The Fundamental Difference Between Single-Family And Commercial Real Estate Investing

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</div> </div> <p><span>When it comes to real estate investing in single-family residences (SFRs) versus commercial real estate (CRE), there is a common misperception of grouping the two into the single broader category of &quot;real estate investing.&quot; Grouping in this manner assumes that both types of real estate provide similar exposure to the third largest asset class (excluding cash). While more experienced investors may understand that these two categories of real estate, in fact, differ greatly from an investment thesis perspective, they often struggle to articulate the core, underlying difference that differentiates them. Let’s break down the value components of SFRs versus CRE and explore the single fundamental difference that is a unique and primary driver of value for CRE.</span></p> <p><span>CRE investing focuses on the acquisition, development, leasing and operation of an array of property types. Property types can include multifamily (also known as apartments), office, retail, industrial, hospitality, senior living, student housing, self-storage and more. SFR investing typically consists of the purchase, leasing and operation of single-unit dwellings. </span></p> <p><span>To understand the value driver that is a key differentiator between SFRs and CRE, it is helpful to first understand the basic value components of each type:</span></p>

Note that the allocations to each value component are not intended to be precise.Image courtesy of Ian Formigle.

</div> </div> <p> </p> <p><b>SFR Value Drivers</b></p> <p><span>As you can see in the chart above, the value of SFRs is comprised of three primary components: land value; the value of the structure, or what we refer to in industry terms as “improvements”; and a supply/demand premium (or discount) that reflects submarket dynamics.</span></p> <p><span> To give this last component context, an example of excess demand that creates substantial value would be coastal markets where supply is constrained and demand is stratospheric. In contrast, discounts to the value of the improvements of an SFR can be found in certain midwestern and southern markets where the existing stock or supply of housing exceeds demand. </span></p>

<p><span>Much of the future value that is created by investing in SFRs is a function of market-driven appreciation. This appreciation is most commonly reflected through increases in land value and the premium component, although increases in construction costs can increase the value of existing improvements as well. In order to build equity in SFRs, you are mostly banking on appreciation of the land on which the house sits, an increase in demand for your location or a combination of these two.</span></p> <p><b>CRE Value Drivers</b></p> <p><span>CRE shares land, improvements and supply/demand with SFRs as value drivers, but it also has a unique value driver in the form of net operating income. As a reminder, net</span> <span>operating income</span><span> or <a href="https://www.investopedia.com/terms/n/noi.asp&quot; target="_blank" rel="nofollow noopener noreferrer" data-ga-track="ExternalLink:https://www.investopedia.com/terms/n/noi.asp">NOI</a>&nbsp;is defined as all revenue from a property less all operating expenses. It is important to note that NOI does not contemplate debt service. With this definition in mind, let’s revisit the chart above.</span></p> <p><span>As you can see on the right side of the chart, while land, improvements and supply/demand all factor into the total value of CRE, NOI is the largest single value driver, and it can have a dramatic effect on asset value, particularly in markets with high rents such as Manhattan or San Francisco. </span></p> <p><span>The supply/demand component now also takes on a quantifiable value as capitalization or “<a href="https://www.investopedia.com/video/play/capitalization-rate/&quot; target="_blank" rel="nofollow noopener noreferrer" data-ga-track="ExternalLink:https://www.investopedia.com/video/play/capitalization-rate/">cap</a>&#8221; rates provide insight into how the market prices affect demand for various asset types. Since cap rates are worthy of their own article, we won’t delve into the details of them here, but generally speaking, an increase in demand for a certain type of real estate leads to a decrease in cap rates (i.e., higher prices at the same NOI levels), while a decrease in demand leads to an increase in cap rates (i.e., lower prices at the same NOI levels). For any asset with positive NOI, cap rates and NOI intertwine to derive total asset value.</span></p> <p><b>Key Takeaways</b></p> <p><span>The uniqueness of NOI as a value driver makes investing in CRE fundamentally different than SFRs because it provides it with a business model. The fact that the value of a CRE asset has substantial correlation to NOI means that you can make (or lose) money on a property regardless of greater market dynamics. </span></p> <p><span>This is not the case with SFRs. While it is certainly possible for leased SFRs to have NOI, this component drives no value for this type of real estate, as value has </span>no<span> correlation to whether or not the properties are occupied. In fact, the maximum value of an SFR may be its vacant value, since most purchasers are owner-occupiers and a house that is encumbered by a lease is not currently eligible for the new owner to occupy. How many times have you seen an SFR bid above its asking price by a buyer who intends to lease it?</span></p> <p><span>If a CRE operator is able to acquire an asset and increase its NOI, then, all else being equal, the value of that asset has increased. This partially explains why there is always an active transaction market for CRE. A property owner, for example, may have just increased NOI in a given property and see an opportunity to harvest profits. At the same time, a prospective buyer values the newly created NOI and wants to earn a yield. NOI as a value driver of CRE gives control back to the operator and moves away from the betting model.</span></p>

