We are about ready to close on our first flip and we need to get our homeowner’s in place. Is there anything different that we should think about for homeowner’s on a rehab/flip house? I plan on calling all the usual places to get quotes, but I figured I would ask and see if there is something that we may be missing about this special circumstance (short term, not living there, etc.).
Thanks!
Laura
Howdy Laura:
Look for a builders risk policy that will cover a vacant property under construction. You will have a hard time finding a standard homeowners policy to cover vacancy past 30 days. If it is just a carpet and paint flip a standard policy may work but be careful with the vacancy. If there is a loss and it can be proven the house was vacant longer the claim may be denied.
Awesome, thank you, Ted! This is exactly the kind of advice I was hoping for.
The property will be vacant for months - this is a complete rehab. I will take your advice!
Thanks!
Laura
Laura,
As tedjr noted, a builder’s risk policy, or a vacant building policy seem to be what you need.
One item ted did not mention is that, in my experience, these polocies are about 3 times or more the price of tenant occupied policy and about 4 times or more the price of owner occupied policies. Additionally, the unused portion of these policies are not refunded if you finish early.
For example, I was quoted $800 for six months policy for a vacant $100K rehab but only $800 for a full year tenant occupied $250K property. The vacant property policy would not be pro-rated and the balance returned if I finished in 3 months, they just keep the entire $800.
JMD
Howdy JMD:
My costs have not been that out of line . I just did a $150K house where the policy only cost $500 for the year. Yes it was earned even if only 3 or 4 months but that is just the costs of doing business. Could not get any other insurance and lender had to have. Good to shop around but I have found very few companies will even write the coverage. Try independent agents.
Thanks guys. The ARV will be about $300-$325k.
Ted - do you have any local refs? If you do, would you send them to me privately (if they can’t be posted, that is).
Thanks again!
Laura
I found that they will quote you for a year’s premium, but my insurance company allowed me to pay quarterly. That way I was not out the whole year premium. I think I had to pay a few dollars extra to get a quarterly billing but it was worth it. Gracie
I have one quote for $1310/year for a builder’s risk policy on an ARV of $260,000 (just the house). I am waiting for one more quote.
Thanks again for the help!
Laura
I have insured a rehab as a 2nd home; this was on the advice of my agent when I described the situation
Ted is right, use a good independent insurance broker.
Builder’s risk policies are good for “flips” but usually don’t include any liability protection (they were intended for a “Builder” who took in a house on trade and already had a general liability policy for his business). So you must pick up liability protection elsewhere - some homeowner’s policies allow you to “extend” liability from your home policy to a rental. I just did that for a client and it cost him $40 to do this.
Also, be careful when you say “I’ll be moving there” or “It my second home”. The insurance industry uses a standard “Acord” application form, that has a fraud statement written right into it. If fraud is proven, no claim will be paid.
Listen, you buy insurance to “transfer the risk” to an insurance company and not carry it yourself. Don’t play games here or try to cut corner’s - you do get what you pay for! When you have a claim, you don’t want to here “That’s not covered!”. Find a good independent agent who can advise you properly, without putting your hard earned investment at risk.
Good luck!