Remodeling? Make Sure You're Insured

You might think choosing a contractor and creating a renovation plan are the two most important considerations when it comes to planning a home improvement project. But if you have not considered your insurance needs, and made sure your property is adequately covered during the renovation process, you may be putting your investment in serious risk.
The time to contact your homeowners-insurance agent is before you begin renovations.

"You want to make sure your agent's there with you every step of the way," says Madelyn Flannagan, vice president of education and research for the Independent Insurance Agents & Brokers of America.

Your insurance agent can help you evaluate your needs and also help you make certain the contractors you use have enough insurance, including workers' compensation and general liability insurance, to cover any problems that may arise during the project. If the contractor damages your home during the job, his insurance policy will most likely kick in. But you don't want to leave that to chance. Not only should you double-check with the contractor's insurance company to make sure his policy is up-to-date, but you should let your homeowners-insurance agent look at the contractor's certificate of insurance.

"You want to make sure there's no misunderstanding about whose policy kicks in where," says Flannagan. "Talk to your agent to determine if there are any holes or gaps in the coverage that you need to be aware of."

Preparing for vacancyIf you leave your home while renovations are being done, you may be violating your current homeowners policy. Many policies have vacancy clauses, which state that you can't be away from your home for longer than a set period of time, such as 30 days or 60 days. In the event that you will be staying outside your home for a longer period of time while contractors are working, you will need to buy additional insurance coverage for that period of time.

Another factor that can affect the amount of coverage you need is whether your home will be exposed to outside elements. For example, if your roof is raised or a contractor will be replacing doors and windows, your home may be exposed to bad weather or even burglars who could get inside and steal some of your belongings.
"A lot of people take their roof off and expose their home to the elements," says Flannagan. "It's really not a typical home anymore during that time. So you just need to make sure that during the time that your home is open to the elements or being worked on that you have the right insurance policy in effect."

Builder's risk policies can be purchased to add additional coverage. Sometimes a contractor will purchase this policy, but if not, you can take one out yourself. Such policies protect furniture and equipment that has yet to be installed, so if you have uninstalled carpet or appliances lying around on the premises, the builder's risk policy gives you extra protection.

Such policies tend to be short-term, typically running for about six months before they have to be renewed. They also tend to cost about 25 percent more than a homeowners policy, says Flannagan, but there is more risk involved when you're renovating your home, since your home will be exposed to more people and, again, in some cases outside elements such as the weather.

Insurance exclusionsEven if you have the proper insurance in place, there is still the unfortunate possibility that your house may be damaged inadvertently and insurance won't cover it, particularly if you're doing the renovations yourself.

"It's possible the insurance company will find you negligent in some way that they may deny your claim," says Carolyn Gorman, vice president of the Insurance Information Institute. "If you take your blowtorch and burn your house down, it's possible that they would (not pay for that)."

For that reason, there is more risk involved when you're doing a project yourself. A contractor that is found liable for something has insurance to pay for the damage. But if you do extensive damage to your home while trying to make renovations, you may simply be out of luck.
If a worker gets hurt on your property, he or she may be able to sue you in addition to suing the contractor. Check with your insurance agent to make sure your homeowners-insurance policy would cover that if it were to happen.

Insurance should not only be a big consideration before a home improvement project is started, but after the fact as well. Once the job is completed, it's important to follow up with your insurance company to make sure you have enough coverage for your newly renovated home.

"Over the last 10 years, many people have renovated their homes and they have added upgraded kitchens or bathrooms or decks and they fail to talk to their insurance company about adding additional coverage to their policy," says Gorman. "What that means is if they have a fire or other catastrophe they find that they are underinsured, which is a huge problem because that means if they have a complete disaster, they will not be covered."

The institute estimates that 60 percent of homeowners across the country are underinsured. After spending your hard-earned money renovating your home, you don't want to see your investment go down the drain because of a catastrophe.
Call your insurance agent even if you don't spend a ton of money. What you consider to be a small project may, in fact, add substantial value to your house.

"A lot of people make small renovations throughout the year and don't think about it," says Flannagan. "Those are the ones we see that aren't adequately covered. You renovate three bathrooms in your home and spend $25,000. You might not think about that. But in the event that you have a total loss, you've lost that $25,000 if you haven't increased your coverage to take into consideration all that new tile."

Remodeling investment properties? Aim for the middle

The first rule of remodeling for investment is this: You are not going to live in this house. Your sole interest is getting the best price for the house in the shortest amount of time. Or, if you're planning to rent it out, you want to sign a lease and stop paying the mortgage yourself.

