For new buyers, it’s more of an opportunity. For existing owners, its more of a risk.
- For today’s purchase, we’re getting bids from insurance carriers at the much higher rate, and it’s built into the pro-forma from the beginning.
- Since the higher insurance depresses the NOI (net operating income), we can purchase the building at a lower price.
- Historically, the insurance industry goes through cycles where they have “hard markets” where it’s hard to get insurance, and it’s expensive. Then (historically) the insurance market cycle eases, and eventually becomes much “softer”. Then there are more carriers competing for business, and the rates decline.
- If we are lucky – and we don’t model any of this upside into our underwriting – we can buy when the insurance is high (and NOI is low, and prices are low). When we finish the remodel and want to sell, the insurance might be lower (increasing the NOI and the price). If that happens, it’s just additional IRR that we can pass along to the investors.
- Insurance, in FL and TX, is at record high prices right now; which suggests there might be some opportunity from this timing.