What are you flippers doing insurance wise? 3k quote??

Question

Good evening Bigger Pockets.  I am in escrow on a property in Sacramento that is off market and due to close in about 2 weeks.  Most of all my real estate has been buy and hold.  This property in particular I am debating what I want to do do with it.  I may flip it, I may keep it as a long term rental or I may end up using it as a second home and then renting it full time down the road.

What are the flippers doing insurance wise?  I have am getting financing putting 25% so having my insurance squared away will be required.  If I end up flipping it what kind of insurance policies are you guys getting?  I was quoted 3k for annual insurance since it will be "VACANT."  This insurance agent has done about 5 of my properties and a ton of my clients.

Is insurance really the much more because its vacant for 3 months?  My remodel is about $75k and 8-10 week job.  Depending how it comes out and how much I end up spending will determine what I end up doing with it.

Any help ?? Thanks

Will Barnard · Answer

I agree with Kyle. A home under construction for a rehab is vacant so long as the timeline is 60 days or more for most insurance carriers so the investor needs vacant or builders risk. Builders risk covers the property and construction materials. An experienced agent should know this and offer the appropriate coverage you need for your situation. Occupied homes are just that, occupied and construction workers present during work hours does not constitute “occupied”.

Joe Bertolino · Answer

@Jeff Kobernus

That sounds a hair high for a short term policy but it’s not cheap,  statistically vacant homes under renovation have  way more claims than a standard home owners or landlord policy.

Eric M. · Answer

Just be careful. Your home is not "vacant" while you are rehabbing it. It is under construction. Different risks and therefore different policy than vacant. It is also not vacant if you are using it as a second home. Nothing in your post describes a house that will ever be vacant for long enough to have a vacant policy be appropriate.

Jeff Kobernus · Answer

Thank you for the responses.  I will speak to my agent and make sure I have the necessary coverage, would rather be overprotected.  Thanks! @Will Barnard @Eric M. @Jeremy Goodrich @Kyle J.

Kyle J. · Answer

I'm curious why you say this property, just as described, wouldn't be considered vacant.  In my experience, many insurers consider a property vacant if no one will be inhabiting it for 30 or 60 days (depending on the insurer).  It's my understanding that, depending on the level of rehab and the insurer, that would require either a vacant home policy (or at a minimum an endorsement) or a builder's risk policy.

The OP doesn't say what level of "rehab" he's going to be doing, but based on the timeline he mentioned he's clearly going to be over the 30-60 day timeline for the property being unihabited.  So I would think if it's going to be a minor rehab (i.e. paint, carpet, etc) it would at least require a vacant home policy, and if it's a more extensive rehab (i.e. major construction like adding another room or a second story) that it would require a builder's risk policy.  Perhaps I'm mistaken though.

I know that when I was doing a remodel on a rental property my insurance agent told me if the project was going to last longer than 30 days and the home was going to be vacant for longer than that period of time than I would need a different policy than my landlord policy.  Fortunately I was able to complete the project within that timeframe and I didn't end up having to get another policy.

As for the OP's original question, yes, these other policies are usually more expensive on an annual basis since there's more risk involved.  However, since you likely won't need the policy for the whole year, you might ask if you can get a prorated refund for the unused amount when you cancel it (i.e. credit for 8 months if you cancel it after 4 months).

Mike Cumbie · Answer

Yup, in my experience.

Will Barnard · Answer

That is a very good plan. Insurance is one layer of protection, entity is another. The more layers of protection, the safer you are although it certainly comes at a cost for each but how much is it worth to sleep at night!

Will Barnard · Answer

Wrong quote I was referring to. Here is the correct one by  @Jeremy Goodrich

“Agree with Will.  Sam & Eric aren't quite correct here.  If no one lives there, it's vacant.  That will be the base insurance policy. Coverage for being "Under Renovation" should be added.  So technically the policy is Vacant with an Under Renovation endorsement.  That policy will include coverage for both the building as it currently stands AND the renovations that will be done.”

Eric M. · Answer

As did the insurance agent?????  LOL

Exact quote...."Eric is correct, in that your house shouldn’t be considered vacant."

Will Barnard · Answer

I can agree with your amended answer as we appear to now be on the same page. Your original answer stated this situation was not a “vacant” property which I disagreed with as did the insurance agent. It is vacant and in need of builders risk rider if going under construction.

What are you flippers doing insurance wise? 3k quote??

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