Insurance Requirement and Type of Insurance
When purchasing a property (as an LLC), since it may not be occupied for 3 - 6 months or so to rehab, what type of ins. is required? Do you ins. it for the existing value or after repair value? An agent advised that a reg. homeowners policy alone would not do She mentioned liability ins. as well. I'm sure there is some type of comprehensive coverage out there. Hypothetical:
Purchase a property for 25k that will require a pretty major rehab. ARV is 125k. Aside from ensuring that the contractor has the appropriate ins, what am I required to have during the rehab period.
#2 Insurance Contributor
- Insurance Agent
- Nationwide
@Benjamin Jones there are commercial policy designed to cover flips. Your still looking for an option on the personal lines side of the business, and there are not great options.
As far as values, start with purchase plus your costs as your limit for the first 60-90 days. You can then increase to ARV.
The tricky part to this is that profit is not insurable. So if you created $25k in value when the rehab is complete, the insurance carrier does cover it for a period of time, typically 6 months.
Thanks Jason. Just so I understand, in this scenario if the rehab cost were 50k (purch price - 25k) I would have to get something like a business owners risk policy for 75K for the 1st 60 - 90 days and then increase it to ARV upon completion.
Jason Bott
Rare disagreement, there are a few markets that will insure profit. But it's 3 (out of what, 1800 insurers?) and one is a lloyds syndicate, and as you know if the premiums high enough Lloyds will underwrite some crazy stuff.
But unless easily provable, why pay the extra premium is my usual recommendation.
But as you know banks are rarely as pragmatic as insurance agents.
Always feel free to hit me up if it comes up.
#2 Insurance Contributor
- Insurance Agent
- Nationwide
@Derek Lacy thanks for the info.
I never have had a client ask and all my standards do not offer.
And as you say, unless someone wants to pay for it, which is unlikely, why present it as a reasonable option.