House Flipping is when people buy, rehabilitate and sell real estate to profit from the real estate market. House flipping is an investment modality based on buying cheap houses, investing in improvements and profiting from the sale in a short time, most of the time.
Whether you are considering the idea or just starting out in the house flipping business, you should know that your Homeowners Insurance will not be enough to insure your investment. You could assume it’s simply adding the new property to your current Homeowners policy, but that’s not quite the case.
An unoccupied property under renovation has special needs that must be carefully analyzed. You should check each particularity and think of coverages that protect your investment from end to end.
Each property needs a personalized policy, and we strongly recommend that you consult with a specialist, but here we are going to talk about insurance that are usually the most suitable for house flipping. Stay tuned to learn about your options.
The most commonly used insurance for house flipping is Builders’ Risk This type of insurance covers building goods and materials during the renovation phase. It also covers any installation equipment stored on site and the property itself.
It’s often the most affordable option when you’re starting out with a lower-priced home, and you’re going to replace the roof or remodel the kitchen. However, if the renovation is just “cosmetic” like new paint and decor, only a Vacant Home Insurance (we’ll see later) will do the trick.
What is not included in Builders’ Risk?
Here you will not be covered for liability cases such as workplace accident and injury, Workers’ Compensation or medical costs. You will need other policies to cover your risks.
General Liability protects you (and your investment) in the event of an accident or injury on the premises. The main difference between Builders’ Risk and General Liability is that the former protects property, and the latter protects people in lawsuits arising from workplace injuries and legal fees, as well as damage to property owned by a third party.
Having liability insurance is essential if you are doing renovations that require structural changes to the building. It protects your finances if you are sued for loss of pay or medical treatment due to a personal injury that occurs on the property.
If an accident happens (and that’s always a possibility on a construction site), and you don’t have liability insurance, you could see your profit and investment going down the drain, or better yet, going straight to a hospital or professional bill. lawyer’s pocket.
And nobody wants that, right? Even more for those who are starting in the house flipping business!
What is not covered by General Liability?
Insurance covers any damage to property of contractors and people involved in the house flipping process, but not damage to you or your property (that’s where Builders’ Risk comes in). General Liability also does not cover Workers’ Compensation, nor any damage to company vehicles (you will need a car policy for this).
Vacant Home Insurance
Just because renovations haven’t started yet doesn’t mean you don’t need insurance for your property. Vacant Home Insurance will protect the house if it is left empty while I wait for construction to begin.
Empty homes are at a greater risk of being broken into and vandalized, can suffer water damage (due to leaks and leaks), and are at greater risk of fire. Because of this, a standard home insurance policy is not ideal for house flipping, extra coverage is needed that recognizes and takes responsibility for risks greater than those of an inhabited home.
Vacant Home Insurance can be purchased for periods of 30-60 days or so. It is essential not only before the renovation begins, but also after the project is completed. If the house is on the market for weeks or months, you will still need coverage.
What does Vacant Home Insurance cover?
Vacant Home Insurance covers the building/structure itself in case of damage caused by water, fire and extreme weather conditions. Make sure your policy covers vandalism and theft, as this coverage is not always in the standard policy.
Unlike Builders’ Risk, Vacant Home Insurance has some liability coverage built in.
How do I know what kind of insurance I need?
Searching, studying, knowing the insurance companies, the coverages, their exclusions and scope is always recommended so that you have an idea of what you are looking for and what information will be relevant when quoting your insurance.
However, an insurance broker is always a strong ally in the search for the ideal insurance for your pocket and for the financial health of your business. All the insurances mentioned above are ways to anticipate the risk of potentially high losses that a house flipping investment is exposed to. Losses many times greater than the initial investment.
If you haven’t made your first purchase, remember to factor in the value of all necessary insurance in your total budget. You can simulate your insurance even before you make the purchase offer! This action alone can be the difference between successful house flippers and failed house flippers .
How far in advance do I need to have insurance before starting renovations?
It is never advisable to do home renovations without insurance. You will probably already need to have home insurance in order to complete your home purchase. Once the house is yours, contact your BRZ agent to purchase the insurance indicated for the type of renovation you are going to do.
Do I need insurance even if I hire professionals to perform the service?
If you are using a professional who will manage the entire project, they will likely have insurance for some situations, such as Builders’ Risk and Workers’ Compensation. But if you are hiring independent professionals and managing the project yourself, you will need to have your own insurance policy. That’s because their insurance covers them, but not you.