What to Know About Insuring a Fixer-Upper Property

Historic properties are full of incredible stories and have charm like no other. Many of these types of properties are major fixer-uppers. They are tempting for those who have a knack for renovating and can see the potential for future profits. While they may come at a low price, these buys are not always as they seem from the surface.

When undertaking a remodeling project, people often get caught up in the creative aspect and forget to review their insurance needs. Whether your budget is large or small, you’re adding not only value but also risk. To ensure your fixer-upper project goes smoothly and you have the coverage you need, here’s what you need to know.

What Is a Fixer-Upper?

A fixer-upper is a property that needs a great number of renovations and repairs for it to be loveable and functional. Many times, these properties are older or passed down from lost family members. They can be turned into amazing bed and breakfasts.

The Cost of a Fixer-Upper Inn

While it’s nearly impossible to know all the costs that will be involved when fixing up a property, there are a few ways to make your assessment as accurate as possible. The first step any potential buyer should take is scheduling an inspection before closing on the property. These inspections will give you a good understanding of things such as plumbing, the roof and structural damages. You may want to consider going a step further and getting a specialized inspection. Depending on the route you take, these inspections can tell you more about pests, septic tanks and the sewer line.

Another tip is to think about what projects can be done by professionals and which ones you can take on yourself. Create a detailed list of estimated costs of these renovations before making an offer on the property. Keep in mind that you’ll want to have sufficient funds set aside for any construction fees, city inspection fees and unexpected remolding costs.

Each fixer-upper has its own set of flaws and the potential to be something amazing. Many of these properties have suffered from maltreatment, resulting in expenses you would never think of. During this process, remember that while the journey may be rocky and sometimes feel hopeless, the destination can be incredible.

Fixer-Uppers Can Lead to Higher Maintenance Costs

Even after the renovations are complete, the costs continue. While this is normal for any real estate purchase, fixer-uppers can have higher maintenance costs due to older features and sometimes have inflated utility bills. With guests in and out of rooms weekly, bedrooms, bathrooms and sitting areas can suffer from wear-and-tear.

What to Watch Out for When Renovating

During the renovation process, you may find yourself dealing with one of these concerns.

Lead Paint

Even common renovation and property maintenance activities, such as sanding, cutting and demolition, can disturb old lead-based paint at one of your properties. Found in a quarter of homes built before 1978 and nearly half built before 1960, lead-based paint can be harmful both in chip and dust form to children and adults. However, lead-based paint dust is the most dangerous because it is invisible and can be ingested unknowingly.

Asbestos

Even though most uses of asbestos have been banned, it can still be found in a variety of products, such as building materials. For example, many homes that were built before the 1980s may contain asbestos in the insulation, paint and floor tiles.

The inhalation of asbestos fibers can cause serious damage to the lungs and other organs that may not appear until years after exposure. Asbestos fibers associated with health risks are too small to be seen with the naked eye. Smokers are at a higher risk for developing asbestos-related diseases if exposed.

Mold & Mildew

As mentioned earlier, fixer-uppers are most often older estates. Depending on the state you find it in, there could be several unidentified leaks or water damage that were never fixed or not fixed properly. Don’t let mold dampen your bed and breakfast!

Once inside your property, mold and mildew need a moist food source, such as lint, ceiling tiles or wallpaper to grow on. It finds its new home easier than one would think and moves quickly. If you find any mildew or mold throughout house renovations, address it right away.

Mold not only damages your property, but it can also cause serious health complications after long-term exposure. While the risk of mold is less severe than asbestos or lead, it can cause major issues for those with allergies or respiratory ailments.

Poor Electrical Wiring

While some fixer-uppers may have electrical wiring that’s up to code, a lot of the regulations and methods have changed over time. Often, older homes have knob-and-tube wiring, which is still legal under today’s codes. However, because this type of wiring is not grounded, there’s a higher risk of electrocution, causing fires and major damage.

Working With General Contractors

The best way to minimize your renovation risk is to hire a reputable general contractor for the job. As part of the bidding process, ask the general contractor to provide a Certificate of Insurance and/or copies of the policies. Specifically, check for the following coverage:

• Workers’ Compensation — Verify that they have workers’ compensation coverage in case an employee or subcontractor gets hurt on the job.
• General Liability — This insurance covers losses due to negligence and errors or omission, which results in property damage. Also, ask that you are added as an “additional insured.”

• Builder’s Risk — This policy is designed to cover damage to your home and materials, including those not installed yet. We can help you verify whether you should require this from your contractor, based on your renovation project.

If they don’t carry the proper coverage, they’re not the right contractor for the job!

Advice for Do-It-Yourselfers

If you decide to go it alone, you assume all the risks. You may need to purchase second home coverage or innkeeper insurance quickly as you’re assuming more risks and exposures than contemplated by homeowners insurance. 

Hiring subcontractors who can provide you with a Certificate of Insurance or copies of their policies showing their general liability and workers’ compensation coverage is mandatory for your legal protection. If a friend or relative helps out as a favor — no money changes hands — and gets injured, your innkeeper insurance typically covers the cost of their injuries, up to your policy limits.

The Vacancy Period

While renovations are taking place, don’t expect guests to stay at your inn. Any type of remodeling project takes time, so you may not be able to accept any guests at your property for a few months or a year.

If you were to purchase a property and go straight into major renovations, you’ll need builders risk, as opposed to vacant property coverage. Builders risk must be in place unless the renovations are basic updates, such as changing out fixtures, painting, etc. If there is major work involved, like replacing floors or anything that affects the structure itself, you would need builders risk. This stand-alone coverage requires you to inform your insurance company of the start and end dates of construction.

If there is no renovation but the property will sit vacant, you will need vacant property coverage. Vacant property insurance can later convert to innkeeper insurance coverage on the same policy.

A Strong Foundation — CBIZ Innkeeper Insurance

While investing in a fixer-upper and transforming it into a bed and breakfast isn’t for the faint of heart, the reward that comes with creating a new space can outweigh the challenges. If you decide to take on a fixer-upper, our team is here to help you every step of the way. From insurance tips to mitigating potential risks, connect with a team member today at CBIZ Innkeeper Insurance.

This blog may contain scenarios that are provided as examples only. Coverage is subject to the terms, conditions and exclusions of the policy issued. The information provided is general in nature and may be affected by changes in law or the interpretation of such laws. The reader is advised to contact a professional prior to taking any action based upon this information.

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