Residential and Commercial Rehabs - Prepare for the Worst but Hope for the Best

Mortgage and Lending with TVM Funding Group LLC

Residential and Commercial Rehabs - Prepare for the Worst but Hope for the Best

In all my years of investing if I could summarize my experience as a real estate investor and pass it on the next investor behind me I might say to him, "Prepare for the worst but hope for the best." We never expect to walk into our own project to find the walls stripped for copper or an HVAC unit missing after we close a deal with a distressed seller and we are nice enough to give them a few extra days to move out (an absolutely no-no by the way which I learned the hard way). However, an investor can plan ahead and make efforts to protect themselves and their property with the proper insurance coverage for their needs.

You may think that as a real estate investor and homeowner it is enough to have insurance coverage. this could not be further from the truth. You need to understand your insurance coverage and be sure that it meets your needs and provides the proper amount of coverage. There are three main policies an investor should understand are builder's risk insurance, umbrella policies and rental properties.

Builder's Risk Insurance
A builder's risk insurance policy is was created to address the exposures usual to an unoccupied structure under rehabilitation, construction or renovation. It also takes into account the progress and ongoing change in the market value of a property as it is being rehabilitated, constructed or renovated. The policy can include your workers' equipment and tools on site at the property. It can also cover the theft of your building materials such as copper, fixtures, etc.

A standard fire or hazard policy cannot establish a future value for the property. A standard fire or hazard policy applies to the property only as it exists, without completed repairs. Investors with standard fire or hazard policies are putting their profit at risk by not being properly insured. Builders risk insurance is a rehab investor must have.

A builder's risk policy will apply to the total as renovated or as completed end value of the property.

The completed value of property is comprised of the following items:

  • Acquistion/Purchase price of the property
  • Cost of the repairs and/ or improvements
  • Soft Costs
  • Profit

Umbrella Policies
An umbrella policy is designed to cover any gaps that occur when you reach the limit on the underlying liability coverage in a homeowners, renters, condo or auto policy. If you are ever sued, your standard homeowners or auto policy will provide you with some liability coverage, paying for judgments against you and your attorney's fees, up to a limit set in the policy.

The basic everyday homeowner's insurance policy will provide up to a maximum of $500,000 of personal liability coverage. O fcourse what if your total combined assets, including your primary resience, are more than $500,000? the answer for this is to have an umbrella liability policy. Typically, a $1,000,000 umbrella policy will cost only a few hundred dollars a year. Depending on how much property you own and/or the level of risk you feel you are exposed to make sure you purchase enough insurance to address these issues. Insurance is about economies of scale, so the more you purchase the less it costs per $100, or $1000 dollars. Always make sure that you are NEVER underinsured.

Rental Properties
An insurance policy for a rental property assumes an occupied status of your property and includes landlord liability and loss of rents coverage (very handy). If a rental property is insured as occupied when in fact it is not occupied, this could result in issues if a claim is filed. In many cases, all your properties can be bundled into one policy which will save you the investor lots of time and money.

You should work with an insurance agent that you can trust. Many times it is often best to work with an independent agent or broker who can shop for the best insurance policy to meet your needs.


TVM Funding Group represents many private equity firms, lenders, and investors nationwide.

We welcome any commercial or residential loan scenario nationwide.
Niche Private Money Commercial and Residential Lending
& Hard Money and Rehab Loans for Real Estate Investors

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