SFRs & Hurricane Season 2022: A Slow Start, But Take Prep Seriously

This may have been the Atlantic hurricane season’s laziest start in 30 years, but the National Oceanic and Atmospheric Administration (NOAA) still expects above-normal activity through November 30. For SFR investors, managers, and owner-operators lulled into complacency, now would be a smart time to prepare just in case.  

If the season continues to defy projections and fizzle out, no harm, no foul—you’re ready for next year. But some converging trends could mean a stormfront is just ahead. 

On the one hand, this was just the third August in 60 years without any Atlantic hurricanes. In fact, there wasn’t a named tropical storm in August for the first time in 25 years. But with Danielle and Earl kicking off the season’s Sept-Oct prime, forecasters warn that conditions could change fast. This year also happens to mark the 30th anniversary of Hurricane Andrew, a Category 5 hurricane that obliterated 50,000 homes and damaged more than 100,000 others. As the years since have proven, far less severe storms can cause plenty of damage, too. 

Here’s why a suddenly-active season could take some SFR firms by surprise—and what they can do about it. 

SFR Nation Comes to Hurricane Country

According to Pew Research, investors bought up a quarter of all U.S. single-family homes last year, mostly for use as rentals. And many of these properties, it so happens, are in places such as Texas, Georgia, the Carolinas, and Florida. In the Sunshine State, for instance, investor purchases of single-family homes doubled in 2021.  

It’s easy to see why. The nation’s protracted housing crunch has been driving up rental revenues. So far this year, SFR rental rates are up 13.4%year-over year, according to Housing Wire. And states like Florida rival even California in rental prices. 

But as Pew points out, many of those single-family homes were bought by large investment houses, many by out-of-state investors both large and (increasingly) small. According to the Wall Street Journal, a burgeoning legion of individual, “laptop landlords” are buying homes for use as rentals—many in states they’ve never even visited.  

At any scale, those unfamiliar with the implications for home maintenance and insurance in areas vulnerable to hurricanes could be in for some tough lessons. To help avoid that, here are some key considerations to factor into weatherizing SFR investments against potential hurricane damage. 

Prepare For Higher (and Higher) Insurance Premiums

Don’t just get landlord’s insurance. Get flood insurance too. 

According to Swiss Re, a storm the size of Andrew would cost Florida $120 billion today. As the New York Times reports, over the past 42 years, an average of 7.7 weather-related events nationwide caused at least $1 billion in damage to homes, businesses, and municipalities. But from 2017 through 2021, the average was 17.8 such events per year. 

Chief among the Swiss Re’s concerns looking forward is the impact of climate change and sea level rise, which is likely to exacerbate the threat of flooding to coastal regions. Think Miami and Tampa in Florida, as well as New Orleans, Virginia Beach, VA, Wilmington, NC, and Charleston, SC. According to CoreLogic, 31 million SFR properties on the Atlantic and Gulf coasts were at moderate or greater risk of damage from hurricanes heading into the 2022 hurricane season.  

As you’ve no-doubt discovered, when it’s even available, property insurance doesn’t come cheap. And this is an especially challenging market for both homeowners and insurers. In Florida, for instance, homeowners pay an average $4,321 a year. That’s nearly 4 times the national average. And landlord policies are generally 25% higher than that. With Atlanta, Tampa Bay, St. Petersburg and other cities considering caps on rent increases, recouping the price of rising premiums could be a tall order. 

Harden SFR Properties Against Gale-Force Winds

With the cost and frequency of weather-driven disasters rising fast, the following steps can help gird your existing investments and inform your new acquisition decisions:  

Secure & Seal the Roof

Roof damage ranks among the most common forms of damage from hurricanes, since roofs are exposed to ferocious wind and pounding rain. Today, 45% of all claims are related to wind damage to a home’s roof. Another 20% of all claims comes from water damage and freezing. 

The type of roof matters. According to InsuranceJournal, roofs made of asphalt shingles can withstand wind speeds up to only 110 mph, or Category 3-force winds. Metal roofs, however, can withstand winds up to 160 mph (Category 5). But aging and degradation can affect this performance. 

With that in mind, BankRate recommends that you have your properties’ roofs inspected, and if needed: 

  • Install hurricane straps (also called truss tie-downs) to fortify against gale-force winds
  • Seal any cracks or areas that are at high risk of leaks
  • Replace any loose or missing gable braces
  • Replace, nail, or caulk loose shingles to reduce exposing surface area to rain and water damage

Indeed, for those acquiring SFR properties, understanding roof condition is paramount to making smart purchases. In a national study, CAPE found roofs rated in “poor” or “severe” condition had both an increased claim severity (19%) and frequency (25%), resulting in an average premium 48% higher than roofs rated in “excellent” or “good” condition. And our analysis of past hurricanes finds after being hit by a storm, roofs rated poor are twice as likely to turn severe and require attention than those rated “excellent.” And those rated “fair” are 25X as likely to turn severe.  

It’s also worth noting that roof condition is also a key proxy for assessing the entire structure and the associated impact on accurate valuation so central to effective investing, trading, and portfolio management. 

Shield Windows and Doors

Doors and windows are also at high risk from high winds. Here, it’s about the objects and structures that hurricane-force winds can turn into projectiles, including tree limbs and potted plants. But that’s not all. It’s also wise to:

  • Install storm shutters to protect doors and windows
  • Secure and anchor outdoor patio furniture, tool sheds, car ports and detached garages
  • Provide easy and secure storage for potted plants, BBQ grills, and un-anchored patio furniture

If left loose, any of these items can cause substantial damage to your property or other homes. Also consider investing in a generator at each property in case there are power outages. And install an emergency kit in an easily-accessed part of the home, including first aid items (bandages, antibiotic ointment, aspirin) flashlight(s), spare batteries, a crank-up mobile phone charger, as well as a fire extinguisher. 

Do Your Hurricane Homework

There are many other factors to consider when investing in SFR properties in areas prone to hurricanes. There’s the cost to repair or rebuild a damaged home at a time when dozens, hundreds, or even thousands of other property owners may be vying for the same pool of construction outfits and materials. 

According to data from CoreLogic, the aftermath of major storms can put rental income at risk even if there’s no damage to your own properties. After Hurricane Ida, for instance, delinquencies on monthly payments in some parts of Louisiana jumped 50% and remained elevated for more than six months. What’s more, home values and rental demand can crater post-storm. Destroyed economies have a way of doing that. And even while on the mend, rising home prices and rental rates can languish at 50% the rate of inflation. 

But there is serious money to be made (even remotely), so long as you’re judicious in your SFR investment decisions and portfolio management. As a growing number of SFR firms and investors are discovering, the right property condition intelligence and some proactive hurricane mitigation measures are key. 

 

To learn more about how access to instant and accurate property condition intelligence can aid your SFR valuation and management strategies, click here.