Three Unit House Hack Insurance Complications

2 Replies


I have a relatively complicated situation (this is my first property) that I am looking for some guidance on -  any guidance you can offer would be much appreciated!

The situation:

- I am under contract at $265K for a three unit building in the suburbs of Saint Louis Missouri.

- Building characteristics: full masonry construction (1926), partial knob and tube, galvanized iron and copper supply piping, cast iron and PVC waste, drain, and vent piping,  pitched roof, tenants currently in first and second floor units, third floor contains a partially finished attic apartment in need of $10-15K worth of work before it can receive an occupancy permit from the city.  I plan to live in this third unit once it is finished.

- My lender is giving me owner-occupied financing, contingent upon putting 1.5x the third unit renovation estimate into an "escrow hold back" account. I then have 60 days before I must move into the third floor apartment.

Insurance Complications:

- I have spoken to two insurance agents from separate companies, and they are telling me different things:

- Agent 1: suggests residential dwelling policy (ACV)

- Total Premium: $1841 / year

- Deductible: $1000

- A. Dwelling: $265,000

- C. Personal Property: $25,000

- Broad Perils:

- Theft to personal property: $5K

- Loss of rents: $26,500

- Personal Liability & Medical: $300K

- Landlord Liability & Medical: $300K

- This agent says I NEED to live in the house at least 1 out of the last 29 days in order for this policy to cover me in the event of a fire, etc. The issue, however, is that the third unit which I plan to move into will not be able to be legally occupied for perhaps 60 days (as stated above, fairly significant work is needed and this city is notoriously picky on their occupancy inspections).  This means that for the first two months I will effectively not have insurance coverage.

- Agent 2: suggests commercial policy

- After explaining the situation to her that occurred with agent 1, she gave me two unofficial quotes on the phone: 

- Full Replacement (estimated cost of $542,000) with $2M in liability: total premium of $4600 / year

- ACV Policy with $300K coverage and $2M in liability: total premium $3400 / year

My questions:

- What type of policy do I need given that I have owner occupant financing, but cannot live in the house for 60 days? I would prefer to be in the $1500-$2000 price range or lower if possible, but not at the expense of leaving myself too exposed. 

- Do you have any suggestions for how I can work out the 29-day issue with agent 1? Assuming that I can work that out, do you have any recommendations for how to make the policy a better value (increase deductible, lower personal property (I don't have anywhere near $25K worth of goods), increase liability coverage, etc) ?

- Are there any additional things I should make sure are covered in an old house like this (e.g. coverage for leaking/frozen pipes, etc)?

Thanks so much for any guidance you can offer!



Get tight with your residential lender before you submit an insurance policy to underwriting with commercial written in big black letters at the top...

There are insurance agents/brokers that offer reno/construction policies. More expensive, but they cover you.

@Chris Mason touches on a few key points, and I'll add a few more.

First, find out what type of policy underwriting will allow you to get.  They may only allow you to insure it with a Homeowners policy.  I've had this happen to many clients of mine where we quoted commercial, and then it was not allowed by the loan officer at closing.

You could buy a builders risk, but probably not necessary if 2 out of 3 units are occupied.  But this could be a way to satisfy the Homeowners requirement by the lender without residing in the property.

Knob and Tube will double or triple your premiums.  Replace that and you will get many more affordable options.

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