Do you need to purchase insurance for flips?

18 Replies

I hired an attorney for a house I'm flipping and he asked me if I have insurance for the property. This caught me by surprise, being a first time flipper I wasn't aware I needed any sort of insurance for a property I only intended on holding for 3 to 6 months through my LLC. Can anyone shed any light on this and what insurance if any you've purchased when flipping houses.
Thanks,

E.

What if vandals break in, cause a major flood or fire?  What about liability?  One of the workers, not covered by workers comp by one of your illustrious subs, get hurt/disabled while working on your house....who do you think pays?

OF COURSE you need insurance!  You’ll want to get a renovation/rehab version of Builders Risk, and liability. 

@Emillio Henry

Absolutely!  If you are extensively rehabbing the property, what if the place burns down say because of temporary faulty wiring?  You lose heat and the pipes burst...

Talk to your insurance agent. A Builder's Risk policy should be enough for a vacant property that you are rehabbing. You might want a liability policy, too.

No real need to reply, but it seams that you are not financing this flip if you were of course it would be mandated by the lender. But the risks are great and insurance is critical when flipping homes. Fire, theft, liability, etc, etc, etc

@Emillio Henry @Wayne Brooks is exactly right - too much danger there to go without. What you want to ask for is a "builder's risk" policy. That is different than the policy you would get if you were a landlord. You also want to add this house to your personal umbrella policy while you own it. (If you don't have umbrella insurance then you need that too).

@Emillio Henry I would urge anyone that has a business/real estate investor to have insurance even if the properties are in your LLC. You're not only protecting yourself from a liability claim, but you also want to protect your investment from a property claim. Not sure where your property is located, but any local independent insurance agent should be able to help you out with your property.

Emillo, Just to add a quick note from an Insurance perspective, For all Contractors and their subs, require proof of Liability and Workers Comp. Check on that coverage again before they start work on any job and again periodically during the process. Talk to your attorney about contracts with the GC and subs. Things like, hold harmless and indemnification, Waivers of subrogation, Making their coverage primary and non-contributory, being an additional insured with 30 day notice of cancellation, etc. are all things I would ask the attorney about.
Originally posted by @John Mocker :
Emillo, Just to add a quick note from an Insurance perspective, For all Contractors and their subs, require proof of Liability and Workers Comp. Check on that coverage again before they start work on any job and again periodically during the process. Talk to your attorney about contracts with the GC and subs. Things like, hold harmless and indemnification, Waivers of subrogation, Making their coverage primary and non-contributory, being an additional insured with 30 day notice of cancellation, etc. are all things I would ask the attorney about.

Great points made by John.  In dealing with contractors you can never be too careful.  Another thing to confirm is what they are insured for regarding the insurance.  I've see so many contractors mainly tree contractors be classified on their insurance policies as landscapers with exclusions regarding the height of trees or contractors that only do roofing work, but are classified as interior carpentry work.  You can ask the insurance agent this info when you call to confirm the COI (certificate of insurance) is active.  

Yes you need insurance. For my first flip, I purchased a builder's risk policy but it was expensive. Now, I just got a homeowner's policy on an investment property. When I sell, I cancel the policy and get a refund for the remaining months. 

@Ruth Lyons my understanding is that coverage for a vacant property under renovation (not a rental) isn't the same - I would buy the cheaper "landlord" policy it that were the case. You might do some quiet inquiries... You might find that you aren't covered for the types of losses you could incur. 

@Teri Feeney Styers I appreciate the heads up, Teri. I'll double check. My flips are not that extensive, are in nice stable neighborhoods, and I'm turning them around in 3 weeks while making sure my contractors are insured and bonded. It seems silly to pay for a full year of builder's risk insurance for a few weeks of coverage but like any other investment decision, it depends on your risk tolerance. 

@Emillio Henry

Hey Emilio, I’m a commercial insurance agent. Builders risks can be 3-6 month terms. It’s higher exposure for theft and vandalism too so make sure you have proper security measures in force. My house got robbed during a flip. Make sure the contractor will carry the same GL limits you have ($1M/$2M) and is willing to provide certificates listing you as an AI. Sometimes carriers even require the contractors loss runs so make sure they have those handy at the least. Let me know if you have any questions!

Hey everyone, thank you so much for all the useful information. Sorry I’m just getting back to you all I’ve been insanely busy with this property, so many little things have come up in the last week taking all my focus so I apologize but again thank you so much I’ll be contacting my Local insurance provider ASAP!