Hard Money lender requiring builders/construction insurance coverage.

[Veronica Giggers]

Hello all, I hope everyone is realizing their investment goals. We have reached out to a Hard Money Lender for financing a duplex we plan to BRRRR and hold. Repairs are estimated to be $62K. The HML is requiring a "builders" insurance policy. Does anyone know if that is a typical requirement from HM Lenders? Is that the same as "construction insurance coverage". I understand these policy types are quite a bit more expensive. We are scheduled to close on this property soon.

Thank you.

[John Mocker]

Veronica,

What the lender is probably looking for is a Renovation Builders Risk policy.  That type of policy provides coverage for the existing structure and also for the renovations/additions as they are incorporated.  Many also can cover materials at the site or in transit.  It is usually the type of policy I recommend for a flip or buy & hold that involves renovation.  Once you get your CO, you can move to a Dwelling Fire policy (aka Landlord policy) or vacant dwelling policy depending on when it will be occupied. 

Some things to know on the Renovation Builders Risk policies:

1. Generally the companies will cover the existing structure at Actual Cash Value (ACV).  That is the Replacement Cost (rebuilding cost) less the depreciation

2. some companies issue the policies as "Fully Earned".  Meaning no refund.  Other companies will refund if the policy is done prior to the expiration date.

3. Some policies can have the Liability coverage included while others do not (you will need to get a separate Liability policy)

Good luck on the project and PM me if you have any questions on the above info.