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.