How to Manage a Water Leak

 Managing a Leak in the Water Main of Your Rental Property

What To Do If You Have A Leaking Main Water Line

Thousands of folks every year have to repair or replace a leaking main water line.

There are many types of leak that can occur in old city plumbing. Leaky faucets may drip. Rusted pipes may release water behind the walls. Frozen pipes might even burst. But the most subtle and potentially dangerous type of leak is a water main line leak. Your water main is where the building's water branches from the main supply pipes of water below ground level. Water main leaks are the most likely to damage your foundation, flood your basement, and pour out onto the street. Not only is this bad for your water bill, but it can also cause serious damage to the property, and it's not a simple plumbing repair.

What should you do if you have a leaking main water line? As underground plumbing experts, we can help.

 

First, Determine If Your Leak is the Water Main Line

Signs of a leak and signs of a water main line leak are often very similar: Water where it shouldn't be. However, water main lines are almost always underground, in the basement, or near the lowest areas of the house, where other types of leaks can appear higher in your building's structure.

Signs of a Water Main Line Leak

1. Pooling water at ground-level or in the basement
   • When a water main line leaks, water may seep up through the ground, foundation, and basement levels to form a puddle.
2. Hissing or bubbling sounds down below
   • A leaking pipe will sometimes make a soft noise as pressurized water escapes through a small leak.
3. Lower water pressure
   • A major leak in the water main can minimize your home's access to water pressure.
4. Discolored water
   • If all the water in your house becomes discolored or develops a funny smell/taste, this could be a sign of water contamination at the main line.
5. Flooded basement
   • Water main lines are more likely to flood your basement because they tend to be placed at an underground level.
6. Foundation cracks
   • If the water penetrates your foundation, it can cause expansion and dangerous cracks.

Sight Test

On rare occasions, it may be possible to physically see your water main line and where the leak is coming from.

 

How to Test If a Leak is a Water Main Line Leak

A professional plumbing service can provide water leak tests to help determine where the leak symptoms are coming from and whether the problem is your water main line.

• Meter Test
  • All faucets and shut-off valves are closed so the house should be using no water. If the meter continues to register water use, there may be main line damage.
• Audio Test
  • Delicate testing equipment may be able to listen through the pipes to determine where the water is escaping and if it's in your water main line.
• Water Main Inspection
  • A plumbing pro may also be able to access your water main line for a direct inspection of the joint components and the connected pipes.

 

What to Do If You Have a Water Main Line Leak in a Big City

Knowing what to do next is critical to protect your property and your water bill. What should you do if you have a water main line leak?

Turn Off the Water

If possible, you can stop the flooding and water damage by turning off the main water valve - if the valve itself is not the source of the leak. Closing the water main valve will stop water from reaching your building, but it will also cut off water to the leak.

If the problem is between the curb and your home, you may need a specialized plumbing service to turn off the curb stop valve.

Call 311

In most cases, unless you can actually see that your water line is leaking, is to report the leak correctly. Verification is to key to avoid performing water line repair work that may not be required. 311 is the non-emergency local government number.

Schedule Water Main Line Repairs

Once you have confirmed the location and type of damage to your water main, you can schedule repairs. Look for licensed specialists who perform this type of work. Main water service line work is a specialty within the plumbing industry. Balkan Sewer and Water Main Service specializes in underground city plumbing tasks and can provide both repairs and pipe section replacements related to your water main and the water main line that leads into your property.

 

Protect Your Property with Leaf Management

If you are worried about major malfunctions like the water main for properties in the big city, Leaf Management can help. Contact us today to partner with a skilled property management team.

Fair Housing Violations

 

How to Protect Yourself From a Fair Housing Violation Accusation

As a landlord, choosing tenants carefully is an essential part of protecting your rental homes. You are looking for people who are stable, responsible, and ideally plan to stay for a few years. However, fair housing laws require that you determine these traits without asking a number of personal questions ranging from national origins to family status. It is illegal to make decisions based on any protected status defined by the fair housing act, so landlords use credit reports, work history, and rental histories instead.

