Real estate investors stung by rising insurance costs

New data shows insurance issues hitting investors hard, particularly in two states

Real estate investors stung by rising insurance costs

Real estate investors are grappling with a major challenge: skyrocketing insurance costs and the unavailability of coverage, according to the Spring 2024 Investor Sentiment Survey from RCN Capital.

The survey found that over two-thirds (68%) of respondents were deterred by rising insurance costs or the outright unavailability of coverage in their buying and selling decisions. This issue has led nearly 57% of investors to miss out on potential investment opportunities, it was reported.

“Investors are already facing many challenges in today’s housing market – rising prices, limited inventory, and higher financing costs,” RCN Capital CEO Jeffrey Tesch said in the report. “Soaring insurance costs, and instances where hazard insurance is simply not available is another significant hurdle for these investors to overcome.”

The issue is most pronounced in states like Florida and California, which have experienced extreme weather events leading to a dramatic increase in homeowner insurance rates, sometimes doubling or tripling. In some cases, insurers have ceased operations in these areas altogether.

Over 90% of fix-and-flip investors in Florida and 83% in California reported missing out on investments due to insurance. Similarly, nearly half (44%) of rental property investors in both states ranked insurance as their second biggest challenge, following only financing costs.

“If California and Florida can be considered bellwether states in the real estate market, findings in this quarter’s survey may be predicting more widespread problems,” said Rick Sharga, CEO of CJ Patrick Company, the market intelligence firm that conducted the survey. “Investors in both states are already facing strong headwinds due to insurance issues, which may be contributing to some of the problems they’re having securing loans. We may start to see similar issues in other states prone to extreme weather events, such as Texas, Colorado, and Louisiana in the future.”

Investor sentiment

Despite these challenges, investor sentiment on current market conditions was somewhat mixed. Compared to the previous survey, fewer investors thought conditions today were better than last year (37% vs. 40%), but only 27% felt conditions were worse, the lowest number recorded in the survey series.

Read more: Three strategies to mitigate risk in real estate investing in 2024

Investors were more optimistic about future market conditions, with 42% expecting improvement over the next six months, up from 39% in the previous survey. Fix-and-flip investors (43%) were more positive than rental property investors (32%) about both current and future conditions.

Popular properties

In terms of market activity, rising home prices and mortgage rates continue to reshape the investment landscape.

Over 89% of investors have seen either a decline in demand for owner-occupied homes, an increase in demand for rental properties, or both in their local markets. Investors continue to expect home prices to rise, with almost 59% anticipating price increases.

More investors claimed to focus on buying rental properties than fix-and-flip homes for the third time in the last four surveys. Most investors continue to purchase properties close to home, with California, Florida, Texas, and New York being the most popular investment locations.

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