218: These “Subtle Risks” Could Have Astronomical Impacts on Real Estate Expenses w/John Sheffield

On The Market

BiggerPockets

News, Investing, Business, Education

4.8 • 820 Ratings

🗓️ 20 May 2024

⏱️ 36 minutes

🔗️ Recording | iTunes | RSS

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Summary

Owning real estate could get expensive—yes, even more expensive than it already is today. Insurance prices, property taxes, maintenance costs, and more are going through the roof, and there isn’t much stopping these costs from jumping even more. What’s accelerating the rise in these upkeep costs? Hotter summers, colder winters, and more natural disasters. Growing climate risk is making real estate deals harder and harder to pencil, and even some safer areas to invest are seeing sizable pricing upticks. John Sheffield from ICE brings us the latest data on the financial impacts of climate risk in this episode. When we say “climate risk,” we know what you’re thinking: hurricanes, tornadoes, and wildfires. But that doesn’t even scratch the surface of what’s causing real estate expenses to jump. Areas of the US with once-cool summers are now experiencing record-breaking heat, increasing hail damage is denting roofs and breaking windows, and flooding has become the norm. These subtle climate effects have huge implications for your bottom line. So, what should you do to secure the profit you’re looking for on your next property? John hits on the expenses that are rising the most, the areas where home upkeep costs could almost mirror monthly mortgage payments, and what investors must do when underwriting their next deal to account for this massive jump in expenses. In This Episode We Cover The actual cost of climate risk and the expenses that are seeing the most significant pricing surges Why even areas without hurricanes, fires, or tornadoes are still at significant risk Property tax problems and underfunded local governments that could quickly raise taxes Insurance underpricing that could lead to even more expensive home protection Areas where home prices could drop as a result of inflated home expenses Where to find and track climate data so you know where (and where not) to invest And So Much More! Links from the Show Find an Agent Find a Lender BiggerPockets Forums BiggerPockets Agent BiggerPockets Bootcamps Join BiggerPockets for FREE On The Market Join the Future of Real Estate Investing with Fundrise Connect with Other Investors in the “On The Market” Forums Subscribe to The “On The Market” YouTube Channel Dave's BiggerPockets Profile Dave's Instagram Property Manager Finder BiggerPockets Real Estate 951 - BiggerNews: Why Low Mortgage Rates Can’t Solve Our Affordability Crisis BiggerPockets Real Estate 895 - BiggerNews: How Climate is Exploding Insurance, Building, and Investing Costs Growing Home Insurance Costs Will Destroy Your Cash Flow—Here’s What You Can Do About It Jump to topic: (00:00) Intro (01:31) Costly Climate Risk (07:56) A Huge Insurance Problem (14:31) Property Taxes and Utility Costs (20:38) Maintenance Inflation (22:54) What Investors Must Do (25:22) Prices Could Drop Here (30:08) Where to Find Climate Data Check out more resources from this show on BiggerPockets.com and https://www.biggerpockets.com/blog/on-the-market-218 Interested in learning more about today’s sponsors or becoming a BiggerPockets partner yourself? Email [email protected]. Learn more about your ad choices. Visit megaphone.fm/adchoices

Transcript

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0:00.0	Inflation is driving up costs and expenses across the entire economy.
0:04.6	We all know this.
0:06.3	But certain expenses for real estate investors seem to be growing way faster than everything else, like insurance.
0:12.5	We've heard that in certain states, insurance has doubled in just the last year, or property taxes, or repair costs.
0:20.3	Is inflation the only culprit here or is there something else
0:24.0	driving up costs for real estate investors? Today, we'll explore an overlooked factor driving up
0:30.0	expenses across the entire industry.
0:54.7	Hi, everyone, and welcome to the on-the- Market podcast. I'm your host, Dave Meyer. And today we're talking to John Sheffield, who is the senior director in the Data and Innovation Impact Group at ICE. In previous episodes, you may have heard us talk about housing market conditions with his colleague, Andy Walden.
1:00.0	And today we're talking about climate risk and the additional costs investors could take on as a result. We're going to cover increases in insurance premiums, property taxes, utilities, and CAPX.
1:06.8	And this is a super important episode because John really understands real estate investing and understands climate risk.
1:15.1	He really puts it in easy to understand dollars and cents terms how to think about climate risk and how it might impact what investing decisions you make in the future.
1:25.5	So let's break on John.
1:31.6	Yeah. decisions you make in the future. So let's bring on John. John, welcome to On the Market. Thanks for joining us today. Thank you. So to start our
1:36.7	conversations, there are some investors who I speak to who don't look at climate data and think
1:43.7	of it when they're underwriting their properties or trying to
1:46.9	figure out if a market is a good one for them. So can you just talk to us at the high level about
1:52.2	what climate risk is in the context of real estate? Yeah, that's a great question. I think I'm
1:58.2	going to give you a little bit of a spin on this answer
2:01.9	that may not be something you hear all the time. So when people talk about climate risk,
2:06.3	they often think about hurricanes, floods, wildfires, big, storms, discrete events that are
2:14.4	going to impact your property, cause losses, insurance claims, et cetera.
2:19.6	We like to frame climate risk a little bit more holistically than that.
	...

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