But what do you do if someone has accused you of a fair housing violation, and how can you protect yourself from fair housing accusations in the future? We can help you navigate this delicate situation to ensure your rental business is always clearly above-board.

 

Define Fair Housing Violation

The Fair Housing Act requires that landlords never make decisions - especially discriminatory decisions - based on protected information about an applicant or tenant. Knowing exactly what qualifies as a fair housing violation can help protect you from false and spurious accusations.

Protected details include:

• Race
• Skin color
• National origin
• Religion
• Sex, gender, or sexual orientation
• Familial status or structure
• Disability

Types of discriminatory practices that are prohibited include the following actions based on a protected status:

• Whether to rent to someone based on protected information
• Setting different lease terms
• Exacting harsher fees and penalties
• Raising the rent more than usual
• Providing a lower quality of service or denying service
• Use different qualification criteria
• Evict a tenant or guest
• Harass or act hostile toward a person
• Assign specific housing

You are also not permitted to reference protected status details when advertising for rental homes.

 

Refuting a Fair Housing Accusation

Landlords might be accused of fair housing violations from a rejected applicant, a current tenant, or a past tenant depending on the nature of their accusation. Fortunately, a landlord that has been running their operations with documentation and record-keeping can usually refute these accusations by providing the paperwork and criteria they use to make each decision regarding rental properties, leases, and tenant management policies.

Disclose Your Tenant Screening Process

Reveal the process you use to screen applicants for each home. Most landlords have a specific routine they go through and a formula they apply to help make a safe tenant selection for each home. This likely includes running a credit check, rental history check, and income verification, then choosing the applicant with the best numerical scores. Other laws are required to ensure these checks provide fair and equal data regardless of protected statuses.

Show Equal and Consistent Lease Terms

Most landlords use the same lease for each property, and often nearly identical lease terms between multiple properties. If you have used the same lease and terms for several previous tenants, this can show that you did not treat an accusing tenant any differently. Records regarding fees and penalties can also help show that any fees exacted were under the same policies and conditions as previous tenants.

Reveal the Purpose Behind Each Decision

For less uniform decisions, reveal your decision-making process or routine procedure, such as the process you use to send maintenance teams for house repairs, how often you answer tenant emails, and so on to show that you have treated the accusing applicant or tenant the same way you have treated everyone else.

 

How to Avoid Fair Housing Concerns in the Future

How can you protect yourself from accusations of fair housing violations in the future? While some people are inclined to make spurious decisions, you can discourage these instances and make them easy to refute with a few simple steps.

Formalize and Document Your Screening Process

Formalize your tenant screening process and do it the exact same way every time. Use numerical scores in your decision making that cannot possibly be personal or related to protected personal details. Then create a clear documentation of your screening process for each and every applicant and turnover process.

Note: Many landlords use a screening service to ensure the process is routine and objective.

Never Ask Personal and Protected Questions, Even in Small Talk

Small talk can be risky with an applicant or tenant. Never ask personal questions related to someone's identity or even their family structure and politely decline to learn more if tenants start to tell you about themselves regarding these details. Not knowing is a good protection against accusations of discrimination. 

Use the Same Lease for Every Tenant

Unify your lease terms. Many landlords use near-identical lease terms for every rental house in their portfolio. If a house requires custom terms relating to the property features (like appliances or gardens) be sure to use the same lease for each tenant of that property. Otherwise, maintain standard terms like late fee grace periods for all properties and tenants - and implement those rules the same for everyone.

Keep Records of Fees and Penalties

The biggest gray area after screening is the implementation of certain rules like fees and penalties. Keeping meticulous records of each time a penalty is enacted and why can show that you are always fair and consistent and don't apply the rules differently for different tenants.

Note: Some cases cause for unique rule management - like being particularly forgiving if you rent student housing. Document this policy clearly as well.

Document Unique Lease Negotiations

Lastly, if a tenant asks to negotiate unique lease terms, document their request, your response, and the terms you agree on. It may be reasonable for a tenant to ask for a discount on rent if they do their own yard or go half-and-half on an upgrade. Clear documentation can show that unique terms were a solid business decision and not related to tenant identity.

