Flipping Single Family Real Estate is an amazing opportunity to create tremendous wealth without the requirement of large sums of capital or knowledge to begin.  The market is full of mentors willing to share in the financial rewards while teaching new investors how to make it happen.  

The potential opportunity to make money is attractive.  What most new investors fail to see is the risk involved.  Risk of loss, lawsuits and ruin.  Below is a brief outline of the risk and recommended steps to protect your growing assets from loss or ruin.

Q: What is your INTENT for the property?
You have to determine what your intent is for the property when investing:

• Rental?
• Flip?

From an investment and insurance standpoint, both options can look similar, but have different risk that require different solutions to properly protect you from loss.

• Underwriting is designed to match the exposure with the appropriate policy.  If you intend to sell, it will not be a rental, and therefore, not a match for a landlord policy.
  • Vacancy provision, can create an issue past 60 days
  • Liability exposures: Your Work / Completed Operations

Rental:
If the property is ready for rental, a Landlord Policy is an appropriate option.  A Landlord Policy provides Property, Loss of Rents & Liability coverage.  The anticipated usage is a tenant residence, living daily in the property with minimal coming and going of outsiders.  Rare is the expected construction, repair or construction exposure.  

There is NO COVERAGE for YOUR WORK

Flip:
The property is acquired with the expectation to do renovations and sell for a profit in a short amount of time.  Solution requires that multiple exposures be addressed.

  1)  PROPERTY
The most appropriate building coverage is a Builders Risk Policy

• Covers the structure value from start to finish of renovations
• Sets limit to anticipated completed value
• Pro rates limit to percent of work completed at time of loss
• Can provide coverage for property away from the premises
• Sets coverage dates to match anticipated time to flip 
  • If you have a system & crew, this is not an issue.  If you are just beginning, make certain to purchase an annual policy.

  
    2)  LIABILITY
Risk Transfer: When hiring Contractors for construction, you must take steps to ensure that if anything unexpected occurs, you are protected from the actions of those you are contracting for work.  Below are some standard recommendations that can save you from unnecessary aggravation and financial loss.

1. Contract for Service:
   1. Insurance Requirements: (see sample contract)
      1. Specify Limits of coverage required
      2. Additional Insured Endorsement listing YOU
      3. Hold Harmless Agreement
      4. Waiver of Subrogation
2. Certificate of Liability Insurance 
   1. When hiring contractors to do work, your best recourse if something goes wrong is the liability insurance policy carried by the contractor.  (see sample certificate)
   2. Check for:
      1. Named Insured = Name of Contractor
      2. Dates: make certain today falls between the Effective Date & Expiration Date
      3. Limits of Liability are acceptable ($1,000,000 is standard)
         1. Make certain limits match or exceed contract requirements
         2. Products & Completed Operations Limit is Included
         3. ADDITIONAL INSURED IS CHECKED:
            1. This adds YOU as an Insured on the Contractor’s policy.
      4. Description of Operations: Is the job you hired the contractor for covered on their policy?
      5. Certificate Holder: This is YOU
3. Protecting yourself
   1. The best way to protect yourself from loss; have your own Liability Policy in addition to the steps referenced above.  If all else fails, this is the point of last resort.  There are occasions when the above measures are not enough to protect you.  A General Liability Policy in your name, providing adequate limits, can fill in the gaps.  
      1. Premises Liability: Trip & Fall injuries at the scheduled location
      2. Full Commercial General Liability policy providing
         1. Premises Liability
         2. Completed Operations Liability
            1. Rating Exposures:
               1. Payroll
               2. Sub Contracted Costs
   2. What limits do you need?  Consider the volume of work you are doing and the assets you are accumulating that you need to protect from loss.

To discuss in depth and find out how to best protect yourself, please click the link to schedule a call: https://calendly.com/jdarringross/30min ​

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