How to insure your home for a fix and flip
Updated: Aug 4, 2020
Turning a quick profit entices many people to consider house flipping, which involves buying a house or property with the intention of selling it and making money in the process. Television shows like A&E's "Flip This House" make house flipping look easy.
In reality, it's not always the case, especially when it comes to insuring the house you plan to flip.
Here's what you need to know about finding the right home insurance for your house flipping project.
How to get home insurance when you flip a house
Whether the home in question was purchased brand-new or is in need of remodeling, it's best to call your insurer before you make a decision to purchase the home or sign any paperwork. Most insurers are not able to write insurance policies for house flippers. Investment properties requiring renovation also present additional risks for your insurer due to builders coming and going as well as the threat of vandalism and theft.
In addition, home investors often want to purchase a business structure policy under an LLC. An LLC protects your personal assets and is popular among home investors and flippers, but this also makes you an unappealing risk in the insurance company’s eyes
What's the difference between a home and dwelling policy?
Many new flippers are under insured. You have to be always sure to cover the amount of cost to replace the building and the amount of material you put into it.
In order to do this, you'll need a dwelling policy, not a standard home insurance policy. Dwelling policies cover only a home's physical structure, where homeowner's insurance includes coverage for the contents of your home as well.
Expect a dwelling policy to cost you 25 to 40 percent more than a homeowner's policy. "Unlike a typical homeowner's policy, a dwelling policy may be more expensive, but you also have options," Gatewood says.
A standard homeowner's policy typically includes:
· Coverage for dwelling your main house).
· Cover for other structures such as attached garage).
· Contents of the home.
· Loss of use for a hotel if you're unable to live in your home).
· Personal liability.
· Medical expenses.
A dwelling policy, on the other hand, requires you to build the policy based on your needs; you can pick and choose your coverage. For example, you likely won't need as much coverage, if any, for the contents of the home as you would for the home in which you live.
You would, however, want to include coverage for building materials such as tile, which would be lying around during the construction process. You would only factor this into the equation is you as the owner of the house owns the tile and not the contractor.
Use only licensed contractors
House flipping presents many potential liabilities that a typical homeowner might not consider. Insurers probably will want to know that the people working on your home are licensed. Most will not issue you a policy if an unlicensed but helpful friend, relative or you yourself are doing the renovations.
Many times the type of policy will change during the lifetime of the investment house, . When construction finishes, the new home may need a vacant home policy and then if the home is rented, it may need a dwelling policy. It's the responsibility of the investment property owner to speak with their insurer throughout the process and know the insurance requirements of the building at any given time.
AZ Insurance Team 480-535-5709 https://www.azinsuranceteam.com
*All policies are a little different and this may not be applicable to your insurance policy, talk to your agent to see what your policy covers.*
*This post was originally published in May, 2017 and has been updated for freshness, accuracy, and comprehensiveness*