flip

The insurance side of house flipping

It’s a classic TV reality show scenario: A young, ambitious couple purchases a foreclosed property and flips it for a huge profit. This quick cash flow seems too good to be true…and usually i

The thrill of flipping a home often overshadows the harsh reality that profitable house-flipping opportunities are few and far between. I can honestly speak from experience. My wife and I were one of these young, ambitious couples that decided to dabble in the exciting world of house flipping. Although the experience was rewarding and challenging at the same time, we learned some valuable lessons. Potential house flippers should consider some insurance coverage issues before making a commitment:
  • Contemplate the cost of insurance when purchasing a home. If the house does not sell within a few months, insurance is a continuing expense that needs to be included in your budget.
  • Make sure you do your research when selecting an insurance company and policy. Your local independent agent can help you. Some insurance policies provide additional coverages you may need. Consider choosing one that provides limited coverage for water damage and fungi, wet or dry rot or bacteria. These issues often go unnoticed until after a remodeling project begins.
  • Discuss with your agent insurance to value – the need to insure the home for its reconstruction cost. Just because you purchased a home for a certain price does not mean that the home can be replaced for that amount. There can be a huge discrepancy between market and replacement cost values. Your agent can also recommend builders’ risk coverage for the remodeling cost of the project.
  • Consider the cost of building materials going into the refurbished home. Your insurance agent can add an installation floater – coverage for movable property – to your policy to insure construction materials in transit and at the jobsite.
  • Allow plenty of time to purchase insurance rather than waiting until the last minute. Contact your agent and consider an insurance company that will provide coverage for a house undergoing renovation. Some companies may consider this a vacant home and deny or limit coverage for vandalism, theft or other perils.
  • Before you allow contractors to start work on your investment, first confirm that they are insured. The safest bet is to request a copy of each contractor’s general liability policy declarations page. Make sure that the policy has at least a $1 million per occurrence and general aggregate limit.
– Cincinnati Insurance Companies