughout the house, which will ensure each door opens easily and closes with a satisfying click in addition to choosing modern styles.

 

4) New Light Fixture Covers

Light fixture covers can reveal a home's age, but you don't need all-new light fixtures to update the look. Simply replace the light covers. Most rental homes have ceiling fans and flush ceiling lighting. You can swap out the glass enclosures over each fixture to update the interior design significantly and get rid of dusty old glass covers at the same time.

 

5) Outlet and Lightswitch Cover Swaps

Speaking of dated lighting. The quality of the plastic on outlet covers and light switch covers can reveal a home's age. But they don't have to. A box of new covers and some quick screwdriver work are all you need to ensure that each rental's hardware looks new and in good quality. You can choose stylish covers or just keep that plastic looking new and clean.

 

6) Weather Stripping

Good insulation is always worth a little extra effort. Remember to update each rental's weather stripping around doors and re-caulk your windows every 2-5 years. This simple update is very affordable and can make a big difference for your tenant's comfort and power bills. The work also ensures doors close with a satisfying airlock feel and windows never rattle.

 

7) Periodic Re-Tiling

Tile can clearly indicate the era that a home was last remodeled. While more intensive than swapping a few doorknobs and light covers, retiling is a non-essential update that is worth the investment. Choosing modern, attractive tile once a decade is enough to keep a home looking stylish and appealing to the current generation of renters.

 

8) Update the Baseboards and Crown Molding

Just like lightswitch covers, crown molding and baseboards can start to look shabby after a few years. These are also easy and low-cost updates that you can make to any rental home. Simply pull off the old molding and use a nail gun to attach new molding in it's place. A little clever cutting and precision painting will have your new molding looking crisp and attractive.

 

9) Clean/Replace Exhaust Fans

One often-overlooked maintenance step is to clean or replace the exuaust fans in the stove hood and bathrooms. These fans get dusty, clogged, and less effective over time. But their purpose is essential. Have your exhaust fans cleaned with every tenant turnover and replace them after 10-15 years.

 

10) Install Pantry Organizers

Lastly, you can easily update a rental with the latest little widgets. This year, it's pantry organization. Wire shelves, hooks, and built-in storage features make a kitchen feel cutting-edge without making major or structural changes. Keep an eye on the trends and take the opportunity when a little update will have a big impact on rental desirability.

 

Attracting New Tenants with Leaf Management

Keeping your rentals attractive and modernized is key to a profitable rental home strategy. Tenants will be drawn to well-maintained and up-to-date living spaces that have clearly been kept in top condition in recent years. Leaf Management can help you keep up with these small but important updates and keep your tenants happy. Contact us to learn more.