Homeowners Insurance for House Flippers
While it may seem like a straightforward project, house flipping requires much more than just a paint job and pretty countertops. Although you may focus on the purchase price, rehab costs, and projected market value, it’s crucial to consider home insurance coverage, too. Navigating homeowners insurance as a house flipper requires a comprehensive understanding of the unique coverage needs associated with buying, renovating, and selling properties.
Many moving pieces go into a house flip, and it’s important to keep in mind the risk of what can happen during the process. In this article, we explore the types of insurance policies required to flip a house, discuss the amount of coverage you’ll need, and review when to purchase it to ensure you’re protecting your investment.
Common Insurance Challenges for House Flippers
House flippers face unique insurance challenges due to the nature of their work, which involves purchasing, renovating, and selling properties quickly. One of the biggest challenges is finding the right coverage for properties that may be under construction or in the process of major renovations. Standard homeowners insurance typically doesn’t cover properties in such a condition, leaving flippers at risk for unexpected damage or accidents.
Types of Insurance for a "Fix and Flip"
House flippers face unique challenges when it comes to insurance, especially because of the changing nature of properties under renovation. Fortunately, there are several types of insurance specifically designed to address these challenges and protect investors during the fix-and-flip process. Let’s explore the most common insurance options available for house flippers.
Builder’s Risk Policy
A builder’s risk policy is one of the most essential types of insurance for house flippers. This policy provides coverage for properties under construction or renovation, protecting against damage from fire, vandalism, theft, or certain weather-related risks.
Since standard homeowners insurance typically won’t cover properties in the middle of a renovation, a Builder’s Risk Policy is necessary to ensure that the home is covered while it’s being worked on. It typically covers the structure itself, materials on-site, and sometimes even equipment or tools being used during the renovation.
Dwelling Policy
A dwelling policy is often used by house flippers to protect properties that are not their primary residence but are intended for sale or rental. This policy is broader than a standard homeowners policy, offering coverage for the building itself and certain types of damage that might occur during the flipping process. Once the renovation is complete and the property is ready for sale, a dwelling policy will cover the structure in the event of fire, storm damage, or vandalism.
For flippers, this type of insurance is crucial when the property is no longer in active renovation but is still unoccupied and unsold. It ensures that the investment is protected while it waits for a buyer, especially in areas where vacant homes are more vulnerable to damage or theft.
Liability Insurance
Liability insurance is vital for house flippers, as it protects them from lawsuits related to accidents or injuries that occur on the property during the renovation process. Whether a contractor, worker, or visitor is injured, liability insurance ensures that legal and medical costs are covered, preventing costly out-of-pocket expenses.
In addition to protecting the house flipper, this type of coverage can also extend to the workers or subcontractors hired to complete the renovation. Having liability coverage in place can provide peace of mind that any accidents or injuries will not derail the project financially or legally.
Vacant Property Insurance
Properties that are empty or not actively being renovated are often at risk for vandalism, theft, or natural disasters. Vacant property insurance addresses this risk by providing coverage for properties that are unoccupied for an extended period. This is especially important for flippers who may have several properties at different stages of renovation or in between buyers.
A standard homeowner’s insurance policy often won’t cover vacant properties, so vacant property insurance is crucial for mitigating risks. It protects the property from damage and theft, and in many cases, it can be customized to include coverage for specific risks, such as vandalism or fire.
How to Get the Right Insurance for a House Flip
Finding the right insurance for a house flip is crucial to protecting your investment, covering potential risks, and ensuring your project runs smoothly. Here's how to secure the right coverage:
Choosing the Right Coverage
In general, you’ll typically want to obtain enough coverage to cover the amount you paid for the home and the amount invested for the renovations. The amount of insurance coverage needed when flipping a house depends on various factors, including the property's value, the scope of the renovation, and the duration of the project. Here are some essential considerations to determine the appropriate insurance coverage for house flipping:
Property Value: The insurance coverage should be aligned with the property's current value, considering both the initial purchase price and the anticipated post-renovation value. It's crucial to ensure that the coverage adequately reflects the property's overall worth to protect the investment.
Renovation Scope: The extent of the renovation project influences the required coverage. Comprehensive renovations involving structural changes, extensive upgrades, or additions may necessitate higher coverage limits to protect the increased property value and the renovation investment.
Risk Assessment: Conduct a thorough risk assessment to identify potential hazards and vulnerabilities specific to the property and the renovation project. This assessment can inform the determination of appropriate coverage levels and risk management strategies.
When to Buy and When to Update Coverage
As soon as the property is under contract, you should start exploring your options for insurance. Even if the property is not yet undergoing renovations, having insurance in place from the beginning of the process safeguards the investment from potential risks, such as vandalism, theft, or damage caused by unforeseen events.
Before the renovation work begins, it's essential to review and update the insurance coverage to include specific provisions for renovation activities. This may involve obtaining renovation-specific insurance that provides protection for the property during the construction phase. The easiest way to explore your options is to work with SelectQuote. In just minutes, we can compare coverage and prices of some of the most trusted carriers to find the right policy for your project.
When Multiple Houses are Involved
A policy covering multiple pieces of real estate can be especially appealing if you’re looking to flip more than one home. This type of coverage does exist but may be harder to come by. It’s commonly referred to as a "multi-property" or "multi-location" insurance policy. It's important to note that not all insurance providers offer multi-property insurance, and the eligibility of properties for inclusion in a single policy may vary based on factors such as property type, occupancy (rental vs. owner-occupied), and location.
Consolidating multiple properties under a single insurance policy may offer cost advantages in terms of premiums and administrative efficiency. Ensuring proper insurance coverage at each stage of your house flip is key to protecting your investment.
Find The Right Homeowners Insurance and Get a Free Quote with SelectQuote
Shopping for homeowners insurance can seem like a daunting task, especially if you’re not sure what kind of coverage you need for a house-flipping project. Let us do the work for you—in just minutes, we can help you find the right amount of coverage for the phase of your flip at a price that works for your budget. Our licensed insurance agents will streamline the process for you by providing rates from several of the nation’s most highly rated carriers. That way, you’ll have all the information you need in one place while relying on our agents for guidance and support.