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When it comes to real estate investing in single-family residences (SFRs) versus commercial real estate (CRE), there is a common misperception of grouping the two into the single broader category of “real estate investing.” Grouping in this manner assumes that both types of real estate provide similar exposure to the third largest asset class (excluding cash). While more experienced investors may understand that these two categories of real estate, in fact, differ greatly from an investment thesis perspective, they often struggle to articulate the core, underlying difference that differentiates them. Let’s break down the value components of SFRs versus CRE and explore the single fundamental difference that is a unique and primary driver of value for CRE.

CRE investing focuses on the acquisition, development, leasing and operation of an array of property types. Property types can include multifamily (also known as apartments), office, retail, industrial, hospitality, senior living, student housing, self-storage and more. SFR investing typically consists of the purchase, leasing and operation of single-unit dwellings.

To understand the value driver that is a key differentiator between SFRs and CRE, it is helpful to first understand the basic value components of each type:

Note that the allocations to each value component are not intended to be precise.Image courtesy of Ian Formigle.

SFR Value Drivers

As you can see in the chart above, the value of SFRs is comprised of three primary components: land value; the value of the structure, or what we refer to in industry terms as “improvements”; and a supply/demand premium (or discount) that reflects submarket dynamics.

To give this last component context, an example of excess demand that creates substantial value would be coastal markets where supply is constrained and demand is stratospheric. In contrast, discounts to the value of the improvements of an SFR can be found in certain midwestern and southern markets where the existing stock or supply of housing exceeds demand.

Much of the future value that is created by investing in SFRs is a function of market-driven appreciation. This appreciation is most commonly reflected through increases in land value and the premium component, although increases in construction costs can increase the value of existing improvements as well. In order to build equity in SFRs, you are mostly banking on appreciation of the land on which the house sits, an increase in demand for your location or a combination of these two.

CRE Value Drivers

CRE shares land, improvements and supply/demand with SFRs as value drivers, but it also has a unique value driver in the form of net operating income. As a reminder, net operating income or NOI is defined as all revenue from a property less all operating expenses. It is important to note that NOI does not contemplate debt service. With this definition in mind, let’s revisit the chart above.

As you can see on the right side of the chart, while land, improvements and supply/demand all factor into the total value of CRE, NOI is the largest single value driver, and it can have a dramatic effect on asset value, particularly in markets with high rents such as Manhattan or San Francisco.

The supply/demand component now also takes on a quantifiable value as capitalization or “cap” rates provide insight into how the market prices affect demand for various asset types. Since cap rates are worthy of their own article, we won’t delve into the details of them here, but generally speaking, an increase in demand for a certain type of real estate leads to a decrease in cap rates (i.e., higher prices at the same NOI levels), while a decrease in demand leads to an increase in cap rates (i.e., lower prices at the same NOI levels). For any asset with positive NOI, cap rates and NOI intertwine to derive total asset value.

Key Takeaways

The uniqueness of NOI as a value driver makes investing in CRE fundamentally different than SFRs because it provides it with a business model. The fact that the value of a CRE asset has substantial correlation to NOI means that you can make (or lose) money on a property regardless of greater market dynamics.

