02 Jul Impact of Insurance Rates on Multi-Family Investments

Understanding the Impact of Insurance Rates on Multi-Family Investments

Navigating the world of multi-family investments requires a keen understanding of various market dynamics. High insurance rates can eat into your profits, making it harder to cash flow. This issue affects regions differently based on current circumstances and trends in the market. We spoke with Keagan Finley, ELIFIN Senior Vice President in Multifamily Sales, to get his perspective on insurance rates in our markets.

Regional Differences in Insurance Rates

“In Columbus, insurance rates haven’t had as significant an impact as in the southeast. The primary concern here is rising property taxes,” explains Finley. This regional difference highlights the importance of local market knowledge when evaluating investment opportunities in commercial real estate.

In the southeast, natural disasters such as hurricanes have caused insurance premiums to double or even triple in recent years. Finley notes, “This makes deals tougher because rents haven’t tripled in the same period, but insurance has.” Such a dramatic increase in costs can significantly affect the profitability of investments, underscoring the need for careful financial planning and risk assessment.

Insurance Rates in Columbus, Ohio

Despite the challenges posed by rising insurance rates, Finley points out that the Midwest, including Columbus, Ohio, offers attractive investment opportunities. “If I buy something in Columbus, I’m paying a premium, but I’ll get appreciation due to the growth and development here,” he says. This appreciation potential makes the Midwest a compelling choice for investors seeking long-term gains.

In contrast, the southeastern market, while offering opportunities for cash flow, comes with higher risks due to the increased insurance costs. “In the south, you can get cash flow if insurance works out, but up here, you get appreciation. The deals are more expensive because many investors are trying to invest here. Prices are higher because sellers are still trying to get their asking price,” Finley elaborates.

How to Navigate Insurance Rates

To make sure investors are getting a good deal in this market, Finley priortizes speaking clearly with clients and figuring out exactly what they need: “We ask them exactly what they’re looking for: the number of units, how they price and buy, their criteria, location, price point, and desired return. This helps us navigate and find specific deals that make sense for them.”

By adjusting their investment plans based on personal goals and market conditions, multi-family investors can lower risks and find good opportunities. In places like Columbus, where property values are rising, focusing on long-term growth can lead to big profits. On the other hand, in the southeast, investors need to think about balancing income with higher insurance costs.