 

Formalize Your Rental Home Policies with Leaf Management

One of the best ways to protect yourself from fair housing accusations is to work with a property management team that has already formalized their routine for applicant screening and tenant policies. Leaf Management can help you take your rental home strategy to the next level in terms of efficiency and protection. Contact us today to learn more.

 

Hacks for New Investment Property Owners

 

6 Bookkeeping "Hacks" for New Investment Property Owners

Rental homes make great investment. Housing demand means there will always be local residents looking to rent and residential real estate tends to appreciate in value over time. However, its hardly passive income. Managing rental homes is a unique business model that you need to operate to ensure you're making a profit. That means good bookkeeping.

Whether you have one investment property or you are building your portfolio, these bookkeeping hacks can help you maximize your profits, optimize your taxes, and take good care of your long-term investment.

 

1. Maximize Your Tax Advantages

One property or many, every landlord should know their way around investment property tax deductions. You can save thousands of dollars every year by knowing how to file your taxes. As an investment property owner, you are legally considered a small business owner and you can file tax deductions for all or most of your business expenses associated with operating rental homes.

Common rental house tax deductions include:

• Mortgage interest
• Property tax
• Operating expenses
• Depreciation
• Repair costs
• Improvement Depreciation

 

2. Consistently Record and Track Expenses

Keep track of the expenses for each separate property.  Consider maintenance, repairs, utilities, property tax: anything that deducts from your operating funds regarding each property. Keep detailed records of expenses, categorized and organized.

From there, track your expenses by category and magnitude. Tag them, organize them, and chart them to reveal patterns. Then, build a financial plan that anticipates repeating expenses and estimates the cost of unplanned expenses per year.

 

3. Save 1% Property Value for Maintenance Each Year

Create a savings account for property maintenance, or a separate savings account for each property. It is common wisdom to set aside 1% of the property's value every year to cover maintenance and repair expenses. You likely won't need that entire amount every year, but will draw on this savings when big expenses like a new HVAC, roof reinstallation, foundation cracks, or local storm damage repairs are required. 

This simple savings strategy will ensure you have the cash reserves to handle the big expenses associated with home ownership that only strike once every 5-20 years.

Yearly Expenses

• Tune-ups for HVAC, Water Heaters, and other major systems
• Roof inspections and minor repairs
• At least one unexpected and minor-to-moderate repair request
• Landscaping and outdoor maintenance

Looming Expenses

• Roof replacements
• Replacing major appliances like HVAC and water heaters
• Periodic storm damage
• Major repairs like foundation cracks

 

4. Maintain Separate Books for Each Property

When you own multiple rental properties,  you can track your profits and expenses as lump sums. However, you will enjoy more refined and precise bookkeeping if you keep separate books for each property. It may reveal expense patterns unique to each property and reveal the profit/expense balance for each individual investment.

You can then use tools to combine the data for an overall look at your investment business finances.

 

5. Plan for Proactive Maintenance Expenses

Build proactive maintenance into your finances. Calculate the costs of at least one HVAC and plumbing service a year. Consider building an annual maintenance agreement with local services to ensure each property receives a cleaning and tune-up of essential systems (Roof, HVAC, water heater, pool, ect) every year. Whether you anticipate or schedule these expenses, being financially prepared for them will keep your books tidy, balanced, and optimized for realistic cash flow.

 

6. Make Use of Bookkeeping Software

In the modern era, you don't have to optimize your bookkeeping practices by hand. There are some great bookkeeping software options out there, some even built for the unique needs of rental property investors. Use these tools to easily track and categorize your income, expenses, and operating costs and even prepare your taxes based on the refined data you will be able to track for each property.

 

Work with Rental Bookkeeping Experts at Leaf Management

Last but not least, you can optimize your investment property bookkeeping with the help of pro property managers like Leaf Management. We have helped hundreds of landlords achieve optimal financial performance. Our skill with expense tracking, maintenance planning, and savvy tax deductions will help to keep your properties profitable and in good condition year after year.

Financing Your Flip

 How to Finance Flip Renovations: Rental Equity and Beyond

How to Finance Flip Renovations with Your Rental House Equity

Renovations are an inherent part of fix-and-flip real estate investing. The only question is: How will you secure the funds for your flip renovation? You can use savings or traditional loans, or you can even use the equity from rental homes you currently own.

