Insuring your House Hack

Member since 2019 · 31 posts · 24 votes

Hi all! I purchased and renovated a house with a separate legal mother/daughter apartment that I am preparing to Airbnb here in Central NJ.
I wanted to find out from those of you who are house hacking; do uou have separate insurance for the rental? Are you able to separate it from your primary residence for tax and liability purposes?

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Shawn McenteerBusiness Member

Realtor · Boonton Township, NJ · Member since 2013 · 2k+ posts · 1k+ votes

Hi @Heather Bailey something to consider with this is legal mother/daughter may not mean legal duplex. Renting out technically may not be legal for this property. The good news is owner occupying allows you to get away with things like this a bit more. STR is another concern, many towns have laws against it but most towns do not enforce these laws, just make sure you are aware of them becuase they can be enforced.

Regarding insurance adding additional umbrella insurance is great idea. Requiring occupant to have renters insurance is another possibility for extra protection. The biggest thing with this is if something major happens are you legally covered if the unit is illegally rented. From tax stand point I would think you can separate from primary and be okay with IRS being that IRS will not be local code enforcement.

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Jeff SchemmelBusiness Member
Real Estate Agent · Saint Paul, MN · Member since 2014 · 384 posts · 401 votes
1y
@Heather Bailey while I live in my duplex, I have a standard Hazard insurance policy and I also carry an additional 500k umbrella policy (optional); both policies cover the entire building, but there's no separating it. I started planning to move to my next property and my company decided they wouldn't cover me anymore once I left. as a result I switched to a new company, and I will have to adjust it again to a landlord policy that comes with a slightly higher price tag when I move out. The biggest factors, from what I can tell, are age and rebuild cost. It's worth mentioning I also require tenants to have their own renters insurance policy with at least 100k minimum liability.
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Heather Bailey
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Member since 2019 · 31 posts · 24 votes
1y
Thanks Jeff! I do the umbrella policy and will check with my carrier. I was planning on shorter term rentals as I have a family member who comes for 2 months in the summer, but I assume a landlord policy would cover that as well. Insurance is getting to be like taxes. They never go down! Thanks and good luck to you.
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Jeff SchemmelBusiness Member
Real Estate Agent · Saint Paul, MN · Member since 2014 · 384 posts · 401 votes
1y
@Heather Bailey they will ask you what style of renting you plan to do. To the insurance company they will view an STR differently than a LTR. I am not privy to the details of that from their perspective, but I would hesitate to assume the policies are the same; I don't believe they are.
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Shawn McenteerBusiness Member
Realtor · Boonton Township, NJ · Member since 2013 · 2k+ posts · 1k+ votes
1y
Hi @Heather Bailey something to consider with this is legal mother/daughter may not mean legal duplex. Renting out technically may not be legal for this property. The good news is owner occupying allows you to get away with things like this a bit more. STR is another concern, many towns have laws against it but most towns do not enforce these laws, just make sure you are aware of them becuase they can be enforced.
Regarding insurance adding additional umbrella insurance is great idea. Requiring occupant to have renters insurance is another possibility for extra protection. The biggest thing with this is if something major happens are you legally covered if the unit is illegally rented. From tax stand point I would think you can separate from primary and be okay with IRS being that IRS will not be local code enforcement.
973-975-3895
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Owen RosenBusiness Member
Professional · Clinton Township, MI · Member since 2015 · 682 posts · 259 votes
1y
Quote from @Jeff Schemmel:

@Heather Bailey they will ask you what style of renting you plan to do. To the insurance company they will view an STR differently than a LTR. I am not privy to the details of that from their perspective, but I would hesitate to assume the policies are the same; I don't believe they are.

This is correct. STR is different from LTR for insurance. You have to be up front about how the property is being used.
Also, remember that umbrella insurance will not do anything for you if the underlying property or vehicle is not insured correctly. No protection in those cases whatsoever. Also, umbrella is for liability only (lawsuit protection) and not property protection.
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Ashish AcharyaBusiness Member
CPA, CFP®, PFS · FL · Member since 2017 · 5k+ posts · 3k+ votes
1y
@Heather Bailey When house hacking with a separate rental unit, ensure proper insurance by obtaining landlord or short-term rental coverage tailored for Airbnb activities, in addition to your primary residence policy. This protects against potential claims and liabilities specific to the rental.
For tax purposes, maintain clear records of rental-related income and expenses, allowing deductions for insurance, utilities, maintenance, and depreciation proportionate to the rental unit. For added liability protection, consider setting up an LLC for the rental, though this may have limited impact if the mortgage is in your name.

This post does not create a CPA-Client relationship. The information contained in this post is not to be relied upon. Readers should seek professional advice.
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