Rent loss coverage on a vacant property?

12 Replies

Hi all,

I'm closing on an investment property in 3 weeks and have run into an issue. 

The lender is requiring that I have an insurance policy with rent loss coverage. The property is going to be vacant initially as I need to do some renovations so no insurance company I've talked to can provide rent loss coverage on a vacant property. This makes sense considering there is no rent to lose. 

Is this a normal lending requirement? Any ideas on what I can do?

Thanks 

Joe

You should be able to get broad commercial property coverage while you are renovating prior to the building being inhabited.   The catch is such policies are expensive - at least here - and are sold in 3 or 6-month chunks.  I have also never heard of such polices covering loss of rent ... nor any policy providing loss of rent for a property which has yet to be put into service.

You may be able to obtain an alternate form of builders coverage.

The man to ask is @J Scott who does lots of renovations and just so happens to live in Maryland now.

1(506) 471-4126
Sounds like you are misunderstanding what they are asking you to have. It's loss of rents or "loss of use" coverage, for example, next year it's rented and a tornado rips the roof and a wall and it takes 2 months to fix. Your tenant will not pay for the 2 months they can't live there, but your insurance can cover that loss. Typically I see "up to 12 month loss of use" in rental policies. Check with other insurance companies if for some reason yours doesn't already cover it and won't offer it.

You are correct. You wouldn't be able to to find loss of rent coverage on a property undergoing renovation.  This lender requirement doesn't make sense. Loss of rents can obviously be added later when you have tenants in. 

Originally posted by @Justin H. :
Sounds like you are misunderstanding what they are asking you to have. It's loss of rents or "loss of use" coverage, for example, next year it's rented and a tornado rips the roof and a wall and it takes 2 months to fix. Your tenant will not pay for the 2 months they can't live there, but your insurance can cover that loss. Typically I see "up to 12 month loss of use" in rental policies. Check with other insurance companies if for some reason yours doesn't already cover it and won't offer it.

 Right but there is no tenant so how can an insurer provide more than a quote? 

Because the loss of use coverage doesn't cover lost rent while renovating or vacancy between tenants.

Find and insurer that you can use while your house sits empty. Not every insurance company offers that. Get from the same insurer a regular landlord policy that covers loss of rent. With this policy you can close the loan and after 2 weeks, cancel the policy and get a vacant house policy. They are more expensive though.

Alternatively, explain the lender your situation and with enough cash in your account, they might wave the requirement.

Originally posted by @J Scott:

Are you certain that the lender doesn't want builders risk insurance?  Rent loss insurance makes no sense. 

Yes definitely rent loss. I agree and I'm pretty confused. I also have income and reserves that  would be more than sufficient to not rely on the rental income. 

It's "Loss Of Use"  not "loss of rents", and Yes you Can get it now because as said, it doesn't apply to vacancies due to anything other than physical damage.

Are you sure your insurance company has an issue with it being without tenant for a short remodel period and a normal rental policy with rent loss coverage won't suffice? Or are you planning to take more than a couple months to get it ready?
Originally posted by @Justin H. :
Are you sure your insurance company has an issue with it being without tenant for a short remodel period and a normal rental policy with rent loss coverage won't suffice? Or are you planning to take more than a couple months to get it ready?

the plan was to settle 9/15 and have a tenant in there 11/1

After much back and forth, the lender dropped the requirement due to sufficient income. As always, thank you all for your help!

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