So, every time you find yourself lingering over granite countertops, crown molding and $10 drawer pulls that look like little forks, knives and spoons, ask yourself, "Will it increase the value of the unit? Will it help sell or rent the unit faster or for a higher price?" If not, put it down and back away. This is about making money, not making a personal design statement.

What's more, there are rules for resales and rules for rentals.
You might legitimately agonize over stainless-steel appliances on a resale house because they're considered an upgrade by today's buyer -- the new appliances could increase the sales price or reduce the selling time, both of which will add to your bottom line. You wouldn't think of putting them in a rental unit, though, unless you're in a high-end market that is willing to pay extra for style points. Otherwise, they're too expensive, it would take too long to recoup the investment and they're going to get beaten up by tenants. Black appliances are just as elegant and won't show dirt, grime and fingerprints nearly as much.

So whether you are planning to rent out a property or resell it, you need to invest your rehab dollars wisely.

First, curb appeal counts. All of the experts will tell you the same thing: People buy and rent properties from the outside in. If you can't get them out of their cars, they can't see what's inside. That translates into giving the front door and the exterior a fresh coat of paint, or pressure washing brick or vinyl siding, and replacing any damaged wood, broken windows or screens. Clean up the landscaping by removing any dead trees and trimming or taking out overgrown shrubs. Obviously, any junk or clutter in the yard has to go.
"A fresh, clean, light, airy appearance is critical for both renter and buyer," says James Randel, author of "Confessions of a Real Estate Entrepreneur."

"I bought a property when I first started that was just so frigging dark and dreary, we cut in a new big picture window and took down a tree that was blocking all the light," Randel says. "With a $1,000 expenditure, the sun just flowed into the house. It was like a whole new house. The value went from $100,000 to $180,000."
But don't think curb appeal stops at the front door, says Robert Irwin, a Los Angeles-based real estate investor and author of eight books, including "Find It, Buy It, Fix It."

"When they open that front door, the first impression is critical, too," Irwin says.
Inside the house, you'll get the biggest bang for the buck in four places -- the kitchen, the master bedroom, the master bath and the front entryway.

"If you're going to put some money in, put it there," Irwin says.
A fresh coat of paint in a neutral color is standard advice for any house that's on the market; the pros also recommend ripping out old carpet, no matter how well it's been maintained. For rental units, many investors opt for laminate hardwood or tile floors for the ease of upkeep.

"We've seen where Harley-Davidsons were rebuilt in the living room or cigarettes were ground in the carpet," says Los Angeles-based real estate investment adviser Lisa Vander. "A lot of my really great thrifty and profit-minded investors are shifting from carpet to tile and putting in throw rugs."

Randel agrees. "I don't care how nice the people are and how big a security deposit, there will always be carpet issues," he says. "We used wood flooring; the worst thing you had to do was re-sand and re-stain. In the kitchens, you do tile or linoleum."

To keep kitchen remodeling costs down, interior designer, real estate investor and author Sharon Hanby-Robie suggests stock cabinets from a home-improvement store. Also, if you're gutting the kitchen and have some flexibility in the layout, visit the major kitchen showrooms and ask if they're getting rid of any displays. They change those out about once a year, she says. You can also scour Habitat for Humanity resale stores for interesting architectural details on the cheap.

You can make your rental unit stand out from the competition, Hanby-Robie says, by installing a basic dishwasher and offering a washer and dryer. "Gals don't want to have to go to the Laundromat," she says. "That will make renting your place so much easier."
Of course, you can't get any cheaper than free. Real estate investor Brent Knittel has eight condos in Lake Tahoe, Nev., and has remodeled all of them on his own. A high school special education teacher, he's on a tight budget, so he keeps an eye out for used, white appliances.
"If someone is upgrading to a new appliance, I'll be there with my truck to take their old appliance," he says. "I'll yank it, store it and use it in the next remodel. I always take refrigerators, and washers and dryers are selling points. A lot of rental units don't have those."

That strategy is fine for rentals, says Irwin, but it won't work on a resale. "There have been huge changes in appliances in the last 10 years," he says. "If you want top dollar in a house, you have to replace appliances with new ones that look good. There is a level just above the basic one, but looks pretty darn good, that's a good line to put into the property. They're not expensive but they're expensive-looking."

One final way you can spruce up an investment property is to update the lighting. New lights in the hallways, bedrooms, baths and kitchen can make a world of difference, says Steve Berges, a Lake Orion, Mich.-based real estate investor and author of "101 Cost-Effective Ways to Increase the Value of Your Home."
"You want bright and cheery, not dark and dreary," Berges says. "In some older houses, the lighting fixtures are so dated and worn out. You can buy $500 worth of lights and dress that house up on the inside."
Source from : bankrate.com