Why even get insurance on a rehab?

Rehabbing & House Flipping

Why even get insurance on a rehab?

FL · Member since 2016 · 912 posts · 107 votes

If I don't have a lender requiring it, most stuff like theft and vandalism would never even match the deductible.

I just went through the largest hurricane I've experienced in 30 years and had no damage to my flip or personal residence. Okay, I had a few fence panels down but that is cheaper to fix than the deductible.

Especially when not in hurricane season, what could happen? Have you ever made a claim?

What could happen? Lightning strike? Arson? Electrical fire?

I bought this flip project a few days before I heard about Hurricane Irma. They wouldn't write the policy until the storm passed, and it's still not insured. I'm deciding on what coverage, if any, to get. It's already been 1.5 months with no insurance. I have an alarm system for theft, anyway.

I know this probably sounds stupid to everyone, but I even know neurosurgeons who don't carry insurance.

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Jeff CopelandBusiness Member

Real Estate Broker · Tampa Bay/St Petersburg, FL · Member since 2015 · 1k+ posts · 2k+ votes

8y

The purpose of insurance is to assign risk to other entities, for a cost.

The alternative is to self insure, if you can afford the risk.

How much is the house worth, less the land value? Can you absorb/float that cost if the house burns to the ground? And do you have any private or hard money lenders who will need to be paid off, regardless? If you can afford to do so and/or rebuild the house, then self insuring it is certainly an option.

But for most of us mere mortals, a $50k or $150k loss on a property would wreck our finances (if not ruin our lives completely), so we pay a relatively small percentage of that to pass that risk on to an insurance company.

I suspect the reason your neurosurgeon friends don't carry insurance is they can afford not to.

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JD MartinBusiness Member
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Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 16k+ votes
8y
Insurance is to cover losses you can't, or don't want to, cover on your own. If you feel economically viable enough to cover any possible losses in the meantime, there's nothing that says you need to have insurance if there's no loan on the property.
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Tyler Mullen
Investor · Kirkland, WA · Member since 2017 · 310 posts · 271 votes
8y
You are describing the exact reason for insurance, to help cover you for the things that could happen that you can't necessarily identify right now as a risk.
It's not just objects, or sink holes, you left out all the liability you have for someone being injured on your property.
No insurance is the higher risk/higher return strategy. It will work until it does not. Only then will it become evident the true risks you bore without insurance.
1 Reply
Thomas S.
Member since 2016 · 13k+ posts · 12k+ votes
8y
If it burns down through arson or incorrectly installed electrical the day all work is completed, before it is sold, can you ride out the loss.
1 Reply
Jeff CopelandBusiness Member
Real Estate Broker · Tampa Bay/St Petersburg, FL · Member since 2015 · 1k+ posts · 2k+ votes
8y
The purpose of insurance is to assign risk to other entities, for a cost.
The alternative is to self insure, if you can afford the risk.
How much is the house worth, less the land value? Can you absorb/float that cost if the house burns to the ground? And do you have any private or hard money lenders who will need to be paid off, regardless? If you can afford to do so and/or rebuild the house, then self insuring it is certainly an option.
But for most of us mere mortals, a $50k or $150k loss on a property would wreck our finances (if not ruin our lives completely), so we pay a relatively small percentage of that to pass that risk on to an insurance company.
I suspect the reason your neurosurgeon friends don't carry insurance is they can afford not to.
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Brian Pulaski
Flipper/Rehabber · Montgomery, NY · Member since 2016 · 2k+ posts · 1k+ votes
8y
Insure it in case of loss. I don't insure for the $1000 hit, I insure in case the house is a total loss. I couldn't imagine putting up $150-200,000 in cash, and having it all go away due to a loss I wasn't covered for.
My last property I did more work than anticipated and actually called and upped the policy when I realized I was going to go over the insured value.
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Charlie DiLisio
Investor · Lake Worth, FL · Member since 2014 · 378 posts · 184 votes
8y
Usually the HML require it so that point is moot for the the 500.00 it is worth it IMO.
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Brian Pulaski
Flipper/Rehabber · Montgomery, NY · Member since 2016 · 2k+ posts · 1k+ votes
8y
@Charlie DiLisio you pay $500 for insurance? I have been around $800-1200 for 6 month policies. I would love to get that down a little if possible.
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Sam Shueh
Real Estate Agent · Cupertino, CA · Member since 2016 · 4k+ posts · 1k+ votes
8y
Fire hazard in the winter, break in.
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Patrick Philip
OP
FL · Member since 2016 · 912 posts · 107 votes
8y
Originally posted by @Brian Pulaski:

