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According to a survey from 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 landlords who own at least one property – but it provides insights into some of these investors’ challenges.
Most of the landlords are planning to add to their portfolios. Sixty percent said they plan to buy at least one investment property over the next 12 months, even though many of those surveyed expect prices to increase. Only 31% expect an increase of over 4.0%. Price may be playing a role in purchasing decisions. In the Midwest, where prices have not accelerated as fast, 71% of landlords said they want to acquire another property. They may be anticipating more favorable interest rate terms. Fully 86% of those surveyed expect interest rates to drop, but only 10% expect a more than one percent decline. Only 39% are planning to sell.
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Most landlords, 76%, plan a rent increase over the next twelve months, but only 35% say the increase will be over 4%. Investors in the Northeast were most likely to hike rents by 7% or higher, with 17% aiming for that goal.
Overall, the survey indicates that landlords are still staying 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% increase year over year. For the first quarter of the year, Redfin reported that investor purchases rose by 0.5% from one year ago. It was the first increase since the middle of 2022. While not all of those investors are landlords, many are fix-and-flip investors, showing that investors are seeing a bit more opportunity out there.
The Big Expense That Keeps Landlords Up At Night
Landlords know they may not be able to raise rents much in the coming months, and that has them focused on the bottom line. Half of investors said the cost that increased the most over the past 12 months was home insurance. Insurify reported that home insurance costs soared nearly 20% from 2021 to 2023, with an average cost of $2,377.
All states are not created equal. Florida has attracted many real estate investors due to the area’s population increase, but home insurance prices may be weighing on investor profits. 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 forecast that 2024 prices will be up by 7% in Florida. With some insurers leaving the state, the burden is increasingly on state-sponsored insurance providers.
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This dovetails with a report from RCN Capital this year that found 68% of the investors surveyed said that rising insurance costs or the unavailability of insurance coverage impacted their decisions to buy and sell. “Soaring insurance costs and instances where hazard insurance is simply unavailable is another significant hurdle for these investors to overcome,” said RCN Capital CEO Jeffrey Tesch. Investors in both Florida and California were most affected by these issues. These are the two states where many insurers have already pulled out or reduced coverage.
Real estate investors will increasingly have to factor in insurance as a cost they may have little control over. 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-seeking investors to earn massive yields. Arrived Homes, the Jeff Bezos-backed investment platform, has launched its Private Credit Fund, which provides access to a pool of short-term loans backed by residential real estate with a target 7% to 9% net annual yield paid to investors monthly. The best part? Unlike other private credit funds, this one has a minimum investment of only $100.
This article Single-Family Landlords Say This One Expense Is Too High originally appeared on Benzinga.com