Residential hard money lenders in PA may require you to carry insurance on your investment property to protect their interest, but they may not require adequate insurance for you to be fully protected.
Home and auto insurance are complicated enough for most of us, but unfortunately insurance for investment properties gets even more complicated. Many flippers do not have adequate or appropriate insurance on their flip properties. Even those who turn to their trusted home and auto insurance agent may not be getting the best insurance coverage for their investment properties.
What insurance do real estate investors need when their flip property is being financed by residential hard money lenders in PA? Let’s review the different types of insurance that real estate investors need to know about. It’s important because if you’re not properly insured, you could lose the value of your investment, jeopardize your real estate investing business and, worse still, be held personally liable in a way that could devastate you financially.
And before you continue, let’s make a disclaimer really quickly: this is a quick overview to share the types of insurance you may want to consider for your flips. There may be other options you should consider, or this list may have more than you need. Always talk to an insurance expert. Rather, we are providing a simple starting point for investors who want the perspective of insurance from someone who does flips.
Types of Insurance for Real Estate Investors
Hazard Insurance: When you close on the deal to acquire the property, you should have hazard insurance lined up. Most residential hard money lenders in PA will require this insurance. Be sure your hazard insurance also coverage for fires.
Flood Insurance: If your investment property is in a designated flood zone, you’ll want to pay for flood insurance. Residential hard money lenders in PA will generally require this as well. If it’s not in a flood zone, but you still have concerns about flooding, maybe in the aftermath of a big storm or hurricane, go ahead and get flood insurance.
Liability Insurance: Liability insurance is always needed. You want to be protected from people having accidents on your property and suing you. You may be able to liability insurance for your investment property and/or for your business. Note that liability insurance may be included in the following two types of insurance.
Vacant Insurance: If you purchase a house to flip, but it will be vacant for a matter of weeks or months before you begin to rehab it, you should get vacant insurance to protect your investment from the kinds of vandalism and harm that sometimes happen to vacant properties.
Builder’s Risk Insurance: When rehabbing the house, you’ll need builder’s risk insurance. This is the kind of insurance that gets you through the construction or renovation of a house. It covers the increased risk of vandalism, property damage, and contractor injuries. Usually with builder’s risk insurance, you would no longer require separate hazard and fire insurance nnor liability insurance, but you will have to consult your agent to be sure.
Conclusion
There are some insurance products on the market now designed specifically for house flippers, essentially a policy that automatically shifts from vacant insurance to builder’s risk and back to vacant after the rehab. Bottom line: Do your homework and get insurance from an agent who understands house flipping. We are not here to sell you insurance but we can tell you what types of insurance you might want to think about before you start flipping your next property, or what types of insurance you might need to get money from a hard money lender; and if we think it’s a fit, we may also put you in touch with some of our insurance contacts in the industry who can help you.