Flipping Insurance

19 Replies

Hello,

I am a long time reader, first time poster. I've renovated a few houses in Washington DC for investment purposes. On my last project, I started searching for insurance for the renovation/selling time period. I looked around for a while and the best coverage I could come up with was "vacant home" insurance. It cost about $700 for 6 months, which I didn't think was too bad. However, I was wondering if there were other, better, cheaper insurance options? I am not a licensed contractor, so was told builder's risk insurance wasn't a possibility. Anyone have any advice?

Thanks in advance,

John

@John Gregg

You don't need to be a licensed contractor to get builders risk insurance. Most vacant home policies don't cover theft where as most builders risk policies do. You will need to add a liability policy to the builders risk. Zurich is probably one of the few options for SFR's. There are other options but none that I found was as good as Zurich for homes 300k and under. Remember that builders risk policies will generally have min earned premiums of 6 months. You can get 6, 9, 12 month policies however they are not prorated if you sell or complete the renovation in month 5 etc.

Everything @Chris Winterhalter said was perfect. One other thing to keep in mind though is once the rehab itself is done, technically you are no longer building, and would need to switch to a vacant prop policy. I learned this the hard way when my rehab had the AC units stolen, and insurance didn't pay out (they most likely wouldn't have paid out anyways since most vacant policies exclude theft but you get the point). The general idea is that insurance for rehabs isn't very good, but we all still need to have it.

Builder's risk is the way to go. And you can get a policy as an owner. It is more expensive.

@John Gregg I'm also looking for similar coverage. Which companies have you found that are offering insurance for this area? Who have you ended up going with?

@John Gregg  

I use Foremost for my rehabs.  It is not builders risk insurance, but it does cover loss and liability.  You only pay for the time you are covered.  

I think I looked at Zurich's builders risk when I was first starting out and if I'm remembering correctly I had to testify that I was a contractor with a certain number of years experience.  I wasn't so I opted for Foremost and have been using them since.

Foremost and American Modern Insurance Groups are two companies that we use to cover these types of risks. Both are A Rated, and understand that there are different types of "vacant" homes, they understand a fix and flip.  HOWEVER, they are only good if you don't have to "crack the shell" of the house. Meaning if you will open a wall, or if it will go without windows or doors, no dice. If all the rehab will be inside, they are great options, but otherwise you will need a policy that will cover builder's risk. 

I use American Modern and paid about $330 for 3 months on my my recent Reno project

If you don't want to pre-pay those earned non-refundable premiums for several months, the company in @Tim Norris  ' profile will insure your rehabs with premiums paid one month at a time.  It's a pain when the rehab runs a little long or it just takes a bit longer to sell than you anticipated at first, and then your insurer wants several more months pre-paid earned non-refundable premiums to keep you covered ...

I have been using Foremost and American Modern on all of my flips and they do have coverage for vandalism and theft.  The other great thing is that the policies are paid monthly and balances are refunded after cancellation.  I have found that AMIG is almost always cheaper, but sometimes during their inspection they see things they don't like and must be fixed immediately else they will drop you.  I priced out Builders Risk from Zurich one time and it was crazy expensive for what I needed.

@Stan Butler , we are about to purchase a flip and I had my insurance research it and he came back with a quote from American Modern and he said it did not include theft and they will not add theft to it.  Does your insurance with them include theft?  I think it is important to have that component during a flip.

Thanks!

@Stan Butler  ,  Do you use an agent in the Atlanta area that you would recommend for builder's risk policies?  Would love a recommendation.

Thanks!

I am currently using American Modern Insurance Group (AMIG) to cover my property.  My first plan was to quickly flip it with no work involved.  The home was a case of break and entering and received a lot of vandalizing.  Stealing some copper piping/wiring/damaging a lot inside.  The buyer backed out and so I filed a claim.  AMIG did cover half the damage due to their caps of $5K for plumbing/wire.  $31,000 in damage/I received shy of $13K.  

I'm now rehabbing it using a General Contractor (General Contractor).  AMIG does not carry builder's risk to cover the goods purchased by the GE so I'm going to get some quotes from Zurich and others.

Overall, AMIG has been helpful and quick.  The agent covering my case was very busy with others but was able to help me quickly as I was able to provide everything as requested in a timely manner.  Help them help you...

Anyone use Stare Farm in you are planning a quick rehab prior to renting it?

Great info on this thread!

If I buy a foreclosed property at auction for cash without prior access for inspection, with the risk of someone living there (previous owner or squatter) requiring eviction, and further extensive renovation after that, what insurance could I get?

All insurance firms I checked refused to cover property I dont possess yet due to illegal tenants. How do investors get coverage in that scenario? Im sure this is a somewhat common scenario out there.

Yes, you are not properly covered with the coverage mentioned above. For your next project, feel free to DM me and we will make sure to get your proper coverage this time. 

John, there are many program out there for flipping.  Month to month payments, vacancy, reno, occupied all on 1 policy.  Unless it is a high value flip, no need to use the traditional builders risk policies.

Thanks for all of the great info! I am currently doing my research and trying to find out what type of insurance is best and where to buy it and this post helped me a lot!

Most of these policies, if not all are ACV in lieu of RC. Can you all talk about your thoughts on this?

I insure a lot of flip and rehab to rent properties as well as flip houses my self. I insure most of them through Foremost but there are other companies available.

What you need to know is these policies are "pretty good" but will not cover every possibility like a traditional home owners policy does. You should sit with an agent who has experience insuring flip homes and have a good "what if this happens" session to see how much risk you are willing to take on and what coverage gaps there may be.

Some examples of gaps in coverage: Contractors you hire need to have Workers Comp coverage as your Gen Liability will most likely not pay for their injuries on the job site.

Vacant home policies almost never have Theft coverage vs Builders Risk policies typically has some coverage for "theft of building materials" but that is building materials only not other property.

Ex: someone kicks the door in (vandalism) and proceeds to poke holes in the walls to rip out the copper pipes (still vandalism). They load the pipes up and leave the property (uh oh - now it's theft).

Your typical policy for vacant / builders risk will then view the broken door and holes in the wall as vandalism (covered minus deductible) but the stolen pipes are theft and most likely not covered at all.

Those are just a few - there are a lot of variables but don't let it scare you off just make sure you understand the risk

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