Types of insurance – Borrowing hard money loans for real estate investments is a great way to make money. Since hard money loans are primarily asset-based, hard money lenders require debtors to insure the non-owner-occupied property for the loan’s duration. Hard money loan insurance comes in handy because of the risk of borrowing hard money loans for fix and flip investments, multi-family, rental and refinances, and commercial properties.
Fortunately, real estate investors have access to various insurance types to protect them against the present dangers. Here are some insurance types that a real estate investor must have in place as soon as they get that hard money loan in Southern California.
Table of Contents
Title Insurance
When getting hard money loans for real estate investments, title insurance is the first insurance policy you want. Homeowner’s title insurance is a specialty policy covering third-party claims on a property that don’t appear in the initial title search, showing up after a real estate closing.
The term “title” refers to an individual’s legal property ownership. A third party is any individual other than the current property owner, such as a construction company that did not get paid by a previous owner.
Title claims could arise anytime, even after owning the property hassle-free for many years. How does this happen? When purchasing the property, a third party might have unknown ownership rights. In some cases, even the current owner might not be conscious that someone other has a claim on the property.
Here are some of the issues an owner’s title policy can protect you against:
- Boundary disputes
- Property survey errors
- Errors on the property deed
- Building code violations by previous owners
- Claims by an ex-spouse
- A former owner’s unpaid child support
- Claims from contractors or previous lenders
- Conflicting wills
- Forged power of attorney claims
- Encroachments
- Improperly recorded documents
While an owner’s title insurance policy can feel like a waste of money, the small fee you pay could be a lifesaver if anyone challenges your title after closing.
Builders Risk Policy
Are you borrowing hard money loans for fix and flip investments? Hard money lenders will insist that you apply for builder’s risk insurance.
The builder’s risk policy is specialized property insurance that helps protect buildings under construction. Having a properly structured builder’s risk insurance policy is crucial as it often serves as the backbone of a successful risk management program. Builder’s risk insurance helps protect fix and flip projects from property damage due to:
- Fire
- Lightning
- Hail
- Explosions
- Acts of God, like hurricanes
- Theft
- Vandalism
Besides helping cover buildings and structures under construction, builder’s risk insurance also helps protect materials, supplies, and equipment on-site, in transit, or at other locations
Every builder’s risk insurance policy differs, so costs vary depending on your needs. You may also need to add extensions to help protect your fix-and-flip project.
Rental Property Insurance and Renters’ Insurance Policy
Do you need both landlord Insurance and renter’s insurance?
Rental property insurance, also called landlord insurance, covers the unique risks of renting your home or condo for long periods. The policy often includes coverage for liability a landlord might face if a tenant sues over an injury suffered on the property. Its coverage includes:
- Property damage
- Liability costs
- Landlord’s personal property
- Loss of rental income
While rental property insurance covers the building itself for the property owner, a renters insurance policy covers the tenant’s personal belongings. Also, it provides liability coverage for certain types of bodily injury or property damage. As a landlord, you should make renters insurance a lease condition.
Whether you are renting out your house, a vacation home, or an investment property, rental property insurance is an essential safeguard against the financial risk of tenants living on your property.
Homeowner Policy
Homeowner’s insurance vs. landlord insurance: What’s the difference?
If the home serves as your primary residence, you’ll need homeowners insurance. But if you’re renting it out for an extended period, you’ll need landlord insurance.
So, what if you’re living in a single-family home and renting out a room to tenants?
Homeowners insurance may be a better fit, as you still live in the home. If you’re planning to rent out your entire house to tenants, that’s where landlord insurance comes in. Remember that landlord and homeowners insurance doesn’t cover your tenants’ personal belongings. As a property owner, you may want to make renters insurance a lease condition.
While property owners are not obligated to insure their property, hard money lenders require homeowners who still have a loan to pay to take out an insurance policy.
General Liability Insurance
General liability insurance helps protect your real estate investment from claims that it caused bodily injuries and property damage. This policy can help cover medical expenses and attorney fees resulting from physical injuries and property damage that occurs on your property. Such costs can get expensive for real estate investors, and many don’t have the resources to cover a liability claim.
The Bottom Line
Types of Insurance – You expose yourself to certain risks from the day you start a business. Even before hiring your first employee, your business is at risk, making it essential to have the right insurance. Whether you’re renting out, house flipping, or using the buy and hold strategy, your goal is to generate profits on the property. But first, you must find a lender.
Need funding fast? Look no further than RTI Bridge Loans, the leader among hard money lenders in Southern California. RTI Bridge Loans has the flawless selection of hard money loans for belongings investors in Los Angeles. For almost 20 years, RTI Bridge Loans has financed hundreds of fix and flip properties and rental portfolios in Los Angeles and its suburbs. Have a question about RTI Bridge Loans? Call (562) 857-2285 or contact us online today!