@Charlie DiLisio you pay $500 for insurance? I have been around $800-1200 for 6 month policies. I would love to get that down a little if possible.
I use REIGuard at $96/month.
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Manolo D.
Contractor · Los Angeles, CA · Member since 2015 · 4k+ posts · 1k+ votes
8y
Patrick Philip You know you don’t need the BP community for this post right? I mean, if you don’t want to buy, then don’t. Simple as that.
0 Reply
Charlie DiLisio
Investor · Lake Worth, FL · Member since 2014 · 378 posts · 184 votes
8y
I'm down here in south Florida if you need the company name. Priced 3 of them and all around the same price.
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Michael Badin
Rental Property Investor · Apex, NC · Member since 2015 · 197 posts · 102 votes
8y
There have been many opinions given on here, and pretty much all are correct from their points of view given. If you don't have a mortgage you are not "required" to have insurance. You are at that point considered self insured. If the property value is low this might not necessarily be a bad thing. However, if the value is not low (high or low depends on you and your personal financial situation) then I would highly recommend insurance. For a flip you are not insuring for the small things but large catastrophic things like a fire. As an insurance adjuster I have had many people try to put claims in when they did not have insurance or were just under insured and it wrecked them financially. It might save you a few bucks to not get a policy and maybe nothing happens, but on the off chance something does I would want my property insured.
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Brian Garrett
Real Estate Investor · Palm Beach County, FL · Member since 2017 · 3k+ posts · 2k+ votes
8y
Originally posted by @Charlie DiLisio:

I'm down here in south Florida if you need the company name. Priced 3 of them and all around the same price.
Hey Charlie hope all is well. Check your inbox I sent you a message.
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Mike Dymski
Investor · Greenville, SC · Member since 2016 · 5k+ posts · 13k+ votes
8y
Originally posted by @Manolo D.:

Patrick Philip You know you don’t need the BP community for this post right? I mean, if you don’t want to buy, then don’t. Simple as that.
He's not asking for permission, he's asking for help and advice.
1 Reply
Manolo D.
Contractor · Los Angeles, CA · Member since 2015 · 4k+ posts · 1k+ votes
8y
Originally posted by @Mike Dymski:

Originally posted by @Manolo D.:
Patrick Philip You know you don’t need the BP community for this post right? I mean, if you don’t want to buy, then don’t. Simple as that.
He's not asking for permission, he's asking for help and advice.
Where do you see that he asked for help? It seems to me he had it all figured out, he does not want to buy insurance because the deductible is too high -- i buy the least amount of deductible but i pay more for my insurance i.e. my car insurance has $50 deductible, i guess he doesn't want that high premium --, he has been out of insurance and does not feel he needs it, he has an alarm system that can protect him or so he says, what else am I missing?
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Shawn F. Kiesling
Contractor · Longwood, FL · Member since 2015 · 11 posts · 5 votes
8y
We have 2 rehab properties with 2 houses on each property in...rough neighborhoods. I have them covered through REIGaurd for $160 a month for all both properties and all 4 houses. We have had a few break ins on 1 property that I did not claim: low theft amount. $40 per house. I sleep just a tiny bit better knowing I have some coverage in case of a total loss.
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Cara Lonsdale
Realtor and Investor · Scottsdale, AZ · Member since 2017 · 1k+ posts · 1k+ votes
8y
Do you drive without insurance too? What about Health insurance?
Homeowner's insurance is a necessary expense for protecting you as an investor. You mentioned a bunch of "what if" scenarios, but it's what you DIDN'T plan for that the insurance will help you with.
Properties....especially when vacant.... can be very vulnerable to anything from theft to arson and everything in between. Many policies can be customized to reflect the status of your property. In fact, make sure you tell your agent that the property IS vacant because if you don't, many standard policies exclude coverage after a 30 day vacancy period.
Someone is watching. If you are rehabbing a property, it means that you have valuable materials going in like appliances, cabinets, fixtures and more. It would be a huge loss to you to lose those items and have to start over. That would eat into your profits far more than a hazard insurance policy will.
Plus....it's tax deductible!! :)
Best of luck to you!
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Derek Lacy
Insurance Agent · Maitland, FL · Member since 2015 · 397 posts · 244 votes
8y
First off. Big difference between self insured and uninsured. Self insured indicates insurance, a means of financing the risk. As in do you have $1,000,000 set aside to access if something were to happen. Disney does, that’s why insurance professionals agree that Disney is self insured. But guess what, they even buy reinsurance, a backdrop against catastrophic claims. Just not purchasing insurance is a different matter. Here’s a big reason to purchase, your contractor put in faulty work. At 9 years and 364 days a beam kills a child living in the house. They file suit the next day. In Florida, your on that claim. So you spend a hundred thousand in defense to get to a settlement of $500,000. All of that is out of your uninsured pockets. Don’t worry about your contractor he went out of business 5 years ago and cannot he found. But you could and they pierce your LLC veil because you did not act in a prudent and businesslike manner by carrying appropriate insurance. Most of my property managers are “self-insured” in the fact that they carry a $250,000 deductible. Because they are not worried about the small claims, just like you aren’t. But they are worried about the killer claims.
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Tyler Mullen
Investor · Kirkland, WA · Member since 2017 · 310 posts · 271 votes
8y
Most people considering no insurance are looking to goose their returns by a meager amount, they don't have the $1M on the sidelines as self insurance because they are all in already. If they care to save .5% to take these huge risks it's self evident they would never let $1M sit idle in a self insurance bank account... to then lose 5% annually on inflation. If they had money on the side to self insure they would spend it all on another deal and not insure that either.
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