How to address rising home insurance costs and taxes

Question

How does everybody address the rising home insurance cost and taxes? I live in Houston Texas and because it's a hurricane city insurance costs have been going up 40 to 50% every year for the past few years. Home appraisals have been going up too making it more and more difficult for the rental properties to cash flow. Just curious to see what expert investors are doing to address this issue. Thank you.

Michael Smythe · Answer

The "magical" solution you are looking for does NOT exist!

Benjamin Aaker · Answer

You have to be much more careful getting insurance quotes up front. That will affect the price you can pay.

You have some good ammunition to argue to the tax assessor why their valuation of your property is too high and this can help with taxes.

Adam Bartomeo · Answer

In Florida, we have moved the majority of our investments to the state insurance company, Citizens. We have started seeing that insurance prices have stabilized and even going down.

Jason Wray · Answer

Yacine,

I help answer that question every day to my investors who live outside of the US and investors looking to maximize cash flow.  The quick answer is sell or transfer your equity into REI in other states.  May sound a little shocking but in many states right now you can be making double your passive income if not triple.

I have investors in states like Texas, California, New York, CT and other that are selling or taking out equity through a cash out refinance to buy in states like Indiana, Ohio, Tennessee, Florida, AL, NC, SC and a few others.  Only because you can still buy a Single family home for under $175K and a 2-4 family MF home for under $200K.

Rents in majority of these state are in line with Texas and in many of these states if you elect to cater to STR short term rental income you can quadruple your cash flow.  Florida for example is an amenity state and in several counties there have been zero impact from the last several hurricanes.  Insurance companies target zip codes and homes close to or adjacent to the beach or zoned flood.

There are many higher elevated places in places like FL, NC, SC, TN and others that are not seasonal and have high traffic all year round for MTR and STR.  Biggest thing is do you manage yourself or adopt a local property manager.  I know of many investors that purchase a great TLC property and renovated it into a turn key rental home that requires zero up keep other than lawn and annual care.

You can also target townhomes, and condos to avoid the maintenance and lean on property to up keep.  As long as you keep an eye on the HOA and find a strong association that has a solid reserve fund and a lower HOA its a win-win.  If you ever have any questions about out of state or in general feel free to reach out - check out my profile or send me an email or message!

Melissa Justice · Answer

@Yacine Bouabba,

From personal experience, I’ve found local insurance carriers tend to be less expensive than national ones, but it really varies depending on your property, location, and coverage needs. It’s always worth getting quotes from several local companies to compare rates.As for property taxes--a lot of homeowners don’t realize they can file for a tax appeal on their own. You can typically get comps from local realtors and submit the paperwork yourself, which can save money on legal fees. It's usually straightforward, and the forms are often available online for your township. I did this for my mom's house in NJ two years in a row during Covid and we won both appeals - she now pays the lowest property taxes in her whole neighborhood!As for addressing rising costs, many investors I know are focusing on:Increased rent to keep up with rising expenses (though this has its limits in certain markets).Cost-saving strategies like shopping around for better insurance providers, even mid-policy, or bundling insurance with other properties.Tax appeal as a regular strategy, since taxes can heavily affect cash flow.Hope this helps! It’s always a good idea to stay proactive with both insurance and tax matters to protect your investment.

Chris Seveney · Answer

1. Not investing in areas that are higher risk for insurance claims.

2. Constantly calling companies and getting quotes. I did a post on not waiting until your policy expires to get a new quote - make sure you are making calls months in advance shopping for best rates.

Kerlous Tadres · Answer

Insurance and taxes are hitting everyone hard. I recommend re-shopping insurance yearly with a landlord-savvy broker, raising deductibles if it makes sense, and always protesting property tax assessments, many investors win those.

Dan H. · Answer

I do not invest in properties where my return is small enough that an insurance cost increase can throw the deal south and in my market there is no large property tax increase.   This implies that I pass on purchases that may provide a decent return if everything goes well (everything going well does not happen often enough for me to be comfortable relying on it).  I expect return in excess of $1k/unit.   I am expecting some of my insurance may go up by 40% this year.   Fortunately I am also raising rents.  I expect the rent increases to cover the expense increases, but this year has.been a poor year for market rent increases in my market so my cash flow may be similar to last year (so lower in inflation adjusted dollars).

How to address rising home insurance costs and taxes

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