Step 2: Line Up Insuarance

Lloyd’s of London is well known for insuring significant body parts of world-famous entertainers and celebrities. Rocker Bruce Springsteen, model and television personality Heidi Klum, singer Dolly Parton to name just a few. They’ve used the United Kingdom firm to provide them with some extra piece of mind regarding the personal parts that they consider their money makers. The things that help me earn my living are my pig’s ears, and Lloyd's of London has been my insurance company for nearly all of my projects.

People usually think I'm joking when I share this, but it's a fact. Some things require special insurance, and as it seems, my unwanted homes fall into this group. I don’t get as amused by this fact as I used to, but opening the coverage envelope and seeing that famous name on my policy still brings a little smile to my face. 

Protecting your investment—no matter how much the people around you question its value—is essential. Securing insurance before you take ownership is a must and might initially seem a little trickier than expected. A rehabbing newbie should not be surprised when the high-profile insurance companies are ill-equipped to sell you appropriate coverage for your project. 

From my experience, the more commercials an insurance company has on television, the less likely they'll be to sell you coverage before you start hammering nails. They'll be more inclined to explain that they can cover your property after you're all finished, but until then they'll basically advise you that they have nothing to offer. 

Oftentimes, it comes down to livability. You need to have two of the three systems in working order—plumbing, electrical, and/or HVAC. However, if you’ve got only one or even none, you can still connect with folks like those at Lloyd’s of London with the help of an independent insurance firm. These smaller, local businesses will hook you up with a policy so you can sleep as soundly as Bruce, Heidi, or Dolly. For the last twenty years, Lloyd's of London has been one of the first, although invisible, members of my team.

When I first started rehabbing, there weren’t home flipper shows on TV. And back then, my lenders and insurers were content with me having a Vacant Dwelling Policy until I received my Certificate of Occupancy and moved in. Now, a VDP can cover you for a simple cosmetic reno, but if the rehab is more fully involved, perhaps a pig’s ear and borderline uninhabitable, you likely need a newer form of coverage: House Flipping Insurance.

Insurance companies now have Builder’s Risk Policies that they’re selling to rehabbers and home flippers who are gutting the house to the studs and/or making structural improvements. General contractors and any subs you hire will have their own insurance, but if you’re doing work, the BRP will cover your part; your work and materials along with plumbing and electrical fixtures, plus even your tools and equipment.

And if you have any concerns about exposure of a catastrophic injury or a death on your project, your insurance company can tack on a general liability upgrade.

Also, before you make that initial call for a quote, remember to think in terms of replacement value which means you're just going to have to pull out the value of the land and think about how much any and all buildings are worth. The insurance companies will gladly cover you for an amount that includes the land, but you're not going to get that money if the place burns to the ground. Cover the structures for your anticipated end value or the sale price you’ll be aiming for.

And finally, don't be too surprised if an agent representing a well-known company tries to sell you a policy with the subtle expectation that you fudge a little on your plans. In an effort to make a sell, agents might try to do a work-around, persuading you to sign off on a statement about living on the property or renting it out… something that better matches the criteria for one of their policies. Although this sounds like a solution, I don't agree to this, and neither should you. It's a recipe for problems, because it would get really hairy if something happened and you needed to file a claim.

Shoot straight and shop around until you find a company that will write you up for what you need, with your cards on the table. You may have to work the phone for an hour or so and maybe spend a few extra dollars, but for me, it's still the best way to go.

After Hurricane Sandy, Rebuilders Take Notice

I have thoughts regarding Hurricane Sandy and the rebuilding efforts that were seemingly underway before the storm had run its course.

I love building and rebuilding, but folks need to keep some things in mind before they head down the road of replacing what was lost and I'm talking to local leaders and taxpayers as well as home owners or potential rehabbers.

It will cost more in every way to replace what was destroyed by the storm.  I’m not merely talking about inflation and the fact that a 2x4x8 bought in 2012 will be more than one purchased decades ago, I’m speaking of building standards.  Hurricanes have taught us a great deal about the power of these storms and with the awareness that they seem to be getting more severe, those standards are only going to become more stringent.  And, stricter building codes will mean higher costs.  Someone rebuilding or extensively renovating after Hurricane Sandy will need to be mindful of this from the start.

Hurricane Clip

When we renovate a home we leave it better than when it was built 30, 50, or 70 years ago.  This is not just a professional standard that we set for ourselves; this is what’s required from the building industry, local building officials, and/or the insurance industry.  For example, we install Hurricane Clips where the roof structure meets the walls and install metal strapping at exterior wall openings and where the foundation meets the carpentry.  For us, this change happened as a result of Hurricanes Andrew and Hugo.    

This is the way things will be rebuilt on the East Coast in the wake of Hurricane Sandy.  They won’t be the same, they will be better.  It will make the beach homes and cottages cost more to replace because the storms are getting stronger and we know how to design, engineer, and build them better from the start.  There’s no sense in building something that’s going to blow away next year or in the next storm. 

Hurricane Strapping to tie Foundation into Wood Framing

In addition to this, the homes that survived and the homes that will be rebuilt will cost more to insure.  We live in the Carolinas, many states away from the wrath of Hurricane Katrina, but after that disaster our home insurance rates went up noticeably and the insurance companies explained that the increase was due in part to our county being considered as part of the coastal region.  We didn’t like it, but we took it on the chin and rationalized that its part of the price we pay for being less than an hour from the beach.  However, we don’t live on the beach and it some ways it rubs us the wrong way because we must have home insurance... so what are you going to do, but write the check and mail it in.   

As I've already said, I get pretty jazzed up about every part of new construction and renovations, but as the Post-Sandy rebuilding efforts commence, the unanticipated costs need to be considered now, not later.

See The Hurricane House  (Jan. 3, 2012)