If you thought El Niño was bad, it just got supersized, and the resulting extreme weather patterns could wreak havoc for investors who own or plan to own property in the eight states in its path.
Super El Niño Blasts Into an Insurance Market Already Under Strain
According to meteorologists, El Niño—the complex weather pattern stemming from warming waters in the Pacific Ocean—could redouble in force this year, increasing the odds of extreme weather such as storms, flooding, and hurricanes across the Sunbelt in some of the most coveted new developments and investment property locations in the U.S.
Newsweek reports that insurance costs could increase dramatically in anticipation of the arrival of Super El Niño, decimating cash flow in states including:
- Alabama
- Arizona
- Southern California
- Florida
- Louisiana
- Mississippi
- New Mexico
- Texas
Insurance Rates Have Increased 46% in Five Years
Super El Niño couldn’t come at a worse time for homeowners and investors, who have seen insurance costs escalate precipitously in recent years.
The Los Angeles Times, using data from Insurify, an online insurance comparison site, reports that average U.S. homeowner’s insurance premiums are projected to rise another 4% in 2026 to about $3,057 after increasing 12% in 2025 and a massive 46% since 2021, with extreme weather and rebuilding costs cited as key drivers.
Home insurance prices, the Times reported, were outpacing both inflation and income growth. This means for investors, cap rates and cash flow have been wrecked.
Flood insurance, which averages around $1,100 nationwide through the federally backed National Flood Insurance Program (NFIP) administered by FEMA, rising to over $2,000 in high-risk areas, is usually purchased separately. However, it is hit or miss because weather patterns remain unpredictable.
Natalie Lord, a principal climate scientist for global flood risk intelligence provider Fathom, told Newsweek:
“It’s hard to tell exactly where the highest risk is going to be until it actually happens. But I think that probably does mean whilst insurance premiums in general have been increasing, the markets in those states are likely to see greater than the country average increases in premiums to try to counteract some of those losses [from El Niño]. The issue will be not all of those states are likely to see extreme losses.”
The Cost to Investors in High-Risk Areas
The impact is clearly visible in recent data. Newsweek reports that Arizona saw the steepest homeowner’s insurance cost increase in the country, with average premiums up 94% between 2021 and 2025, while Florida, Texas, and Louisiana also saw steep increases due to severe weather losses and reconstruction costs.
For homeowners looking to trade the icy North for the balmy Sunbelt and lower their cost of living, Fidelity Investments calculated that the sunnier outlook doesn’t extend to the overall cost of living, which is evened out for property owners by insurance costs.
Citing Bankrate data, Florida was the worst of all Sunbelt states, with a combined annual outlay for homeowners (based on a $300,000 home) and car insurance totaling a hefty $9,550.
For investors looking to flip homes, the Rust Belt eclipses the Sunbelt, which has been hit hard by the “affordability economy,” with insurance costs no doubt playing their part. According to Fortune, U.S. housing is experiencing a historic “reversion to the mean.” Or to put it more plainly: “The formerly sizzling metros have gone cold, and the unsexy plodders are back in vogue.”
According to a report from First Street, a climate-risk research firm, rising premiums, insurance deserts, and buyers skirting high-risk areas will drive a $1.47 trillion decline in home values by 2055.
Picking Investments With Insurance in Mind Is an Increasingly Nuanced Process
Picking areas to invest in while accounting for insurance costs is increasingly difficult, as wild weather patterns upend the underwriting business. The New York Times reported last year that insurance now accounts for more than 20% of home insurance premium increases since 2017.
A Basic Cash Flow Calculation With Today’s Insurance Rates
Bankrate’s 2026 ranking finds that Louisiana homeowners pay an average of $6,274 per year. That amounts to $523 a month, the highest state average in the country.
For a simple back-of-the-envelope cash flow calculation on a $300,000 property, this equates to:
- Monthly rent: $2,200 (from tenant)
- Other operating expenses (repairs, management, etc.): $400
- Mortgage payment (principal and interest): $1,000
- Property taxes: $400
- Homeowner’s insurance: $600 (about $7,200 per year, slightly above the $6,274 statewide average but well within the range for Orleans Parish)
- Total housing cost (mortgage, taxes, insurance): $2,000
- The insurance share of the housing cost: $600 ÷ $2,000 = 30%
So, in simple cash flow terms:
- Gross rent: $2,200
- Operating expenses (not counting mortgage, tax, and insurance): $400
- Net before mortgage, tax, and insurance: $1,800
- Subtract mortgage ($1,000), tax ($400), and insurance ($600): $2,000
- Cash flow after all housing costs: $2,200 – $400 – $1,000 – $400 – $600 = $200
In any other market, a mortgage payment of $1,000 and incoming rent of $2,200 would scream “deal!”—assuming the neighborhood was halfway decent. However, to make only $200 in monthly cash flow, which could easily be wiped out by an unexpected repair not factored into the monthly expenses, is a marginal deal at best.
Should insurance climb above $600/month, which is highly likely given anticipated cost increases, it will further erode the economics of ownership and investment.
If you want to calculate these numbers for a deal you’re working on or for one of your own properties, check out BiggerPockets’ Investment Calculators and get an accurate report in minutes.
Final Thoughts
The usual cash flow metrics these days are being upended by rising costs across the board—including purchase prices, interest rates, and, notably, insurance. What’s often not factored into these cash flow equations is the financial stress tenants face amid the affordability crisis.
With deals increasingly hanging by a thread, a missed rental payment or two is increasingly likely and could tip a deal into negative cash flow in a heartbeat.
For investors, earning the most money from the fewest doors has to be the safest path, simply because it mitigates risk. Yes, appreciation and leverage are great concepts in theory, but not in today’s market unless you have a lot of cash to absorb potential losses.
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