This is not the case with SFRs. While it is certainly possible for leased SFRs to have NOI, this component drives no value for this type of real estate, as value has no correlation to whether or not the properties are occupied. In fact, the maximum value of an SFR may be its vacant value, since most purchasers are owner-occupiers and a house that is encumbered by a lease is not currently eligible for the new owner to occupy. How many times have you seen an SFR bid above its asking price by a buyer who intends to lease it?

If a CRE operator is able to acquire an asset and increase its NOI, then, all else being equal, the value of that asset has increased. This partially explains why there is always an active transaction market for CRE. A property owner, for example, may have just increased NOI in a given property and see an opportunity to harvest profits. At the same time, a prospective buyer values the newly created NOI and wants to earn a yield. NOI as a value driver of CRE gives control back to the operator and moves away from the betting model.

The Fundamental Difference Between Single-Family And Commercial Real Estate Investing syndicated from Forbes – Real Estate

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TREB now allowing realtors to post GTA home sales data

Real estate boards across Canada are mulling the release of home sales data online after the Toronto Real Estate Board began permitting such numbers to be published on password-protected websites on Tuesday. Calgary, Greater Moncton and B.C.’s Fraser Valley were among a handful of real estate boards that said they were looking towards the Greater Toronto Area to decide how their own region should tackle the contentious issue that involved seven years of fighting at three judicial bodies for TREB, which wanted to keep the data under wraps because of privacy and copyright concerns.

TREB now allowing realtors to post GTA home sales data syndicated from Real Estate News

While You Were Sleeping, Sandra Bullock Was Building Her Real Estate Empire

Vera Anderson/WireImage; realtor.com

Actress Sandra Bullock’s approachable, big-screen appeal has made her one of the highest-paid actresses in Hollywood, with a reported net worth of $200 million. In turn, the “Ocean’s 8” star has plowed some of her hard-earned cash into real estate. This, of course, piqued our interest.

The Oscar winner recently made housing headlines with the $2.93 million sale of an investment property in Los Angeles. Bullock had rented out the charming home in Hollywood Hills West for years, for $15,000 to $18,000 a month, Variety reported. She had purchased the home through a trust for $1.49 million in 2001.

The 3,000-square-foot, three-bedroom rental offered an eat-in kitchen, skylights, and a pool. Located just behind the famed Chateau Marmont Hotel, it’s down the street from actress Cameron Diaz. 

Rental property in L.A.

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In addition to this property, Bullock has bought and sold buildings for decades, and even owns some commercial assets.

So we decided to crash headlong into the holdings of the 54-year-old A-lister.

Hope floats in Austin?

Bullock starred in the 1998 rom-com “Hope Floats,” which was partly filmed in Austin, TX.

She wound up putting down roots here, even opening an office of her L.A.-based production company. She reportedly owns several homes in the area.

In 2004 she won a lawsuit against a contractor who built her an “unlivable” lakefront home in the late 1990s. She never moved into the place and told Good Housekeeping in 2000 that she oversaw much of the construction of her dream home that turned into a nightmare.

“It’s addictive to me. I love to do a lot of hands-on stuff,” she said. “But now I know all about construction, so no one can rip me off.”

In 2012, Bullock listed a different Austin home for $2.5 million. The 5,300-square-foot property featuring floor-to-ceiling windows, a wine cellar, pool, hot tub, and downtown views was eventually sold for $2 million in March 2013.

At the time, she was reportedly commuting between Austin and Los Angeles, renovating a mansion in L.A. (more on that later), and hoping to permanently relocate to SoCal to focus on her life with her newly adopted son, Louis. 

The Austin home that Bullock sold in 2013

realtor.com

Speeding through SoCal

On the heels of her 2010 divorce from motorcycle builder Jesse James, Bullock turned to retail therapy, purchasing a “legendary” estate in Beverly Hills, CA, for $16.2 million, Variety reported.

The home had previously been owned by Marlo Thomas, David Geffen, and Hard Rock Café co-founder Peter Morton. Bullock embarked on a renovation to make the home her permanent digs.

The 4.1-acre property includes an 8,110-square-foot Tudor with eight bathrooms and seven bedrooms, including a master suite with fireplace, sitting room, and dual baths. There’s also a paneled dining room, home gym, and “serious” security system, Variety noted. (Perhaps it wasn’t serious enough: Bullock had a terrifying encounter with a stalker on her property in 2014.)

