FHA loan for a 3 unit: Renters or homeowners insurance?

Question

Hey BP Folks,So I am in the process of acquiring my first rental property, and was hoping to get some input on the below questions. I will be using an FHA loan to purchase a 3 unit property, where I will be living in one of the units (until FHA requirements are met, then rent out). The other 2 units are currently rented out. My questions are:Will I need to get renters insurance AND homeowners insurance?Will I have the ability to transfer the title into an LLC, once the property purchased? If not, would it make sense to just get an umbrella policy? But if I got an umbrella policy, would I still need to have renters and/or homeowners insurance?Would greatly appreciate any advise!!

Brandi Williams · Answer

Hi Samuel, I am an insurance agent and I have lots of investors that call in to insure their properties. - As others have mentioned you would get a homeowners insurance policy for the property which covers the home and your liability. When setting up your policy they should ask if you sublease or rent to anyone where you would answer yes and would have additional coverage (loss of rental income). It is not required but I would suggest having your tenants get renters insurance to cover their personal property in their unit (fire, theft,etc). -The umbrella policy is an extension of the liability coverage on your home which protects you in the event that someone is hurt on the property and sues you. Most companies require that you have certain limits of liability (300,000 to 500,000 minimum) then the umbrella adds to that amount. Yes, you would still need a homeowners or landlord (once you move and are renting all units) policy so that the liability limit from that policy can be extended. Hope this helps.

Joshua Diaz · Answer

hey there! House hacking is the way to go, in my opinion. I am also in the process of looking for a good multi family with an FHA loan.For your first question: The way I understand it, having both homeowner's insurance for you and renter's insurance for the tenants is the best option. Just to clarify you have the homeowner's that you pay for and your tenants have the renter's that they pay for. Having both in place is just a good move.For your second question: you will probably get different answers in this. Some folks swear by an llc while others don't find it necessary. But in my personal opinion, trying to form an LLC for a property you are house hacking is a waste. You are living right there so the corporate veil ( as its called ) is useless since everyone knows you are the owner. You would need s property manager to strengthen that veil and that would cause more hassles in a house hack as well as less money in your pocket. That being said , I believe an umbrella policy would be best. I don't think I'll even bother with an LLC down the road as I currently understand it. As for the final part of that question: I think so but I'm no expert so it's best to ask a professional. Or perhaps one of the folks here who is way smarter than me can chime in.Hope I helped somewhat.

Kadejah Johnson · Answer

Hi, I'm glad I came across this post because I have the same question? It's been a few years since the initial discussion but I wanted to know if the same answers apply.

Brandi Carballo · Answer

It will depend on your insurance provider's policies. I have State Farm when I purchased a 4 plex to live in one unit and rent out the others. State Farm would only allow me to get an apartment type of home owner's policy, which did not cover my personal belongings. They did cover some belonging's such as tools, lawnmower and office equipment. So yes, I got renter's insurance to cover my personal belongings as well.Other insurance companies may cover your belongings along with the building.

Brandi Williams · Answer

Hi Samuel,You are correct that would be my suggestion because you are covering the property itself with the landlord policy then getting the umbrella for additional liability coverage.

Samuel S. · Answer

Thanks guys! Again I so appreciate your help!I do have one more question (I apologize if this seems redundant): Say I were to go conventional instead of FHA, where I would be renting out all units. Would my best option be to get landlord insurance with a umbrella policy? Being that I wouldn't need homeowners since I would not be living there?

Lynn McGeein · Answer

When you get your homeowner's policy, discuss rates with different liability coverages, as it may just be cheaper to get $1 million liability on your homeowner's policy than pay for the minimum liability requirements on your policy plus get an additional umbrella starting out.

Joshua Diaz · Answer

@Samuel S. Glad I could help! I think the renter's insurance is there to help the tenants in the case of a fire or something like that so that they would be less likely to come after you to recover those damages.That is how i see it.

Samuel S. · Answer

Thanks Michaelina!So I would really only need the homeowners and umbrella policy then? Since if the renters were to sue due to theft, loss, etc, I would have an umbrella policy in place for that? I am just curious on why I hear a lot about renters insurance and why its necessary to have..

Michaelina Stathakos · Answer

You would need the homeowners policy for the loan (to cover the property and your belongings) the renter's insurance policies are for the tenants own furniture and belongings. The the umbrella policy is only for liability (if you are sued).