Let's take a closer look at the many ways to finance flip renovations.

 

Cash: Renovating with Savings

The ideal financing option is to fund your flip project with savings. If you can pay in cash, you don't have to worry about loans, interest rates, or repayment schedules.  Your only concern will be staying within the exact budget of what you have saved.

Of course, not everyone has that kind of built-up savings for an entire flip renovation project. That is why there are so many home renovation financing options that allow you to take out a loan or access existing equity while you invest in a new flip property.

 

Home Equity Financing Options

The most common way to finance a home renovation is with equity in other properties. Equity is the amount of a home's value that you already own through mortgage payments. You can borrow against this value to reinvest the money in your home through improvements. Home equity financing options tend to be easier to approve and offer a significantly lower interest rate compared to other types of loans. They also do not require an excellent credit score because the property is used as collateral.

Home Equity Loan

A home equity loan borrows against yourrental house's equity. You can borrow a specific amount up to your equity total or 90% of the home's value. The fixed loan amount can help you define your budget, while the low interest rates make this type of loan more affordable than a private loan. Of course, you will need to have enough equity in your house to match the cost of your renovations.

HELOC - Home Equity Line of Credit

A HELOC is a Home Equity Line of Credit. This is a "revolving" line of credit that allows you to borrow and repay more flexibly. You can borrow what you need, when you need it, up to the value of your rental property's equity. A HELOC ensures that you don't undershoot your budget with a fixed loan amount and makes it easier to borrow the minimum that your costs require. You can also repay what you take out and then borrow again in rotation for the full duration of the "draw period", usually about 10 years.

Cash-Out Refinancing

If you are considering refinancing a rental home at a now-better interest rate than your original mortgage, then a cash-out refinance might be the best option.

Cash-out refinancing is when you refinance a mortgage at a slightly higher amount than you need to pay off the original mortgage. You can keep the difference and use it for home renovation funds. 

This strategy is only advisable if refinancing would lower your mortgage interest rate. However, it ensures that you only have one loan, your rental's mortgage, at a favorable interest rate to pay back. Your renovation funds are now similar to cash-in-hand.

 

FHA Renovation and Rehab Loans

The FHA  or Federal Housing Administration usually provides loans for first-time home buyers. However, they also provide financing for home renovations and home rehabilitation projects if your flip is currently your primary residence.

FHA home renovation loans are a special type of loan designed to ensure homeowners can afford practical or necessary home improvements. An FHA home renovation loan will lend up to $25,000 with a downpayment as low as 3.5% and a low interest rate. Loan terms can range from 6 months to 20 years.

FHS home rehab loans are similar to cash-out refinancing. The FHA will allow you to add a home improvement amount to your FHA refinanced mortgage to use for home repairs. The home improvement amount must be a minimum of $5,000.

 

High-Interest Financing Without Equity

Lastly, there are options to finance a flip renovation project through private lenders. These options tend to come at a higher interest rate, but approval tends to be faster and your individual lender options are far more diverse.

Personal Loans

Personal loans rely on your credit score rather than your equity. A personal loan does not require significant home equity and the structure is straightforward and easy to understand. Personal loans may include an origination fee and an interest rate of over 10%. They may also have shorter repayment schedules.

It is important to compare personal loan options from several lenders, and inquire about home improvement loan offers that do not require equity. Some lenders may have a special interest in supporting local homeowners or investors and provide more appealing terms.

Credit Cards

For small and last-minute home renovations, you might even use a credit card. Credit cards are available immediately to pay for repairs and quick improvements, but are not ideal for large-scale home renovation projects. It is difficult for most people to secure a credit card with a limit that could cover a full-scale project and the interest rate is unfavorably high compared to other financing options.

 

How will you finance your next flip? Contact us to learn more about the financial strategy behind flipping houses and managing a rental home portfolio.

Flips Beginners Should Avoid

 

6 Flips Beginner Flippers Should Avoid

Fix-and-Flip real estate investing is an interesting way to dip your toe into real estate investing. One property at a time, you can grow your profits and your home renovation skills whether your flips or build a portfolio of rentals Many people get into house flipping as a fun way to make money through home improvement projects. However, your profits rely first and foremost on choosing the right house.

