Home Radio Segments Real Estate Round-up If You Flip Houses, You’d Better Be Well Insured

If You Flip Houses, You’d Better Be Well Insured

Terry Story, Flipping Houses

With Terry Story, 28-year veteran Real Estate Agent with Coldwell Banker in Boca Raton, FL

Every week, expert realtor Terry Story keeps us up-to-date on the latest news in the real estate market.

Following up on last week’s topic about the returning trend of flipping houses, Terry emphasizes the importance of having the necessary insurance if you’re planning to engage in that practice.

Insurance checklist:                                    

  1. Before renovating, notify your homeowner’s insurance company, since you’ll be increasing the value of the home.
  2. Confirm that the general contractor is licensed and bonded and carries workman’s compensation and liability insurance.
  3. Consider coverage for subcontractors because, if the contractor doesn’t pay them, it becomes your liability.
  4. Think about having builder’s risk insurance which covers building materials and equipment.
  5. Confirm that your contractor has completed operations insurance in case something goes awry after the job is done.

When to Drive By a Real Estate Listing

You see a house in the paper or online that you like but are unsure as to certain aspects of the neighborhood. What time of day is best to drive by? According to Terry, one of the best times is around 8 a.m. in the morning, during rush hour. From there, she recommends:

*10 a.m. to check for construction, traffic, noise

*3 p.m. when kids return home from school

*5:30 p.m. again to check on traffic and commute time

*after midnight for noise from trains or planes overhead

*Friday night for level of activity and safety concerns

Having the experience of a real estate expert on your side is probably the best investment you can make when considering to  buy or sell your property.

Disclosure: The opinions expressed are those of the interviewee and not necessarily United Capital.  Interviewee is not a representative of United Capital. Investing involves risk and investors should carefully consider their own investment objectives and never rely on any single chart, graph or marketing piece to make decisions.  Content provided is intended for informational purposes only, is not a recommendation to buy or sell any securities, and should not be considered tax, legal, investment advice. Please contact your tax, legal, financial professional with questions about your specific needs and circumstances.  The information contained herein was obtained from sources believed to be reliable, however their accuracy and completeness cannot be guaranteed. All data are driven from publicly available information and has not been independently verified by United Capital.

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Steve Pomeranz: It’s time for Real Estate Roundup.  This is the time every single week we get together with noted real estate agent Terry Story.  Terry is a 28-year veteran with Coldwell Banker located in Boca Raton, Florida.  Welcome back to the show, Terry.

Terry Story: Thanks for having me, Steve.

Steve Pomeranz: You know, we were just talking about flipping in another episode of the show, and one thing that we forgot to talk about is if you’re going to be flipping houses, you better verify your insurance in a number of different ways.  Tell us about that.

Terry Story: Yeah, absolutely.  You want to make sure the project that you’re doing is adequately insured.  The first thing you’re supposed to do is notify the insurance company before the renovations start.  You got to remember that, typically, when you’re remodeling a home, you’re going to be increasing that value; so if you’re going to put $100,000 in a home and you’ve just insured it for $200,000 and it’s going worth over $300,000, you need to take that into consideration.

Steve Pomeranz: Also, if you’re going to renovate, you’ve got to have insurance to cover the unexpected, with contractors and the like.

Terry Story: That’s right. You also should confirm that the general contractor is licensed and bonded, and make sure that the contractor is carrying workman’s compensation, liability insurance.  There’s so much involved with the insurance side of things, and I know a lot of people are investors and they want to fix and flip, and they want to do it as quickly as they can, and as cheaply as they can.  They really need to take into consideration insurance, and then impact if something should happen.  These are things that you should consider.

Also, consider confirming coverage for the subcontracted workers.  There’s liability with that.  If the contractor doesn’t pay the subcontractor, it becomes your liability. You need to be able to cover that subcontractor, and there’s insurance for that too.

Steve Pomeranz: Yeah, there’s-

Terry Story: There’s insurance for everything.

Steve Pomeranz: Yeah, but you know, you can’t get everything insured, but the idea is be smart about this because contractors will hire subcontractors, and sometimes contractors don’t pay.

Terry Story: Right.

Steve Pomeranz: And they’re going to stop work in the middle of your renovation, and you’re going to have a liability on your hands.  You want to think in advance of that possible eventuality.

