Insurance Basics
February 21, 2024

What is a Flip Insurance and Why Do You Need It?

Steadily's blog cover page for information around landlord insurance.

House flipping is not a new form of real estate investing. It has long been used as a strategy to diversify a real estate portfolio. Popular reality television shows and online web series make it appear glamorous, filled with fast profits and stunning transformations. All of that may be true, but there are risks associated with house flipping that must also be considered.

What is a "Fix and Flip"?

A fix flip venture is a multistep process, starting with identifying areas of opportunities and scouting potential properties. Before the scouting process, it is essential to have a solid understanding of your financing, as the asset may not stay on the market long. If it interests you, you will want to move quickly to secure the purchase. After the purchase comes the renovation process, which is intended to move quickly in order to list the house back on the market. Thus the term "fix and flip", meaning the intent was to acquire the property and transform it into an upgraded version to return to the market for profit.

In theory, the process is streamlined, and the investor will flow right through without issue. But, that is not always the case. All investments come with risk, including a fix and flip. As the homeowner, you are responsible for protecting your investment, and house flipping insurance provides this peace of mind.

Here's Why House Flippers Are Wise To Be Insured

As a house flipper, you are assuming an element of risk by removing the asset from the market to restore with the goal of returning it with a profitable after-market value. Whether you are operating in a cash flow business or funding your business through a private or conventional financing sector, there is much to be protected.

The renovation is possibly the lengthiest part of the process, and is also the most integral in terms of protection. When thinking about what can go wrong, a novice investor may only think about running out of funding, delays in materials, or lack of labor. That's only a fraction of the possibilities, and in comparison, the more manageable issues to accommodate.

House flippers must also consider the possibility of mishaps to the structure of the asset itself. It is prevalent for fix and flip properties to experience vandalism, natural disaster catastrophic events, stolen materials, or even worse, the injury of an individual on the property. Typical financing isn't designed to cover these issues. With such a short-term investment venture, the anticipation of either is highly unlikely to be built into the budget. Considering the nature of the setback and how severe of a problem it is, the financial burden could be a windfall.

Like with health insurance, car insurance, or life insurance, house flipping insurance is designed to protect you, the investor, from having to figure out the worst in the thick of the problem. Insuring your property allows you to proceed with peace of mind and an active plan of action if it is ever called into need.

How does the insurance protect your investment during the renovation process?

Traditional home insurance is not designed for fix and flip properties. By their standards, rehab property could be deemed a high-risk subject to insure, which could lead to being denied coverage or a potentially astronomical rate. Additionally, considering the nature of the project, it is possible that a traditional insurance route may not provide the necessary coverage to ensure you and your investment are fully protected.

There are three unique types of fix and flip property insurance policies, which work to provide the necessary coverage for your fix and flip property. They are:

Dwelling Insurance Policy

The dwelling insurance policy was created for vacant properties undergoing a cosmetic uplift. They tend to be a better target of vandalism and other devious acts, including arson and water damages. This policy protects your interest against physical damages that your property could experience during the rehab process.

Builder's Risk Policy

The builders risk policy provides another layer of protection for a more in-depth structural renovation. This policy often covers materials during the construction process, subject to confirmation.  

General Liability Umbrella Policy

The general liability umbrella policy protects the insured by providing coverage for bodily damages on the property during the renovation process. Physical injuries could include accidents as serious as wrongful death or even a slip and fall. However, it is necessary to point out that this policy does not cover hired general contractors on the property.

It is critical to consult with your funding source to confirm the needed coverage and then connect with a reliable and trustworthy insurance provider like Steadily to discuss your insurance needs, including adding applicable riders to garner full coverage.

Why Is Fix And Flip Insurance An Excellent Investment?

Fix and flip Insurance costs a fraction of the cost of fixing and flipping your next asset, but it could potentially be the difference in the success of your real estate investment business, or unexpected loss due to perils or other complications during the renovation process. When an investor sets out to begin their business or lay out their goals and business plan for their fiscal year, it is expected to be with a positive approach. Indeed, there is a financial goal along with a road map outlining the path to reach it.

But, just like most plans, they aren't guaranteed to go smoothly without incident. There is no way to know if the plans will derail in any manner, so the absolute best approach to provide maximum success is to protect your investment.

How Can Steadily Insurance Help You Cover Your Investment?

Steadily is a select team of knowledgeable professionals providing expert service and valuable coverage to landlords nationwide. Our insurance policies cover a variety of mishaps ranging from water damage to vacant vandalism and fire. We work closely with landlords to provide adequate coverage to their investments. Responsible investing is the best way to invest. Avoid the peril of unforeseen catastrophes, and grow your house flipping business with secure peace of mind.

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    This post is for informational purposes only and does not serve as legal, financial, or tax advice. Consult your own legal, financial, or tax advisor for matters mentioned here. The information on this site is general in nature. Any description of coverage is necessarily simplified. Whether a particular loss is covered depends on the specific facts and the provisions, exclusions and limits of the actual policy. Nothing on this site alters the terms or conditions of any of our policies. You should read the policy for a complete description of coverage. Coverage options, limits, discounts, deductibles and other features are subject to individuals meeting our underwriting criteria and state availability. Not all features available in all states. Discounts may not apply to all coverages. Steadily is not liable for any actions taken based on this information. If you believe any of this information may be inaccurate please contact us.

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