If you're just starting as a house flipper, knowing which houses to choose - and which houses to avoid - is essential. We can walk you through the types of houses that are "red flags" and don't make good flips or the investment is too high for someone just starting their investment path.

 

1) Badly Damaged Properties

It's true that the most profitable flips are shabby homes where no one else can see the potential. But watch out for real damage. Major repairs can quickly stack up the renovation costs without significantly increasing your profit margin. Never invest in a home that will cost more to repair than the potential market value increase. In fact, keep your repair costs to less than 1/3 of your potential profits.

This includes homes with sagging roofs, torn out interiors, fire damage, utility damage, or even too-extensive surface damage that would require too-large an investment to fix.

 

2) Homes with "Bad Bones"

They say that a good flip has "good bones". This means that the structure and utility systems are sound. All you need are a few cosmetic improvements to make the home beautiful and livable again. The reverse of this is to avoid homes with "bad bones". Damaged foundations and roofs, ancient and broken plumbing, or flickering and unstable electricity are all signs of "bad bones" that you just can't fix on a flipper's profit margin.

Serious mold infestation is also a red flag. Not only would you need to have the mold fully removed (which can mean cutting out walls), but the spores are dangerous to you and future buyers.

 

3) Homes in Luxury Neighborhoods

Luxury neighborhoods are not good beginner flips because the initial investment is too high, and the buyers expect too much. You would need to invest in luxury materials like marble countertops and real hardwood floors just to upgrade an older home to the luxury standards of a high-end neighborhood. Top-dollar buyers are also always looking for flaws and reasons to pass on a house or bargain down your selling price.

Come back to these homes when your profits have accumulated, and your skills are honed. They can be money-makers, but are not beginner-friendly projects.

 

4) Properties with High Competition

Don't get caught in a bidding war. High-competition neighborhoods and properties aren't ideal for flipping because you'll wind up paying too much to make a good profit. 

Remember, "buy low, sell high" is at the heart of flipping. Your goal is to buy a house where others can't see the potential and give it the ugly duckling transformation so that buyers clamor for it when you're done. 

 

5) Asbestos Risk Homes

Homes built from the 1930s to the 1980s can potentially contain asbestos insulation or paint behind painted walls and popcorn ceilings. Watch out. As long as the asbestos is sealed behind paint, the sellers don't even have to mention it (and may not know, themselves). Watch out! Know a home's construction date and have asbestos tests run before you start stripping back old paint or wallpaper or opening up walls.

If you're not sure, look for another flip that is safer. Homes built after 1990 definitely don't have asbestos.

 

6) Properties Without an Exit Strategy

Lastly, watch out for any property where you can't build an exit strategy. If you cannot easily calculate the improved market value after your renovations and ensure that there will be eager buyers for the finished product, consider other options. This includes properties in strange locations, weird floor plans, inaccessible doors, and other problems that might get in the way of a profitable sale.

 

What are the Properties for Your First Flip?

• Shabby Homes with Only Surface Damage
• Small Starter Homes
• Foreclosures in Good Condition

The good news is that there are plenty of properties that are perfect for beginner flippers. Older starter homes are often your best bet: Little 1-3 bedroom houses in mid-level neighborhoods. Starter homes attract new families when spruced up and buyers who are glad to have a good quality home without expecting extra luxuries like marble or top-tier appliances.

You can also watch out for homes with good bones sold at unusually low prices, such as foreclosers and sometimes estate sales. If you can buy low, apply your skills, and sell high, then it's likely a good place to start.

 

Renting Your First Flips

There are two ways to make money after flipping a house. The first is to resell at a higher price, but the second is to build a rental portfolio. If you can get a good monthly price from renters, you can start collecting an ongoing income that will ROI your investment and fund future investments over time. To learn how to predict the future rental income of a flip, contact us today.

How to Determine if Your Flip Needs Windows

 Does Your Flip Need New Windows? Calculating Necessity and ROI

Run the Numbers: Does Your Flip Need New Windows? .

