Insurance on a rehab question??

Real Estate Investing
1

So, I’m looking to do a rehab deal, one that looks like a cosmetic fixer, that I can get for about $.55 on the dollar. I’ve viewed the property a couple times, checked the comps and all, and am looking at a few hard money lenders for the cash to do the deal.

My question is, on the hard money applications, one of the things they want to see is proof of insurance. May be a stupid question, but I’m assuming they are referring to title insurance, since no one would take out a homeowners’ policy on a house before they closed on it? Secondly, what does a title insurance policy generally cost out of pocket?

2

No they are talking about property insurance, they want to see a binder. Premium is paid at closing.

3

Re: insurance

The premium is paid at closing… How do I get ahold of a proof of insurance then? My hard money guy wants to see a copy of my drivers license, credit report, CMA, and insurance. Can I call the law office that is handling the title work, and ask them for it? This is my first flip, so I apologize if I’m asking a dumb question here…

4

Hi Loco,

It’s not a dumb question. Contact a Homeowners Insurance Carrier! Your hard money guy is asking for evidence of Homeowners/ Hazard insurance. If you already have a carrier like State Farm (or Farmers, Allstate, etc…) insuring other things, that’s usually a good place to start because they will usually give you multi-policy discounts when you bundle.

I don’t work for a hard money lender, but I do work for a Mortgage Bank. I have relationships with several insurance brokers and usually take care of this for my clients. But they (and you) are certainly free to shop around for quotes before you commit to an insurance carrier.

On a purchase transaction, I will generally get quotes for homeowners/hazard insurance from a few different carriers. Whichever one offers the lowest premium typically wins.

Once we’ve narrowed down a carrier, we will convert the quote to a policy/ binder. You (or your loan officer) will request the binder, aka, Hazard Declaration Page, aka, Evidence of Insurance from the insurance carrier. The Insurance company will not require immediate payment to provide you with the binder.

Different companies ask for different bits of personal information, but they all typically need:

Name of Insured
SS#
Mailing Address
Subject Property Address
Loan Number (you’ll get this from your Lender)
Mortgagee Clause (you’ll get this from your Lender)
Effective Date (you’ll get this from your Lender

And you can either pay it up front (outside of closing) directly to the insurance company. In which case they’ll provide you with a PAID receipt which you’ll give to your lender along with the binder (it usually doesn’t make sense to pay for insurance until AFTER your loan is approved and that is why most people elect to pay it at closing). You don’t want your loan declined and then wait weeks for the insurance company to send a refund check for the cancelled policy.

Or you can have it paid at closing out of the cash that you are bringing to close. It is your lender’s responsibility to let you know how much cash you are bringing to close and what it is covering. Depending on how your loan/ transaction is structured, you may get credit from the Seller, and/or lender to help cover closing costs. This info can be found in the loan disclosures that you sign before closing.

Don’t wait until the day of closing to figure out how much cash you need. And on that note, cash doesn’t mean you bring a duffel bag full of Benjamins. Title companies usually only accept certified funds i.e. a Cashier’s check or Wire Transfer from your bank.

Hope that helps. Good luck Loco!

Regards,

RE-702

5

Re: Insurance

Thanks for the info!

So, here’s where I stand now- We have a 3 bedroom, 1 bath under contract for $68,000. It looks to be a cosmetic fixer, according to the potential contractors that I brought through the property for estimates. Repaint the walls, lay down new flooring, make the yard more attractive, and re-seal a couple spots on the roof. The estimates I got came in for around $10,000 to do the work.

I had a CMA done on the property, and it confirmed my estimates, that this property should be able to sell for between $120,000 and $130,000. It’s located in a nice, blue collar neighborhood, in a fairly strong rental market.

The estimates are that the work should take a couple weeks. To be safe, I’m adhering to a 30 day timeframe, which should give me a little wiggle room. I’m closing at the beginning of May, and plan to get started on work right away. The goal is to have the property cleaned up and back on the market by June 1. Obviously, we want a sale to happen ASAP, and therefore I’m not opposed to hiring a real estate broker to list the property.

I plan on spending most of my days on the jobsite. I run a restaurant in the evenings, so my days are mostly free. Plus, this property is located about 2 minutes from my home, so it’s real close.

Finding a hard money lender seemed to be the hardest part. Between craigslist, and various real estate- related facebook pages, I found that most real lenders want a fair amount (20%) into the deal (which I don’t have.) The more cooperative lenders seem to all be scammers. I don’t know what their angle is, since I’ve really got nothing to steal, but they all gave me a bad vibe just the same.

I’ve been talking to a couple of guys that want to partner with me, they’ll front the acquisition and rehab funds, and then we split the profit after they get back their original investment. I figure its a better way to go- it might cost me some profit, but if I can replicate a few more deals like this, then I’ll have them on my resume. And some profit is still better than nothing at all.

So, have I missed anything? Or am I on track? I’m looking to close this deal come Friday. These past couple months have been a whirlwind- I finished a lease option deal, and have people in that house. I’m working on a second lease option deal, and that should be wrapped up in the beginning of May. And then there’s this flip deal. I should have done this years ago.

Any further feedback would be HUGELY appreciated, since I’m pretty much swimming in the dark.

6

Yes i agree with RE702 you need to contact once with homeowner insurance carrier.