The $68 Problem: How Insurance Inflation Is Quietly Killing Your DSCR

Multifamily insurance climbed from $39 to $68 per unit per month since 2019. Here is how one line item shrinks your DSCR, your refinance proceeds, and your hold decision.

Re:InvestorHub Team · 2026-07-13 · Portfolio Strategy

Insurance is the only line item on your rental property analysis that has roughly doubled while everything around it moved a few percent. It sits above the debt service line, which means every dollar of premium increase comes straight out of net operating income, and net operating income is the number your lender divides to decide whether you qualify, how much you can borrow, and whether your refinance returns the capital you were counting on. Most investors treat insurance as a rounding error and update it once a year. It is now the single most destructive assumption in a 2026 underwrite.

Here is the number that should reframe how you model it. Multifamily insurance ran about $39 per unit per month in 2019. By 2024 it had reached roughly $68 per unit per month, an increase of more than 75 percent in five years. Rents did not rise 75 percent. Expenses in general did not rise 75 percent. One line did, and it happens to be the line that determines your DSCR.

What Is DSCR, and Why Does Insurance Move It So Much?

DSCR stands for Debt Service Coverage Ratio. It is your net operating income divided by your annual debt service, which is the principal and interest you pay the lender each year. If a property throws off $75,000 of NOI and you owe $60,000 a year in payments, your DSCR is 1.25. Lenders read that as twenty five cents of cushion for every dollar of debt payment. Most DSCR lenders require a minimum somewhere between 1.20 and 1.25, and below that floor they do not negotiate. They shrink the loan.

Net operating income, or NOI, is effective gross income minus all operating expenses, calculated before debt service. That last clause is where insurance does its damage. Taxes, management, maintenance, vacancy, and insurance all sit above the debt service line, so they reduce NOI directly. A dollar of additional premium is a dollar of lost NOI, and because DSCR is a ratio with NOI in the numerator, a small absolute increase in a small expense produces a disproportionate move in the ratio that governs your financing.

This is the mechanism investors miss. They see insurance go from $4,680 to $8,160 on a building and think of it as a $3,480 problem. It is not. It is a financing problem wearing the costume of an expense problem.

How Much Has Insurance Actually Risen?

The $39 to $68 per unit per month figure is the cleanest national benchmark, and it understates the pain in coastal and convective-storm markets where carriers have withdrawn entirely. The drivers are structural rather than cyclical, which is why waiting for the increase to reverse is not a strategy:

• Replacement cost inflation. Carriers insure the cost to rebuild, not the price you paid. Construction labor and materials repriced hard between 2020 and 2024, so the insured value of an unchanged building rose without you doing anything.
• Reinsurance repricing. The carriers who insure your carrier raised their own rates after consecutive years of catastrophe losses, and that cost passes through to the policy you sign.
• Carrier withdrawal in high-risk markets. When two national carriers exit a state, the remaining carriers face less competition and price accordingly. Some investors are pushed into surplus lines policies that cost multiples of an admitted policy.
• Deductible restructuring. Many renewals hold the premium roughly flat while moving the wind or hail deductible from a fixed dollar amount to a percentage of insured value, which quietly transfers catastrophic risk back to you.

The last point deserves emphasis because it hides from your spreadsheet entirely. A renewal that keeps your premium at last year’s number while raising your wind deductible from $5,000 to 5 percent of insured value has not spared you. On a $2,000,000 building that deductible is now $100,000. Your NOI looks unchanged and your actual risk exposure grew twentyfold.

What Does $29 Per Unit Per Month Do to a Ten-Unit Building?

Abstractions do not change behavior. Run the arithmetic on a specific building and the problem becomes concrete. Take a ten-unit property with $144,000 of gross scheduled rent, a 5 percent vacancy assumption, and $54,000 of annual operating expenses excluding insurance. Financing is $765,000 at 7.25 percent on thirty-year amortization, which is $5,219 a month, or $62,624 a year in debt service.

At 2019 insurance pricing of $39 per unit per month, the annual premium is $4,680. Effective gross income is $136,800 after vacancy. Subtract $54,000 of operating expenses and $4,680 of insurance, and NOI is $78,120. Divide by $62,624 of debt service and DSCR is 1.25. The loan clears comfortably.

