If you closely follow real estate investment trends, you may have heard the term “micro flipping” thrown around recently. While some large companies like iBuyers, Zillow, Redfin, and Opendoor have been utilizing this strategy for a while, it is becoming increasingly popular among individual investors. Micro flipping is a type of wholesaling strategy in which technology and data are used to find undervalued properties. Despite the name, it does not involve a micro amount of renovations before selling. In fact, investors typically never even see the property in real life! But it is extremely important for investors to protect their interest by purchasing the proper insurance, no matter how long they hold a property.
What is micro flipping?
As mentioned above, micro flipping is similar to traditional wholesaling but with a few key differences. Wholesalers work with the sellers of distressed and undervalued properties to arrange purchase by an investor who plans to rehab the home. The wholesaler may never take ownership or have any insurable interest in the property.
In contrast, micro flippers search for and purchase properties that require zero sweat equity. Micro flippers do most of their work from a computer, using software to analyze data and find properties listed below the market price. A micro flipper’s goal is to purchase an undervalued property and sell it almost immediately at a properly valued sale price. So, the term “micro” describes how quickly the transactions happen. Think of it like day trading real estate.
Micro flipping is a volume-over-profit real estate investing strategy. It is common for investors to only make a few thousand dollars on each property. However, the upside to micro flipping is that investors can make multiple deals in a short amount of time because the process moves so quickly. So, if an investor closes four deals in an eight-hour workday, they could make around $10,000 a day- all from the comfort and convenience of their own home.
Micro flipping is legal in most U.S. states, the exception being Illinois. Although it is not technically banned, Illinois has put many regulations in place to make it very difficult for investors to utilize this strategy. Before beginning any new business venture, it is always a good idea for investors to review local laws and/or speak with an attorney to ensure they follow regulations.
What insurance do my investor clients need for micro flipping?
Any real estate that an investor owns should be insured – whether the property is owned by your client for hours, days, or years. If something were to happen at the property during the period your investor client owns it, they (or their company) could be named in a lawsuit or have a property claim on their hands.
The minimum coverage investors should carry on a micro flip property is Premises Liability. We cannot stress this enough- even if they only own the property for a couple of hours, something could happen. If someone were to injure themselves on the property during that short amount of time, your investor client will be thankful to have liability coverage. They do not want the headache of an uninsured loss while their name is still on the deed. For the same reason, we also recommend Property coverage for any loss that may occur to the property itself. While unlikely, it is possible for a fire, vandalism, or some other property loss to occur while the investor client holds the location in their name.
Real estate investors, and especially those who micro flip, rely on a computer system or network to conduct day-to-day business. For this reason, investors should strongly consider Cyber Liability coverage. Cyber-attacks on small businesses can range from hacked email accounts to unauthorized wire transfers and credit card fraud to personal data breaches and identity theft.
Business Liability is another coverage we recommend to all real estate investors. Business Liability covers the business, not the location, and offers Personal and Advertising Injury coverage. This protects an investor’s business against claims of slander, libel, copyright infringement, marketing misrepresentation, etc.
Finally, if your investor client chooses to obtain their real estate license, they will need to purchase a Real Estate Errors & Omissions policy to cover their business practices as a licensed real estate agent. As you likely know, E&O protects against mistakes and oversights that lead to a lawsuit. This insurance can help cover legal costs that might otherwise negatively impact the investor and/or their business.
How micro flipping fits into our program
REInsurePro’s innovative program is designed to support the varying needs of all real estate investors, regardless of their investing strategy. We can provide Premises Liability and Property coverage with no minimum earned premiums. Meaning your investor client only pays for coverage during the month(s) they need it and can make changes to their portfolio monthly.
Contact your Sales Manager if you have any questions and learn more about the other creative investment strategies we insure here.