Bullock also picked up two units in the celebrity-filled Sierra Towers in West Hollywood. She purchased the first one in 2014 for $3.35 million. Previously owned by actor Matthew Perry, the furnished high-floor condo was offered earlier this year for $22,000 a month. 

Bullock picked up the second, larger unit on a lower floor in an off-market deal for $5.13 million, according to Variety.

While they were married, Bullock and James in an oceanfront estate in Sunset Beach, CA. After their divorce, James sold the property for $4.5 million. The remodeled Mediterranean came back on the market for $5.4 million in May, but has since been reduced to $5 million.

Crashing in Soho

Of course, you can’t be a movie star without having addresses on both coasts. In the early 2000s Bullock reportedly purchased a small townhouse in downtown Manhattan for the not-very-small price of $3.35 million.

Built in 1899, the 3,000-square-foot, single-family home, according to the website Sohostrut, is estimated to be “probably worth around $12 million today.” Another savvy buy by Bullock!

Georgia getaway

Island escapes are ideal for high-profile celebrities who want to vacation outside the Hollywood spotlight. In 2001, Bullock snagged a 3,400-square-foot, plantation-style home on Georgia’s Tybee Island for $1.5 million. (She later won an Oscar for her role in 2009’s “The Blind Side,” which was filmed entirely in the Peach State.)

Due to a hectic schedule, she isn’t able to spend much time at her Georgia getaway, which is probably why it’s been available for rent. Going for $1,400 a night with a four-night minimum, the spacious home sleeps 12, with four bedrooms, two baths, and a pull-out couch.

The layout also includes a double-height living room, dining room, game area, workout room, screened porch with water views, and pool.

Tybee Island getaway

Tybee Vacation Rentals

Bullock also loves the Big Easy

In 2007, the actress starred in the mystery “Premonition,” which was filmed in Louisiana, with a good chunk of the movie shot on a soundstage in New Orleans.

Through a trust, Bullock acquired a glorious Victorian in the Garden District in 2009 for $2.25 million. Known as the “Swiss chalet house” and built in 1876 by William Freret, the elegant residence features 6,174 square feet with ornate details, columns, and moldings.

The vintage charmer is located near homes owned by John Goodman and Nicolas Cage, as well as a residence once owned by author Anne Rice. Bullock also has ties to the area: Her two adopted children come from Louisiana.

New Orleans Victorian

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Jackson Hole

Bullock has also adopted the A-lister habit of heading to Jackson Hole, which is known for its winter sports and relaxing atmosphere. She picked up 5 acres, which come with a ski house and “equestrian center,” according to the Hollywood Reporter. 

The cozy three-bedroom log cabin is surrounded by firs and aspens. Details are scant, but we know the star spends time there, as she made headlines for heading to the snowy locale for her 50th birthday. 

The post While You Were Sleeping, Sandra Bullock Was Building Her Real Estate Empire appeared first on Real Estate News & Insights | realtor.com®.

While You Were Sleeping, Sandra Bullock Was Building Her Real Estate Empire syndicated from Real Estate News & Insights | realtor.com®News – Real Estate News & Insights | realtor.com®

Rents are flat for the first time since 2012

The nationwide median rent in August remained unchanged year-over-year for the first time since 2012, according to Zillow’s latest housing data survey. The median rent is actually lower than it was in August 2017, in 19 of the nation’s 35 largest housing markets.

“Earlier this year, the housing market was a story of diverging paths, with rents steadily cooling and home values picking up speed,” said Aaron Terrazas, Zillow’s senior economist. “Normally rents and home values are tied together, but strong apartment construction and a surge of young homebuyers contributed to this historical anomaly.”

But now rents and home values are following the trend of the weather and starting to cool as the season changes to fall.

“The feverish housing crunch of the past few years seems to be cracking,” said Terrazas. “Slower rent growth means that renters may feel less urgency to buy. While home values continue to grow at double their historic pace, the speed of appreciation is down sharply from its spring highs.”

