The Property Brothers make it look so easy. A fix and flip on these popular ‘fixer-upper’ shows present the reality of a fix and flip as straightforward and wrapped up in under an hour. However, any experienced property investor will tell you that this isn’t the reality.
Fix and flips always come with an element of risk. And however much of a sure thing an investment feels, there’s still the potential for things to go wrong. Therefore, you need to get insured.
That being said, insurance for house flippers can be a topic that’s hard to navigate and throw up a lot of questions: how much protection do you need? What kind of insurance do you need? And how much is it going to set you back? If you have any questions surrounding fix and flip insurance, we’ve got you covered (no pun intended).
In this guide, we’re going to answer all the questions you may have around the insurance side of house flipping so you can feel comfortable with anything your fix and flip project may throw at you. Let’s get into it.
Do You Need An Insurance Policy For House Flipping?
Don’t even consider going into a fix and flip project without insurance! As we mentioned, there are a multitude of things that can go awry when flipping houses. Not convinced? Here are some highly conceivable things that could go wrong:
- Your house could burn down
- A contractor could get injured
- Your property could be vandalized
- Building tools and materials could be stolen
So why risk it? The insurance policies we’ll cover in this guide protect your property and personal assets and, ultimately, give you peace of mind.
What Type Of Insurance Do You Need For a Fix and Flip?
Flipping houses requires a special kind of insurance coverage. A traditional homeowner’s insurance policy will not cover you. Moreover, it’s also doubtful that your regular insurance broker – meaning the one you use for your residence or vehicle – will offer the type of policy you’re after.
This is because traditional insurance brokers view house-flipping as ‘high risk’. Furthermore, they’re not designed to protect vacant or rehab properties.
The special kinds of insurance you need for fix and flips are:
- Dwelling Policy
- Builder’s Risk Policy
- General Liability Umbrella
What’s a Dwelling Policy?
A Dwelling Policy for a vacant building that’s under renovation is to protect against direct and physical damage to the property. As a flipper, these unforeseen events can happen at any stage of a fix and flip. And insurers see it that way too.
Vacant or renovated properties are considered a higher risk as they’re more prone to vandalism, water damage, or arson.
What’s a Builder’s Risk Policy?
A Builder’s risk insurance policy is something you’d have to get if you’re carrying out a structural renovation of a property. It covers direct, physical damage to a property during the construction process.
It’s worth noting that some dwelling policies don’t cover renovation or materials. If that’s the case, it’s paramount you add a ‘builder’s risk rider’ to your policy.
What’s a General Liability Umbrella Policy?
A General Liability policy is put in place to provide coverage for bodily injury that occurs on the property’s premises.
However, this coverage does not extend to your general contractors or the workers you hire.
With all of your policies, you need to recognize that all properties are different and yours will have its own unique requirements. So speak to your real estate dream team – a trustworthy real estate agent, an experienced hard money lender, and your insurance provider – to determine the policies you need.
How Much Insurance Coverage Do You Need?
Insurance coverage is not created equal. Therefore, it’s worth considering how much coverage you need for your investment property. Otherwise, you could fall into the trap of being under or over insured.
There are two different options for insurance coverage:
- Basic form coverage – This provides coverage for all of the causes listed in your policy, all other causes of damage are excluded. This form of coverage can save you upwards of 30%, however, ensure you consider these exclusions. Common exclusions include theft, sleet or snow, and water damage.
- Special form coverage – This kind of form provides coverage for all causes of loss – except for those listed as exclusions in your policy. Exclusions to be aware of include sewer & drain backup, earthquakes, floods, and intentional damage.
What’s the Cost of Insurance on a Fix and Flip?
This question is a bit harder to answer than the others in this guide. This is because costs vary widely and are based on a handful of different factors, such as:
- Geographical location
- The value of your property
- The level and type of coverage you elect to have
When Should You Get Insurance For Your Flip?
Like most things in life, it’s best not to put off insurance for house flipping until the last minute. Otherwise, you could miss something crucial.
For this reason, we recommend that as soon as you get your property under contract, you should begin reaching out to insurance brokers and start getting quotes. As soon as you take possession of the property, it’s your financial responsibility. Therefore, you don’t want to be caught out because you delayed getting insurance.
Other Ways to Protect Yourself When Flipping Houses
On top of insuring your house, there are a few other ways you can protect yourself when flipping real estate.
Firstly, flippers should sign the contract, get their insurance policy, and deal with financing through an LLC. An LLC protects your personal assets and ensures that you’re not personally liable for anything going wrong with your property. In fact, most hard money lenders won’t release funds to you until you set up an LLC or an S corp – We Lend LLC is no different!
On top of that, we’ve briefly mentioned before, but it’s worth surrounding yourself with an expert real estate team. Fix and flips can be risky when approached the wrong way. Moreover, they require you as an investor to wear a lot of different hats and use your best judgement within a variety of specialisms. Being able to lean on experts will ensure that all the decisions you make are fully informed.
The Bottom Line
As you can see, insurance for house flippers is not as straightforward as insuring other things within your life. Insurance companies see you as more of a risk and, to be fully protected, you also need multiple types of policies. However, that doesn’t mean you should put it off!
Fixing and flipping properties isn’t exactly like The Property Brothers; things can occasionally go wrong. However, securing the right coverage for your investment property gives you the peace of mind and allows you to focus on the bottom line – maximizing the ARV on your fix and flip!