Terry Story: Sure, or what about purchasing builder’s risk insurance.  That’s the building material and equipment that belongs to the contractor or subcontractors.  They’re not covered by the homeowner’s insurance.

Steve Pomeranz: I see.

Terry Story: You want to make sure your contractor has insurance for these things so they’re not trying to go after you for it.

Steve Pomeranz: Maybe like that Chinese drywall-

Terry Story: Drywall.

Steve Pomeranz: In 2006 and 7, that was so insidious.

Terry Story: So glad that’s behind us.

Steve Pomeranz: Yeah, yeah.  Okay.  What else?  Anything else on insurance if you’re flipping?

Terry Story: Confirm that the contractor has completed operations insurance.  That basically offers a safety net for things that may go awry once a project is considered complete.

Steve Pomeranz: Okay.

Terry Story: If the client has an overhead door installed and the door malfunctions and closes on top of their car, for example, that sort of thing.

Steve Pomeranz: Gotcha.  Yeah, so the conundrum here is that renovations are not cheap.  If you’re flipping a house, you think you’ve bought at the right price, you’re trying to keep your renovations reasonably priced, and yet it always seems to come out to more than you’ve anticipated or that you’ve budgeted. And now we’re saying, hey, you should also add extra insurance to protect from these other possible eventualities, but I’m afraid it’s the smart thing to do.  Make sure that when you’re flipping, you add these costs into your budget so you can raise the probability of taking a good profit.

Let’s switch gears here Terry.  I like this particular subject very much because I’ve bought a number of houses in my lifetime.  When I first started out, I didn’t do some of the things that we’re going to talk about, which is when you should visit a listing.  What times of day?  What should you be looking for when you’re doing that?

Terry Story: Excellent point here.  First of all, if you’re going to buy a house, go by at 8 a.m. in the morning.  Drive by the area during rush hour.  Take into account the effect that your commute drive from that property to where you’re going.  See what’s happening right around your property.  Next time to go is at 10 a.m. or around 10 a.m.  See what you hear.  What kind of construction work is going on, traffic noise, dogs barking, or is it a ghost town at 10 a.m.  Then go back in the afternoon, say 3 p.m.  When school is out.  Do you see the kids cutting through your yard where you potentially see future flower bed going up?

What’s going on around that time of day?  Then another time is around 5:30. How’s the commute home?  Imagine this, Steve. You’re sitting on your front porch having a glass of lemonade, watching kids ride their bikes, so on and so forth.  The next thing you know, the Waze app is redirecting all the traffic from I-95 through your neighborhood right down your street.

Steve Pomeranz: Yeah, so this Waze app; it’s a pretty cool thing.  Basically, it’s a real-time view of what’s going on in traffic, and it’s actually run by all of the Waze users, W-A-Z-E.  If there’s a traffic jam, the Waze users are going, “make a left on 31st Street, and make a right here,” and that may be going right through your neighborhood.

Terry Story: Right through your house.  Then you want to go back at night.  Go on a Friday night.  See what kind of wild parties are going on and how safe it is in the neighborhood.  Is it well-lit?  Is it dark?  Roll down the windows.  Listen to the noise.  See how comfortable you are.

Then if you’re really ambitious, you can go back at three in the morning.  Check for planes, trains and automobiles, see what’s going on.  See if there will be noise that will disturb your sleep at night.

Steve Pomeranz: Well, I can tell you in my neighborhood, I wish there were more parties.  There’s nothing going on in my neighborhood.  It’s really terrible.  But, yeah, the last thing you want to know is, you think you’re far enough from the train track, but, all of the sudden at 3 a.m., that train comes barreling through, and your bed is rumbling, and …

Terry Story: The sellers will never tell you that “oh, by the way you’ll hear the train at three in the morning.”

Steve Pomeranz: I know.  When I first started my own business in the investment advisory business in 1996, I was in a really nice building, but it was kind of next to the railroad tracks.  I never really thought of that when I got the office and, sure enough, twice a day, boy, that train would come barreling through, and it was …  I’m on the phone with clients and it’s like, “yes, I am on a rail into Montana, you know, with your money.”  It was so embarrassing.  Anyway, so, watch out.

My guest, as always, is Terry Story.  Terry is 28-year veteran with Coldwell Banker located in Boca Raton, Florida.  She can be found at Terry Story.com.  Thanks, Terry. 

Terry Story: Thanks for having me, Steve.