Should I get renovation or vacancy insurance for a house flip? I am not 100% sure I will flip it, I may end up renting it. Which is usually cheaper and what is necessary? Thanks!
Investor · Baton Rouge, LA · Member since 2014 · 128 posts · 138 votes
5y
As @Bonnie Low said, if the question is whether or not to get insurance at all--definitely get it. Your situation will determine what type of policy you need. I was in property & casualty insurance for 8 years, so here's my quick summary:
If you're doing a small renovation (no opening up walls, no additions, etc), you should get a vacant property policy. In my market, a company like Foremost was a good option for this because they would still provide coverage on a vacant house while minor repairs were being done.
If it's a major rehab, you'll probably need a Builder's Risk policy like Bonnie suggested. This will cover things like building materials left on site and an unfinished structure.
Once the rehab work is completed, if you decide to sell it as a flip, you can likely just keep either the vacancy policy or builder's risk policy in place until you close on the sale. If you decide to rent it out, you'll need to switch to a dwelling/landlord's policy, which is similar to a homeowner's policy, but also includes things like tenant liability that a homeowners policy doesn't. **It's important to note that the reason you don't want to get this type of policy before a tenant moves in is because most of the time there is a clause that says coverage will not be provided if the property has been vacant for 30 or 60+ days.
All of the types of policies above should include liability coverage as well, but be sure to confirm that when you sign the application to issue the policy. I would recommend at least $300,000 in liability coverage, but it's usually pretty cheap to bump that up to $500k or even $1M sometimes.
A local independent agent should be able to give advice and write any of the above policies. Bonus points if you can find an agent that works with or is a real estate investor themselves. Hopefully that helps...good luck with the flip!
Lender · Asheville, NC · Member since 2016 · 1k+ posts · 1k+ votes
5y
Short answer. Yes. SO much can happen during a renovation. You could suffer a break in or vandalism, a fire either accidentally or intentionally set or just a catastrophic wildfire event like we have regularly here in the west. You could have someone walk through your construction site and hurt themselves - you want to make sure you're covered for all of that. And, finally, if you're doing a BRRRR and planning to refi, your new lender is almost always going to require you to have insurance on it (even if you're not done remodeling when you begin your refi). We've just used our regular State Farm agent, but you can specifically look for Builder's Risk Insurance.
Investor · Baton Rouge, LA · Member since 2014 · 128 posts · 138 votes
5y
As @Bonnie Low said, if the question is whether or not to get insurance at all--definitely get it. Your situation will determine what type of policy you need. I was in property & casualty insurance for 8 years, so here's my quick summary:
If you're doing a small renovation (no opening up walls, no additions, etc), you should get a vacant property policy. In my market, a company like Foremost was a good option for this because they would still provide coverage on a vacant house while minor repairs were being done.
If it's a major rehab, you'll probably need a Builder's Risk policy like Bonnie suggested. This will cover things like building materials left on site and an unfinished structure.
Once the rehab work is completed, if you decide to sell it as a flip, you can likely just keep either the vacancy policy or builder's risk policy in place until you close on the sale. If you decide to rent it out, you'll need to switch to a dwelling/landlord's policy, which is similar to a homeowner's policy, but also includes things like tenant liability that a homeowners policy doesn't. **It's important to note that the reason you don't want to get this type of policy before a tenant moves in is because most of the time there is a clause that says coverage will not be provided if the property has been vacant for 30 or 60+ days.
All of the types of policies above should include liability coverage as well, but be sure to confirm that when you sign the application to issue the policy. I would recommend at least $300,000 in liability coverage, but it's usually pretty cheap to bump that up to $500k or even $1M sometimes.
A local independent agent should be able to give advice and write any of the above policies. Bonus points if you can find an agent that works with or is a real estate investor themselves. Hopefully that helps...good luck with the flip!
@Bonnie Low@Amy Verges Thanks for the advice. Perhaps I should have been more clear in my question. I am absolutely going to get insurance. I am just wondering from your experience, which one is more expensive? Vacancy or renovation? I will not be opening up walls, but I will be installing flooring and doing cosmetic work.
Investor · Baton Rouge, LA · Member since 2014 · 128 posts · 138 votes
5y
In my market, a vacant property policy is almost always cheaper. The only reason someone would get a builder's risk policy is if they would not qualify for a vacant policy (i.e. building new construction, making additions, opening up walls, etc) or need additional coverage that a vacant policy would not provide (materials, appliances, or fixtures left out in the open, etc).