The expense and unavailability of homeowners insurance is barring large numbers of home investors in the nation's largest housing markets from buying and selling real estate, according to the Spring 2024 Investor Sentiment Survey from RCN Capital, conducted by market intelligence firm CJ Patrick Company.
Insurance challenges are particularly acute for investors in states that have seen higher frequencies of extreme weather events over the past few years, like Florida and California. In those states, homeowner insurance premiums have doubled or tripled. In some cases, insurers have pulled out of Florida and California entirely.
Per the survey, over 90% of fix-and-flip investors in Florida and 83% in California claimed to have missed out on an investment opportunity due to insurance issues. Overall, 57% of investors surveyed reported that the growing expense and unavailability of insurance coverage had caused them 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.”
Meanwhile, 44% of rental property investors in Florida and California said insurance matters were their second-biggest challenge in today’s market, behind the elevated financing costs. The cohort of rental property investors were notably less optimistic about today’s and near-future market conditions than fix-and-flippers, the survey found.
Forty percent of flippers but only 23% of rental property investors felt that conditions today were better than a year ago; 43% of flippers and 32% of rental property investors believe that things will continue to improve.
“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,” noted Rick Sharga, CEO of CJ Patrick Company, a mortgage advisory firm that surveyed on behalf of RCN Capital. “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.”
While both types of investors cited high finance costs most frequently as a major challenge, flippers in Florida mentioned competition from large investors much more frequently (62%) and noted difficulty securing a loan as their third biggest challenge (57%).
Florida rental investors cited insurance issues as their second-biggest challenge (44%) and 28% mentioned problems securing a loan. California flippers, on the other hand, cited only two major challenges with any frequency: high financing costs (90%) and rising home prices (64%).
California rental property investors, like their Florida counterparts, cited insurance issues 44% of the time — their second most mentioned challenge. These rental investors also cited often having difficulty hiring compared to their peers nationwide at 22%.
Despite elevated mortgage rates and the majority of respondents believing home prices will continue to rise, 55% of respondents expect to buy the same number of properties as they did a year ago. California, Florida, Texas, and New York were the states most frequently cited by respondents as where they currently invest, and where they plan to invest over the next year.
