6 Valuable Lessons from the Florida Real Estate Nightmare

To our Floridian readers out there, fair warning: we’re about to pick on your state a little.

This isn’t to say real estate investors can’t, don’t, or won’t succeed in Florida. However, if you’re approaching real estate investment as we do – focusing on long-term wealth-building, slow and steady growth, and reliability – the odds aren’t in your favor in the Sunshine State.

Florida is far from the only U.S. state with real estate market woes. However, there are some clear, undeniable lessons to be learned here.

6 Lessons from Florida Real Estate for Investors

Lesson #1 – Your investment market choice matters.

We really want to hammer in this first lesson: where you invest matters. The U.S. real estate market isn’t a monolith. While national trends provide a valuable snapshot of the state of things overall, individual markets vary wildly. The problems and potential benefits of the Florida market aren’t the same as in Nashville, San Antonio, or New York City.

Investors, your diligence and understanding of your investment markets are unbelievably important. Research before you invest and stay up-to-date as long as you remain in that market.

Lesson #2 – Additional fees are nothing to sneeze at.

First-time homebuyers are often surprised when they pay more for their home than expected. The asking price isn’t the only payment you’ll make. Property taxes, insurance costs, utilities, and maintenance work are all part of the equation. These ongoing fees differ between markets, too! For example, Florida requires homes in “high-risk” flood zones to get flood insurance. Depending on risk exposure, that could mean hundreds, even thousands, of dollars’ difference in yearly premiums.

Lesson #3 – Environmental factors are a real risk.

It should be no surprise that Florida faces hurricanes more than any other state. Since 1851, Florida has been hit by 121 hurricanes. 38 of those storms were rated Category 3 or higher. Hurricane season lasts five months. So not only are you likely to pay some hefty insurance premiums, but you’ll likely make some claims, too. Oh, and flood insurance doesn’t cover storm surges without additional policies or riders.

Further Reading: Why Does a Property’s Location Matter SO Much?

Lesson #4 – The wrong market hurts your liquidity.

The topic of this post came about because of this article from Newsweek. In June 2024, 56,000 home-purchase agreements were canceled. That’s 14.9% of all homes under contract in the state – the highest percentage on record.

Yikes.

Unbudging mortgage rates and increasing property prices leave homebuyers searching for the tiniest reasons to back out. We can’t say we blame them, given everything at play. An unaffordable market may hurt your liquidity. Real estate is already relatively illiquid in that it takes time to turn equity into cold hard cash. Unaffordable markets mean – regardless of property appreciation – you may simply be unable to sell a property when needed. When basic exit strategies are challenging to execute, your risk increases.

Lesson #5 – Rapid appreciation is a double-edged sword.

Right now, median home prices in Florida are upwards of $440,000. That’s higher than the pandemic peak. At first glance, investors may be tempted to see this rapid appreciation as a good thing. After all, if you already own properties there, you stand to make a nice profit. However, rapid appreciation is not stable appreciation. Recent reports show that of the top 15 markets facing a price correction, 13 are in Florida. Very likely, what homes are selling for is not what they’re worth.

The potential for a severe price correction on top of the previously mentioned point definitely increases your risk exposure.

Lesson #6 – Market incentives aren’t always enough

One of the reasons Florida is often cited as a good investment market is the lack of state income tax. And, to be fair, that’s attractive to investors. However, markets must be examined from all angles, weighing pros and cons. On the one hand, people can talk about the tax benefits, the popularity among retirees, and the destination status of the state. These things all benefit investors of different stripes. However, we also need to talk about the 20 varieties of termites, the flood and hurricane risks, the shockingly high insurance premiums, the hyperinflation, and the need for sinkhole coverage. (That’s right – Florida has the highest instances of sinkholes in the United States.)

When investigating any investment market, we must consider both pros and cons.

Ready to invest but worried about risk? Let your REI Nation advisor help!