Liability Insurance for House Hacking
Hello BP Family,
My name is Ivan, I live in Miami, FL and am finishing setting up a studio with independent access to rent out long or mid term. I expect to charge $1,000 for it with utilities included.
I was planning on put together a basic Lease contract with a liability weaving close in other to protect me from any malicious tenant that may want to take advantage. Is that good enough? or will I need to open an LLC just for that and have liability insurance?
Any fellow house hacker in a similar situation that could share your experience or thoughts would be greatly appreciated!
@Ivan Calais Coelho There are a lot of variables to talk through. How is title to the property currently being held? Is it in your name or the LLC? If you currently have a mortgage your bank will most likely not allow you to transfer the property into a LLC. I recommend you work with a local real estate attorney to advise you and draft the lease. Happy to connect you to my R.E. lawyer if you'd like.
@Ivan Calais Coelho I would get a larger umbrellas insurance with your home owners insurance. I have yet to move a property to an LLC.
Make sure you talk to your insurance company to get a "landlord policy" and max out the liability coverage..typically it's $1mil.
I'm in a similar situation. I have a rent-by-room house hack. It is owned in my personal name, and to help with liability I got the maximum liability ($1 million like @Kenny Smith said).
When I buy my next property, I plan to purchase a $1 million umbrella policy also. I would like to get it now; however, when I recently got quotes it was more expensive than I was hoping for.
The cheapest I found was through RLI for $370/year, but if you've had 1+ auto tickets then it bumped up to $500/year. Additionally, they required that my auto/motorcycle liability be increased and resulted in an extra ~$500/month. So in my case it was going to be ~$1000/year when including the policy and increases. I just didn't think that was worth it to cover only 1 house right now.
I want to add a little to this conversation. Definitely get with your insurance agent and inform them that you are going to be renting out a studio that is attached to your property. Your standard homeowners policy does not cover this space and they will deny the claim if you have one. If you have an agent tell you that you don't need anything other than your homeowners policy make sure to have them put that in writing so that you have some recourse when the carrier denies the claim.
On umbrella policies. You umbrella will cover your personal liabilities and extend coverages in your auto insurance as well as the liability coverages for your properties. What this means is that if you get into an accident in your vehicle. if it is your fault you will have coverage up to the combined limit of your auto insurance and your umbrella. If it is the others persons fault and they don't have insurance or they don't have enough insurance you were smart and you have Uninsured/underinsured on your auto and your umbrella so you will have the money needed to pay for the expenses of that accident regardless of the cost (up to the combined limits of your auto and umbrella policies) This means that umbrella policies are Hugely beneficial regardless if you have rental properties or not.