Single-family home owners say this expense is too high

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According to a survey by LendingOne and ResiClub, direct real estate investors appear cautiously optimistic about the future of real estate investing. The survey sample was small—just 235 single-family homeowners who own at least one property—but it provides insight into some of the challenges these investors face.

Most owners plan to add to their portfolios. Sixty percent said they plan to buy at least one investment property in the next 12 months, even though many of those surveyed expect prices to rise. Only 31% expect growth above 4.0%. Price can play a role in purchasing decisions. In the Midwest, where prices have not accelerated as quickly, 71 percent of homeowners said they want to purchase another property. They may anticipate more favorable interest rate conditions. 86% of those surveyed expect interest rates to fall, but only 10% expect a drop of more than one percent. Only 39% plan to sell.

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The majority of landlords, 76%, plan a rent increase in the next twelve months, but only 35% say the increase will be more than 4%. Investors in the North East were the most likely to increase rents by 7% or more, with 17% aiming for this goal.

Overall, the survey indicates that owners still remain invested and watching what happens with available inventory. Home prices have skyrocketed in recent months, with the median existing home price of $426,900 representing a 4.1% year-over-year increase. For the first quarter of the year, Redfin reported that investor purchases were up 0.5% from a year ago. It was the first increase since mid-2022. While not all of these investors are homeowners, many are fix-and-flip investors, which shows that investors are seeing a bit more opportunity out there.

The big expense that keeps homeowners up at night

Landlords know they may not be able to raise rents much in the coming months, and that’s kept them focused on the bottom line. Half of investors said the cost that had risen the most in the past 12 months was home insurance. Insurify reported that home insurance costs increased nearly 20% from 2021 to 2023, with an average cost of $2,377.

Not all states are created equal. Florida has attracted many real estate investors because of the area’s population growth, but home insurance prices can hurt investors’ returns. Florida homeowners paid an average annual rate of $10,996 in 2023, and six of the 10 most expensive areas for home insurance are in Florida. With another busy hurricane season underway, many are concerned that prices will continue to rise. Insurify estimates that prices in 2024 will increase by 7% in Florida. With some insurers leaving the state, the burden increasingly falls on state-sponsored insurance providers.

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This fits with a report from RCN Capital this year that found 68% of investors surveyed said rising insurance costs or the unavailability of insurance coverage affected their buying and selling decisions. “Increasing insurance costs and instances where risk insurance is simply unavailable is another major hurdle these investors must overcome,” said RCN Capital CEO Jeffrey Tesch. Investors in Florida and California were the most affected by these problems. These are the two states where many insurers have already withdrawn or reduced coverage.

Real estate investors will increasingly have to consider insurance as a cost over which they may have little control. Overall, single-family investing remains an attractive way to build wealth, and the survey reflects that despite the challenges, single-family real estate investors are still in the game.

A better way to profit from real estate?

You don’t have to be a direct investor to profit from real estate. The current high interest rate environment has created an incredible opportunity for income investors to earn massive returns. Arrived Homes, the investment platform backed by Jeff Bezos, has launched its Private Credit Fund, which provides access to a pool of short-term loans backed by residential real estate with a target net annual return of 7% to 9% paid to investors monthly. The best part? Unlike other private credit funds, it has a minimum investment of only $100.

This article Single-Family Homeowners Say This Expense Is Too High originally appeared on Benzinga.com