At 2024 insurance pricing of $68 per unit per month, the annual premium is $8,160. Nothing else about the building changed. Same rent, same vacancy, same maintenance, same loan. NOI falls to $74,640, and DSCR falls to 1.19.

How a 0.06 Slip in DSCR Turns Into a Declined Loan

A move from 1.25 to 1.19 sounds cosmetic. It is not, because 1.20 is a cliff rather than a slope. The lender does not price a 1.19 DSCR slightly worse than a 1.20. The lender declines the loan at the requested amount and re-sizes it downward until the ratio clears the floor. An investor who modeled 1.25 and shows up with 1.19 does not get a stern phone call. They get a smaller loan, days before closing, with the shortfall due in cash.

The $3,480 of additional premium did not cost you $3,480. It cost you the deal structure. And the mechanism that produced it is not exotic. It is the ordinary result of underwriting insurance from the seller’s existing policy instead of a bindable quote written for you.

How Does a Lower DSCR Shrink Your Refinance Proceeds?

This is where the cost compounds, and it is the part almost nobody models. When you refinance, the lender does not hand you a loan based on what you owe. They size the loan so that the property’s NOI covers the new payment at their minimum DSCR. Lower NOI means a smaller loan, mechanically.

Return to the ten-unit building and assume a 1.20 DSCR floor. At the 2019 premium, NOI of $78,120 supports $65,100 of annual debt service, which at 7.25 percent over thirty years sizes to a loan of roughly $795,000. At the 2024 premium, NOI of $74,640 supports $62,200 of annual debt service, which sizes to roughly $760,000.

The premium increase was $3,480 a year. The refinance proceeds fell by roughly $35,400. Your insurance bill went up by one unit of pain and your access to capital went down by ten.

That ratio is not a coincidence of this example, it is the arithmetic of loan sizing. At 7.25 percent on thirty-year amortization with a 1.20 DSCR floor, every additional $1,000 of annual insurance premium removes roughly $10,180 from the maximum loan a lender will write. Multiply your premium increase by ten. That is the capital that stays trapped in the building.

Why Does This Hit BRRRR Investors Hardest?

BRRRR stands for Buy, Rehab, Rent, Refinance, Repeat, and the entire strategy depends on the fourth step returning your capital so you can deploy it into the fifth. The refinance is not upside. It is the engine. Any force that shrinks refinance proceeds attacks the strategy at its structural point of failure.

A BRRRR investor who underwrote the refinance eighteen months ago using the premium quoted at purchase now faces a renewal that is materially higher, on a property whose rehab increased its replacement cost and therefore its insured value. The rehab that created your equity also raised your premium, which lowered your NOI, which shrank the loan that was supposed to give you the equity back. Investors describe this as the deal “not appraising.” Frequently the appraisal was fine. The insurance line moved and the loan got sized down.

Which 2026 Expense Lines Do Investors Still Underwrite Wrong?

Insurance is the worst offender, but it travels with company. If your analysis still carries the numbers you used in 2021, these five lines are all understated:

• Insurance. Use a bindable quote for your ownership and your deductible. The seller’s premium reflects their loss history, their carrier relationship, and a policy that will not transfer to you.
• Property taxes. Many jurisdictions reassess on sale. Underwriting the seller’s assessed value on a property you are buying at a higher price is how investors discover a four-figure monthly surprise in year two.
• Capital expenditure reserves. Roofs, HVAC systems, and water heaters cost meaningfully more to replace than they did five years ago. A reserve set as a percentage of rent has not kept pace with a replacement cost set in dollars.
• Maintenance. Trade labor repriced along with construction labor. The turnover cost you budgeted at $1,500 is closer to $2,400 in most markets.
• Vacancy. Rent growth has flattened in much of the country while new supply delivered. A 5 percent vacancy assumption in a market absorbing new inventory is optimism, not underwriting.

Correct all five and many deals that looked like a 1.25 DSCR reveal themselves as a 1.10. That is not a reason to stop buying. It is a reason to buy at a price that reflects the real expense stack, which is exactly the price a seller relying on stale numbers will resist and eventually accept.

How Do You Stress-Test Insurance Before You Buy?

