Why Your Research Policy Is As Important As Your Insurance Policy

Real estate investors and professionals often hold off or decide to move forward on potential transactions because of "rates" or waiting for "rates" to drop. Recent trends, like those in the below linked article, show that "waiting for rates to drop" now applies to more than just mortgage rates, especially in states like Florida, California, and Texas. 

 

As brokers and lenders and potential buyers and investors know, making the numbers work toward a transaction, whether residential or commercial, is a crucial element of the first stage of trying to make a deal happen. It is more than just the monthly loan payment, with property taxes, and management (or HOA for some residential) fees contributing to the total. Until recently, insurance was considered a minor part of the monthly or yearly expenses.

 

Not anymore. Estimates (like those shown in the article below) consider that for every $100 added to rising annual insurance premiums, the potential buyer's purchasing power is reduced by as much as $16,000. It means that a potential buyer of a $500,000 property may be facing additional costs of $80,000, reducing their "buying power" to $420,000. That is enough of an amount to potentially discourage a potential buyer or limit the borrowing power, while making it more challenging for a potential seller.

 

There are still many investors and potential buyers that limit their research to the specific property or opportunity, thinking that their current or new mortgage rate is a maximum monthly cost. They are hopeful of being able to refinance their monthly costs down. Many of them are not taking the time to research how rising insurance costs could impact their acquisition or investment for the short and long term. 

 

Being under insured on a multi-million dollar property could put an investor or developer out of business if a claim or settlement results in millions less than what they should have been eligible to receive. The consequences of being under insured, or not knowing how much insurance costs have risen to, are only a part of the consequences for not having the right research.

 

 https://qz.com/rising-insurance-costs-push-homebuyers-breaking-point