It seems easy, fun, creative, artistic, and brings couples closer. No, we’re not talking about a couples’ Zumba class—we’re talking about house flipping! House flipping is when you buy a house that is in need of some TLC, fix it up over the course of a few weeks or months, and then quickly sell it, turning a profit.
Specialty channels are flooded with them, contractors seem to be making a fortune, the media is incessantly writing about them—house flipping is on everybody’s lips. Flipping is all the rage and maybe you think that now you could put your extra spare time to good use and put your skilled hands, basement renovation experience, unparalleled spatial and temporal vision, savings, and friends to work flipping a house.
So now you’re the owner of a 1960s bungalow with a fuse box, aluminum wiring, and steel pipes. The cabinets need to be changed, the floors need to be sanded and varnished, the walls need to be painted, and there are partitions to knock down, a walk-in closet to build, mouldings to add, and outlets to change—in short, plenty of small challenges for any do-it-yourselfer.
Nevertheless, by definition, a flip is a swift renovation that is extensive enough that it would be pretty much impossible to live there before and during the renovations. And once the renovations are complete, while the house is for sale, it would not be recommended to rent it. After all, you’re intending to sell it to a buyer who doesn’t share your passion for renovations. So, throughout this period, your house will be vacant. Even if you go there every day, any insurer will consider it to be vacant, and insurance companies have a list of exclusions for vacant houses that make it almost uninsured.
Here is the list of exclusions relating to the vacancy of a building (the list may vary a bit from one insurer to the next):
ANY loss or damage occurring after the dwelling building has, to your knowledge, been vacant for more than 30 consecutive days.
It’s crystal clear…
You must inform your broker, who will negotiate with your insurer to add a vacancy permit to your existing contract. The permit doesn’t remove all of the exclusions, but at the very least you’ll be insured against fire and wind damage (and a few other less common risks). But it is very unlikely that your insurer will provide you with home insurance for this type of project. You’ll have to turn to specialized or commercial insurance. A work site is considered to be a greater risk than a normal dwelling. Contact your broker who will ensure that you have the right coverage and the permits necessary so you can focus on your renovation without worrying about insurance.
Commercial insurance is not necessarily more expensive, but it could provide a contract that is better adapted to the situation. The insurer will issue a specialized or commercial contract with full knowledge of the situation. However, in most cases, it will have restrictions on the scope of the specific coverage. Usually, it will have exclusions relating to theft and vandalism. Several other insurance contract clauses of particular importance may alter your approach. In fact, your insurers may require that you hire licensed contractors for plumbing, roofing, heating, and electrical work. It is important to note that if your insurer does not impose this requirement and you do the work yourself, you may be directly exposing yourself to lawsuits from the next buyer if your work is found to be defective.
So there you have it, good luck and enjoy the flip! In my next blog, I’ll tell you why falling in love with your flip by taking too much pride in it may not make you the best potential real estate investor….