Much as we’d all love to sell a flipped property within a week of putting it on the market, we all know it doesn’t always happen that way. Indeed, it probably shouldn’t: A big part of the engine that drives flipping profits – at least in the flippin insider way of thinking, is to find sellers who are in a hurry to sell, without being in such a hurry yourself.
And so you may well find yourself with a property that’s just going to take some time to get ready. It could be because of extensive renovations, or because your contractor just can’t get to it, or it could be because you don’t have all the money needed on hand and can’t get or don’t want a bridge loan.
In any case, sooner or later, you’re going to have a vacant home on your hands for a while. And you’re going to need to insure it.
Warning: Insuring a vacant home is not the same as insuring a home that has people in it. Insurance companies don’t look at the risk the same way.
Vacant vs. Unoccupied
First of all, insurers draw a distinction between an “unoccupied” home and a “vacant” home. In an unoccupied home, the normal occupants are away for a while, but are expected to return. Meanwhile, there are belongings there, and often someone is keeping up the property, so it’s not obviously unoccupied to the casual observer.
A vacant home is a home where substantially all the furniture and other elements of daily living have been removed. Anyone peeking through a window can tell that no one is living there. These homes invite vagrants, vandals, and thieves that go after copper plumbing, roof fixtures, appliances, and other items of potential value.
Flippers need to be aware of the difference, and when they need to get specialty coverage to protect themselves against loss due to a vacant home.
Homeowners insurance policies are usually written to a standard form, and under that form, glass breakage and vandalism are not covered on homes that are vacant for more than 60 days.
Furthermore, most homeowners insurance carriers do not want vacant homes in their risk pool, and if they get wind that your property is sitting vacant, they are quite likely simply to cancel their policy. That’s going to force you to the specialty vacancy insurance market. This is usually quite a bit pricier – perhaps 4 to 5 times pricier – than standard home insurance policies. So you want to do what you can to keep the home from falling into the legal definition of “vacant.”
One idea: Let a trusted friend or family member house-sit the property inexpensively.
Another technique: Keep some cheap spare furniture in storage. When you have a property you expect will be sitting idle for a while, move in a basic living room set, a dinette set, and a bed. Case law has defined a vacant property as one that doesn’t have enough furniture for someone to live there in reasonable comfort.
If you can’t be bothered with it, rent some furniture (this can be an expensive habit, over time), or even have a home staging company do it for you. This could potentially increase the value of a home, if done well.
In some areas, if the home is exceptionally nice, you can even get a designer to use the place as a model home to show off, though this is unusual. (My spidey-sense tells me this is a possibility with very small homes and spaces, especially in gentrifying areas, because there’s an emerging design movement specifically for this market.)
Warning: If you have a standard homeowners insurance policy on a house, and you file a claim, but investigators find out that the home was actually vacant at the time – with all the furniture gone, etc., your homeowners insurance company could deny the claim.