Insurance stress testing takes about thirty minutes and it belongs before the offer, not before the closing. Work through these five steps in order:

1. Get a bindable quote from a broker for your ownership entity, your intended deductible, and current replacement cost. Do not use the seller’s premium and do not use a percentage of purchase price.
2. Recompute NOI with the quoted premium substituted for the seller’s. Insurance sits above the debt service line, so the reduction flows dollar for dollar into NOI.
3. Divide the corrected NOI by your annual debt service to get true DSCR. Compare it against your lender’s floor, not against the number in the listing package.
4. Multiply the premium increase by ten to estimate the refinance proceeds you have lost. If your exit or your BRRRR depends on that capital, the deal has changed materially.
5. Re-run everything with the premium 25 percent higher than today’s quote. Five years of history says the increase is not finished. A deal that survives that test has margin. A deal that fails it was relying on the one expense line that has proven it will move against you.

Does Raising Your Deductible Actually Help?

It helps more than almost any other lever available to you, and the reason is the same arithmetic that made the problem so severe. Because DSCR and loan sizing are both driven by NOI, a modest premium reduction produces an outsized improvement in your financing. The lever works in reverse.

Return to the ten-unit building carrying the $8,160 premium and a DSCR of 1.19, below the lender’s 1.20 floor. Suppose you raise your deductible and the carrier reduces the premium by 12 percent, saving $979 a year. NOI rises to $75,619 and DSCR moves to 1.21. That single change carries the loan back across the floor. It also restores nearly $9,968 of refinance proceeds, because the $1,000-to-$10,000 relationship runs in both directions.

The tradeoff is real and you must fund it. A higher deductible transfers the first layer of loss from the carrier to you, so the strategy only works if you hold the deductible in reserve rather than spending the premium savings. Raising your deductible from $5,000 to $25,000 without setting aside $25,000 is not risk management. It is an uninsured position with better cash flow, and it ends badly the first time a storm arrives.

Two other levers deserve a call. Shop the policy every year instead of accepting the renewal, because carriers price new business more aggressively than renewals and the difference is frequently double digits. And document every roof, wiring, plumbing, and system update you have made, because underwriters discount what you can prove and assume the worst about what you cannot.

When Does Rising Insurance Turn a Hold Into a Sell?

Sometimes the honest answer is that the property no longer works. The signal is not a single expensive renewal. It is a premium trajectory that outruns your ability to raise rent, in a market where you do not control the driver. If your premium has risen three consecutive years at double-digit rates while market rent moved two percent, you own an asset whose cash flow is being transferred to a carrier, and no amount of operational discipline reverses that.

Three conditions together justify a sale rather than a grind. First, premium growth structurally exceeds rent growth in your submarket, typically because of catastrophe exposure that will not improve. Second, your DSCR has compressed to the point where a refinance would return less capital than you have trapped, removing your escape route. Third, replacing the roof or hardening the building would cost more than the premium relief it buys. When all three hold, the property is not a hold with a problem. It is a sale with a story you have not accepted yet.

Absent all three, the answer is usually to fix the underwriting rather than the portfolio. Raise your deductible deliberately and self-insure the gap with reserves. Shop the policy annually rather than accepting the renewal. Bundle properties under one carrier for scale pricing. Document roof age, wiring, and plumbing updates, because carriers price what you can prove.

What Should You Do This Week?

You do not need to restructure your portfolio. You need to stop letting one line item underwrite itself:

1. Pull the current premium on every property you own and compare it against the number in the analysis you used to buy it. The gap is your unmodeled NOI loss.
2. Recompute DSCR on each property with today’s premium. Flag anything under 1.25, because that is the buffer that a single renewal erases.
3. For every flagged property, multiply the premium increase by ten. That is the refinance capital you no longer have access to, and it is likely the number that changes a plan.
4. On the next deal you underwrite, get the bindable quote before you write the offer, and price the offer around the real premium rather than discovering it in due diligence.

The investors who get hurt over the next two years will not be the ones who paid too much for a property. They will be the ones who paid the right price using an expense stack from 2021. Insurance moved 75 percent while everyone was watching interest rates. Underwrite the line that actually moved, and the rest of the analysis becomes trustworthy again.