Are You Missing This Key Coverage for Your Rental Property?

Are You Missing This Key Coverage for Your Rental Property?

If you own rental properties, condos, or small commercial buildings, you probably have a landlord policy or DP-3 policy to cover your properties. But did you know there's a crucial gap in coverage that leaves many rental property owners exposed?

The Coverage Gap: Builders Risk

Most standard landlord or DP-3 policies don't include "builders risk" coverage. This is insurance that protects your property during renovations, remodels, or new construction.

Why is this a problem? Well, let's say you're doing a major $100,000 kitchen and bathroom remodel on one of your rental properties. You have your standard landlord policy in place, but that only covers the existing structure. If there's a fire, theft, or other damage during the renovation, your landlord policy won't pay a dime.

You'd be on the hook for the full $100,000 to rebuild or repair the property. And that's money that comes straight out of your pocket.

Who Needs Builders Risk?

Builders risk insurance is critical for any rental property owner who is:

• Doing a major renovation or remodel (over $10,000)
• Building a new rental property from the ground up
• Adding a second story, in-law unit, or other major structural addition

Even smaller projects like kitchen upgrades, bathroom remodels, or roof replacements can benefit from builders risk coverage. Any time you're making significant changes to the physical structure of the property, you're exposing yourself to a coverage gap.

Lender Requirements

Another reason to have builders risk insurance is that many lenders now require it. If you're getting a construction loan, renovation loan, or other financing for your project, the lender will likely insist that you carry builders risk coverage.

This protects their investment in the property. They don't want to loan you hundreds of thousands of dollars, only to have the project derailed by a fire, storm, or other disaster.

How Much Does Builders Risk Cost?

The cost of builders risk insurance depends on the scope of your project, the property location, and other factors. But as a general rule, expect to pay 1-4% of your total renovation or construction budget.

For example, a $100,000 kitchen remodel might cost $1,000 - $4,000 for a 12-month builders risk policy. And a $500,000 new construction project could run $5,000 - $20,000.

Keep in mind that builders risk is temporary insurance that only lasts for the duration of your project, usually 6-12 months. Once the work is complete, you'll transition back to your standard landlord or DP-3 policy.

Don't Get Caught Without Coverage

As a real estate investor or landlord, you work hard to build wealth through your rental properties. The last thing you want is to have a major remodel or new construction project derailed by a covered loss that your insurance won't pay for.

Builders risk coverage is an essential (but often overlooked) layer of protection for rental property owners. Don't get caught without it - make sure you have the right coverage in place before starting your next big project.

Questions about insuring your rental property? Call or text 541-681-8793 or visit InvestorPropertyInsurance.com.