Annual rent appreciation has slowed for six straight months, according to the study, and has remained below 3 percent annual increase for the past 27 months. In July 2015, rent appreciation was growing as fast as 6.6 percent.

Rent fell the most in Portland, Oregon where the $1,834 median is 1.8 percent lower than last year. It rose the sharpest in Riverside, California where it’s up 3.7 percent over the past year to $1,899. The median rent nationwide is $1,440.

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Home appreciation has also fallen to its slowest pace in two years, according to the study. Home values rose 6.5 percent over the past year to a median value of $216,700. Annual appreciation reached its peak of 8.2 percent in March 2018.

Different cities tell a different story, however. In San Jose, California, the median home value is up 22.7 percent since August 2017. Las Vegas, Nevada, and Atlanta, Georgia are also still posting double-digit home price growth at 12.0 percent and 10.4 percent, respectively.

Inventory decline has also slowed substantially. In August, there were 3.6 percent fewer homes for sale than the year before, the 43rd consecutive month that inventory has fallen on an annual basis. In August 2017, however, inventory was down 13.1 percent, year-over-year.

Email Patrick Kearns

Rents are flat for the first time since 2012 syndicated from Inman

5 reasons it sucks to be a parent in real estate (and how to make it work)

From never having free time to figuring out how to prioritize your kids while making your clients feel like they’re No. 1 — being a real estate agent with kids isn’t easy. Here’s how agents are balancing their work and family lives.

Article image credited to Dimitri de Vries on Unsplash

5 reasons it sucks to be a parent in real estate (and how to make it work) syndicated from Inman

NYC brokerages unite to launch ‘game-changing’ data platform

Leading residential brokerages in New York City are uniting to offer a new level of transparency to the way consumers and brokers search property. The effort is being called a “game-changer” by high-ranking executives involved in its launch.

Article image credited to Joakim Lloyd Raboff / Shutterstock.com

NYC brokerages unite to launch ‘game-changing’ data platform syndicated from Inman

9 things you need to tell your clients about flood insurance right now

Despite beautiful sunny skies and lots of ice-cold bevvy breaks, many homeowners with property located in federally insured flood zones have plenty to be nervous about this summer. Hurricane season is upon us, and as we’ve just witnessed with Florence, these violent storms mercilessly tear through thousands of coastal properties with violent winds and inescapable storm surges.

Homeowners living in a floodplain often think federal coverage is enough, but it’s not: According to Republican Senator Marco Rubio, “Floridians receive just $1 in claims benefits for every $4 paid in premiums.” And the National Flood Insurance Act (NFIP) will expire on July 31, unless Congress can recertify the program or President Trump extends the deadline.

As a front-line real estate professional, a client’s lack of knowledge and understanding of flood coverage can be shocking and stressful. Even homes in low to moderate flood risk areas are five times more likely to experience a flood than a fire over the next 30 years.

So what can Realtors and brokers do to help protect their clients? Talk about it. Here are nine points to discuss with your clients when it comes to flood insurance.

1. Know your coverage

According to insurance industry statistics, water damage accounts for 40 percent to 50 percent of all claim costs. But in the insurance world, there are different types of water damage and each type is covered (or not covered) by a particular type of insurance.

Explain to your clients that homeowner’s insurance will cover water damage if it’s caused by a “covered event” — industry jargon for “it’s included.” An example would be a shattered window caused by hurricane-force winds. The resulting water damage would more than likely be covered. However, tides crashing into a home are not covered. Neither is a storm surge or damage caused by wind-driven rain (unless the wind is coming into your home due to other “covered” events such as a tree smashing through your roof due to hurricane-force winds).

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Unfortunately, many uncovered perils are the primary causes of floods in low-lying and coastal areas. So your clients may wonder: Who is covered and for what?

If the house is located in an area designated by the National Flood Insurance Program (NFIP) as a hundred-year flood zone (meaning the chance for a damaging flood in any given year is 1 percent), then tell your clients they would be required to have flood insurance, particularly if they end up purchasing a home using a federally backed mortgage.

If the home is located outside of an NFIP high-risk flood zone, but in an area deemed to be a moderate to low risk area, tell your clients they won’t have national flood insurance coverage but they can pay out of pocket for additional coverage through an insurance provider or through elective coverage through NFIP.

