Insurance challenges rising for investors, according to RCN Capital survey

Investor optimism for near term grows, but California, Florida surface as insurance issue hotspots

Challenges relating to insurance coverage have risen as a concern for real estate investors RCN Capital’s Spring 2024 Investor Sentiment Survey has found.

More than 68% of the investors who participated in the survey conducted by CJ Patrick Company for RCN said that growing insurance costs or the inability to insure properties played a part in their decision to invest real estate. Such insurance woes caused nearly 57% of investors to miss out on an investment opportunity.

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

Insurance-based issues are exacerbated in areas where instances of extreme weather have been on the rise. Home insurance rates in those places, subsequently, have largely doubled or even tripled; in some areas, insurers have simply withdrawn their services.

Consider that, according to RCN’s survey, 90% of fix-and-flip investors in hurricane-risky Florida and 83% in wildfire-ravaged California say that insurance issues killed a deal for them. In both of those states, 44% of rental property investors cited insurance as the second-biggest challenge to success in the current market, trailing only the cost of financing.

“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. “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.”

High financing costs were the largest hurdle to success cited by most flippers overall, garnering a 71% share in the survey. Rising home prices were cited by 45% of respondents, followed by the lack of for-sale inventory (36%) and competition from institutional investors (35%).

Notably, despite such concerns and the increasing prominence of insurance issues, investors showed more optimism about market conditions in the near-term in RCN’s latest survey than they did in its previous iteration, conducted in the winter of last year. Almost 42% of survey respondents said their outlook for residential real estate investing over the next six months compared to today was “much better” or “better,” up from 39% in the winter.  On the flip side, just 18% anticipate that conditions will worsen in the next six months.

Still, just 37% investors think market conditions are better currently than they were last year — down from 40% in the winter survey. But just 27% think that conditions have gotten worse, marking a record low in the four surveys RCN has had since beginning the series. Thirty-six percent of investors believe that the environment for residential real estate investing has remained largely the same.


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