Property insurance is a key component in any real estate investor’s business plan. Depending on the area of the country you’re investing in, property insurance costs can add many thousands to your annual property expenses—and in some areas of the country, these are rising rapidly.
Almost everyone knows by now that California and Florida are experiencing property insurance crises, with insurance increasingly scarce and/or unaffordable. This is, of course, ironic for investors because, in many other ways, these continue to be lucrative investment destinations.
Here, we’ll look for silver linings for investors in these states. (Spoiler alert: There are a couple.) We’ll also take an in-depth look at destinations that have traditionally been seen as “safe” from the insurance point of view, thanks to a more stable climate. We’ll see how this is changing and point to the factors investors need to be aware of when doing property research.
The Midwest Is No Longer Automatically ‘‘Affordable’’
Of all U.S. regions, the Midwest has been investors’ favorite for the last couple of years. There are many reasons for this, but they can be effectively summarized as the golden combination of affordability and relative stability. The reasoning goes like this: The Midwest may not be as hot of a market as the South, but it will deliver steady returns because people are keen to move there, and property prices are more stable.
This reputation is beginning to shift, however, with the Midwest now experiencing increased pressures on its property insurance market. The reason is a changing climate. The Midwest is experiencing more rain and more frequent and intense storms, resulting in more damage to homes.
According to the 2023 U.S. National Climate Assessment report, ‘‘More frequent and intense heavy precipitation events are already evident, particularly in the Northeast and Midwest.’’ It’s not just that the Midwest is…