A good way to see if the house is covered under NFIP is to check on FEMA’s website. Remind your clients that NFIP flood insurance isn’t cheap — the organization’s website says the average annual policy premium is about $700, and insurance experts say people who live in areas with the greatest risk of flooding can pay as much as several thousand dollars a year. But remind the purchaser that even the highest priced policy is still subsidized through the program.

At this point, it’s good to remind your clients that there is a 30-day waiting period before the policy goes into effect. Experience a flood within that waiting period and the damage caused isn’t covered.

2. Check for private provider coverage

what buyers should know about flood insurance

Flooding in Louisiana in 2016. (The Advocate: Bill Feig)

If your clients are interested in paying for elective coverage, you will need to explain that there are three types of insurance coverage when it comes to water damage:

  • Sewer backup coverage. This will protect your client’s home from a sewer backup, septic backup or sump pump malfunction or failure. A sewer backup refers to the discharge of “dirty water” into a home from a septic tank, drains or pipes. This type of flooding commonly occurs when rain or snow builds up in a municipality’s sewer system.
  • Overland flooding. This is when water enters a home from a point at or above ground level. Explain to your client that this most often occurs when there is a torrential downpour, during spring runoff or when a nearby river or lake breaks its banks and overflows. Remind your clients that this coverage will only protect them from damage caused by water that came in through downspouts, eavestroughs and drains.
  • Groundwater flooding. This type of water damage differs from overland water damage because it takes place below the ground. Natural weather patterns are a common cause for groundwater damage. This includes flooding from nearby water sources or a large amount of rain flow in a short period of time. While insurance coverage to protect from ground-water flooding isn’t always available, if your clients are able to get it, the coverage will protect them from the cost of damage caused when water suddenly and accidentally enters through foundation walls or floors.

3. Prevent damage from water before it becomes a problem

A bird’s nest blocks an eavestrough and prevents water from draining away from the home. (Flickr: vitamindave)

According to insurance industry statistics, water damage accounts for 40 percent to 50 percent of all claim costs. This is often because today’s basements are no longer unfinished concrete storage areas. These days most homeowners store valuable gear, customize the space for home gyms, design home theaters and redevelop this space into secondary suites.

All these upgrades mean that when a basement is damaged by water, it’s not a cheap or easy fix. The average cost of a flooded basement in major urban centers is about $43,000, according to Blair Feltmate, head of the Intact Centre on Climate Adaptation at the University of Waterloo.

The good news is that homeowners don’t have to rely solely on insurance in order to protect their home and valuables from water damage.

Remind homeowners that the best way to avoid many incidents of potential water damage is through prevention. Sump pumps, battery backup systems, generators and back-flow valves can help prevent sewer backup damage. As an incentive, remind homeowners that many insurance providers will offer a discount on insurance premiums if these precautionary measures are taken.  

Another easy way to prevent or mitigate the risk of overland flooding is to clean the home’s gutters and eavestroughs. Tell your clients that a good way to make sure there are no blocks in the eaves is to run a hose through the pipes. If there are no blocks, water will flow freely through the eave, down the spout and away from the home. 

Remind clients that the easiest way to prevent groundwater flooding is to shovel snow away from the house. The build-up of snowbanks at the side of a house may result in water seeping into the basement when the snow melts. Finally, warn your clients about the need for the garden to slope away from the house. If not, the water will seep into the home’s foundation, rather than away.

4. Consider adding flood insurance

This is one conversation that may help you stand out in your client’s mind. For many homeowners, flood insurance is covered under the federal NFIP program (and can cost as little as $400 per year, although the average annual policy costs $700), but for others, flood coverage may be optional.

Explain to your clients that while this optional insurance is an additional cost, it can save them from catastrophic financial loss. Each additional coverage can cost as little as $50 per year (or as much as $1,500 per year depending on where you live) but can save homeowners tens of thousands of dollars in clean-up and repair costs and can help alleviate the agony of having to replace all their personal belongings.

Remind your clients that they’ll need to consider each type of water damage coverage — sewer back-up, overland water and groundwater. If you’re working with lease tenants, also remind them of the importance of purchasing their own coverage, as their contents are not protected by their landlord’s coverage.