Every house-flipping project is unique. Flippers carefully calculate the right upgrades to achieve the most increase in property value. In some cases, this requires a few cans of paint, modern fixtures, and some light repairs. In others, replacing significant sections of the house can transform an outdated and decaying house into a beautiful in-demand home again. One of those important upgrades that some flips require is new windows.

Window installation doesn't have to break the bank. One to six new windows are often well within your renovation budget. The question is: Does your flip need new windows and, if so, what kind of profit will you get from a window upgrade?

We can help you answer your questions and plan a profitable flip.

 

Why a Flip Might Need New Windows

First, consider how you can tell if a house needs new windows. Many really good flips have a few older features that need to be upgraded, and windows often fall into this category. Older window frames can take serious damage over time, and the materials used were not always the most insulating or secure. There are four good reasons to replace the windows on your flip.

1. Broken Glass:

   • A cracked window must be replaced before reselling the house. Broken windows always bring down your property value and pose a safety risk to new residents.

2. Water Leaks:

   • Water leaks pose a serious risk of water damage and must be repaired or the entire window replaced.

3. Decayed Window Frames:

   • Warped, rotted, or badly rusted window frames will reduce your property value and qualify for immediate window replacements. That can't be fixed with caulk.

4. Comfort and Energy Efficiency:

   • If energy efficiency is a selling point, inefficient windows that leak heat and cold can be a liability. Consider the ROI of Energy Star window replacements.

 

Get an Inspection

Make sure to get an inspection before you buy the house. Have water leaks, warped window frames, locks that can't be latched, and other window failures flagged and use this to get a better price on the house. If you're going to invest in window upgrades, be sure you're not paying for average-quality windows before the project begins.

 

Repair or Replace Rattling Windows?

If the window panes on your flip property are rattling, you might not need a replacement. Check the frames. If they are unwarped and the quality is still good, you can often repair windows with fresh caulk and weather stripping. Caulk the fixed panes back into place to seal them in. This will stop leaks and wind and stop the rattling.

Use weather stripping around window panes that open so they seal firmly shut when closed. This can also stop rattling and make the home more energy efficient.

• Reminder: Don't forget to replace old, loose, or broken window latches.

 

Calculate the Cost of New Windows

How much does it cost to replace windows when flipping a house? Vinyl windows are the most affordable and modern material. They are practical, durable, and can be well-insulated. They even come in colors other than white these days.

One single-pane double-hung vinyl window costs between $800 and $1,400, depending on the model and supplier. That means replacing four to six windows gives you a renovation cost of $3,200 to $8,400, which is not an overwhelming price for most flip projects.

Get a Few Estimates

You can get a quote on window pricing and total installation cost from any construction contractor in your area. Collect several estimates from different contractors, comparing window quality and total cost. Don't forget to check for itemized transparency and hidden fees.

 

Determine the Window ROI for a Flip

Will new windows ROI when your flip is complete? It depends on the upgrade. First, calculate the property value increase that you will achieve by installing new windows. This margin will be greater if the windows were broken, warped, rattling, or leaking when you bought the house. Major quality upgrades are always more profitable.

However, appearance upgrades are also very important. If the home looked shabby due to old and warped window frames before, the new look of fresh window frames will provide the curb appeal and interior photo boost you need to list at a higher price.

 

Replace One, Some, or All the Windows?

Should you replace one window, some of the windows, or all the windows in your flip? It depends. If one window is broken, replacing just one can be a practical choice if the other windows are still in good condition. But you may need to invest in a matching frame or the one new window will stand out.

It's more common and budget-friendly to replace windows in batches. For example, replacing all the windows that face the street, or all the windows on one floor of the house. 

Ideally, you can replace all the windows and market the home as having a recent an energy-efficiency upgrade with "all new windows". But that is often only a practical budget decision for very small homes with 4-6 windows total.

 

Building Your Flip Strategy

For every home you plan to flip, you will build a unique strategy. If your current project requires one or more new windows, calculate the potential cost, ROI, and how you can benefit most from your choice of new windows. For more tips on how to maximize your flip quality and profits, contact us today.

 

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.