5. Expect premiums to continue increasing

(U.S. Air Force: 2nd Lt. Laura Balch)

At this point, many of your clients might be worried about rising insurance costs. And so they should. Even the NFIP has struggled to match premiums to payouts in the last few years. The biggest reason for this rising cost is actually due to flooding. The number of flooding incidents has rapidly increased in the last few decades and this has put a big strain on the entire insurance system (both private and federally funded).

Explain to your clients that part of the problem is ageing infrastructure. The burden of this is initially felt by insurance companies and eventually trickles down to flood insurance premiums. It’s why flood insurance premiums have risen — sometimes as dramatically as 30 percent — in the last few years.

Remind your buyers that the rising costs will be felt by all homeowners because insurance providers spread the burden of rising claim costs — claims due to bad weather and failing waste-water systems, hydro-electric systems, bridges, roads and other municipal, provincial and federal infrastructure — among all policyholders. It’s the way insurance works: The many pay for the few.

6. Expect limited coverage

Insurance companies aren’t just raising premiums. They are also limiting coverage, explains Adam Mitchell, president of Mitchell & Whale Insurance Brokers. Talk to your clients about the possibility of limited coverage.

Explain to them that this restricted coverage can include: raising premiums, raising deductibles, making it mandatory for homeowners to spend on mitigation upgrades, introducing or lowering policy limits, or just simply choosing not to renew a homeowner’s insurance policy, forcing homeowners to find coverage elsewhere.

7. Look for upgrade rebates

Thankfully, you don’t have to end your conversation on a bad note! You can help your clients find ways to prevent or limit restricted coverage by making upgrades to the home’s systems. Better still, you can educate your clients on the possibility of rebates and financial incentives from insurance providers and the municipality.

“Most cities now realize the importance of prevention and offer rebates to homeowners who are proactive,” explains Dan Sandink, manager of resilient communities and research at the Institute of Catastrophic Loss Reduction.

8. Taking a vacation? Watch out!

This is the conversation that can take you from being a one-time agent to a trusted professional. Quite often, homebuyers are unaware of clauses that can limit their coverage. So talk to your clients about exclusions that can render their home insurance coverage null and void.

For instance, tell them about the vacancy exclusion, which is included in most insurance policies. This exclusion states that if homeowners leave their home for more than 30 consecutive days, the home insurance coverage is no longer valid and any loss resulting from an insurable event will not be covered. For some policies, the exclusion can start in as little as four days!

If your clients are retirees who travel a lot or buyers who want to purchase a home with a mortgage helper, they should be particularly mindful of the vacant property exclusion. Here’s the good news: You can offer them a solution. For most insurance providers, all homeowners have to do is document that a reliable person either lived in the home during the “vacant” period or visited the property every three to seven days. The time-frame is different for each insurance provider, but the information can prompt your clients to ask the right questions so they can protect their largest investment. 

9. Add separate coverage for high-value items, if you can

The maximum coverage amount homeowners can insure under NFIP is $250,000 for the structure of the home and another $100,000 for contents (which includes personal goods, along with appliances, such as stoves and refrigerators).

If your clients aren’t covered under NFIP, they will also have limits as to how much of the home and their personal belongings are covered, but remind them that there are also sub-limits that apply to special property, like jewelry, bicycles, computers or furs (items that are often stored in basements).

Plus, coverage will typically only cover the footprint of the home and a garage or shed; it won’t cover landscaping or hardscaping, such as pools. If your clients are concerned, prompt them to call their insurance provider. Most companies will offer additional coverage for an extra cost. For some high-value items, this additional coverage can save tens of thousands in replacement costs. 

By discussing these nine critical points with your clients, you may be able to help protect them from catastrophic financial loss. Just remind them that these discussions are meant to be only general in nature — a way to help determine what questions to ask and what additional information is required.

Romana King is an award-winning personal finance writer, a real estate expert and speaker. Romana is the current Director of Content for Zolo Realty, one of Canada’s leading online real estate websites.

9 things you need to tell your clients about flood insurance right now syndicated from Inman