Flood insurance on a rental property, how to find info and gotcha's.
Hello BP world!
Please allow me to tap into your collective knowledge, once again.
I'm looking at buying a property. I'm doing the math to see if the deal is viable and I need to get a number for how much flood insurance is going to cost me.
I know the house is in a flood plane. I don't know which one exactly. Based on what I can find on FEMA/NFIP maps it looks like it's in "Other flood areas-Zone X" or:
"Areas of 500-year flood; areas of 100-year flood with average depths of less than 1 foot or with drainage areas less than 1 square mile; and areas protected by levees from 100-year flood."
The property was flooded about 3 years ago, during the extraordinaryly heavy rain from a stalled front in the central Arkansas area. It was a pretty rare case based on the history of the area.
The good news is the property was properly rehabbed, but has been mis-managed and the owner is looking to get out from under it.
The seller indicated the property was "grandfathered" into the old flood insurance, which was cheaper, but I inquired to my insurance agent and he said:
"Since Oct 2013 there is no more "grandfather" on flood insurance. You must procure a flood elevation certificate, approx $600, from a reg land surveyor or engineer before I can quote. The certificate will state lowest floor elevation relative to the base flood level. The higher above, the cheaper. If lower get ready to pay big bucks. Fed has cracked down since Katrina especially with these recent changes."
Can anyone shed some light, or share ideas, on how to get an estimate of the price of the flood insurance so I can verify the math, before I make a move? I'm going to attempt to request that the sellers provide this information, but I'm uncertain if they'll be willing to shell out the $600.
Additionally, any insight and thoughts would be greatly appreciated on the subject. I'm trying to educate myself on this to gain clarity on the issue.
Thank you for your time!
Call several of your favorite insurance companies, describe the property honestly and completely, and see what number they give you. Then get a few more for comparisons.
No need to call more than one company for flood insurance, unless other players have actually entered the market. AFAIK, the ONLY source of flood insurance is the federal flood insurance program. I've heard rumors some commercial companies may start offering it, but I don't think that's happening yet. Regular independent agents do sell this, though. If yours does, ask him to run the numbers with some estimated elevation. Ask him what the break points are (this doesn't go foot by foot) and look at a topo map and see if you can estimate this for the property.
For reference when I asked for a quote on my residence, which is NOT in any flood zone, the cost was about 50% of the cost of my homeowners policy. The limitations on these policies are brutal, too. Expensive and not much coverage. Its just wonderful.
I would recommend researching the Biggert Waters Act and the effect it has had on rates. We decided last year not to go through with a purchase of a house in a flood zone because of this. After speaking with various insurance agents, it became clear that no one could give us a long term idea of what we were going to end up paying for flood insurance. In addition, FEMA is reassessing many of the flood zone areas, and houses that had been on the edge of the flood zone could even be moved into them. The rates had really begun to spike here on the east coast, and I heard that congress was going to try to rectify the issue, but I'm not sure if they did.
I would just let it go. The Flood insurance will always go up every year. Only matter of time before your in the red or the expenses are not worth the effort to up keep the property. Also they are incredibly hard to sell later on. Focus on properties that do not have the anchor that is flood insurance.
Thanks for all the replies!
It's definitely been a steep learning curve!
I would steer away from anything requiring flood insurance, whether it's a personal residence or investment. The rates are ridiculous and the coverage you get is laughable. I quoted a young couple recently at the bare minimum rates they could get for a potential home and it was roughly $1,400/year for JUST the flood insurance, which ended up killing their deal because it was enough to send them over their max allowed monthly payments with PITI. How do you think FEMA is able to come in after a disaster and dish out millions of dollars in relief to communities?!?!
Thanks for all the words of advice. After doing some research on the Biggert Waters act and listening to my dad's timeless wisdom "build on the hill and fish in the river", I think I owe thanks for the bullet dodged.
Cheers.
-Sam
#3 Off Topic Contributor
- Investor
- Viera, FL
Originally posted by @Jon Holdman:
No need to call more than one company for flood insurance, unless other players have actually entered the market. AFAIK, the ONLY source of flood insurance is the federal flood insurance program.
Not exactly. Some carriers are approved on the WYO (Write Your Own) flood programs where they are allowed to sell the federal flood policy with their own name on it. The policy is the same but it is insured with a private market carrier, not the Feds.
Many commercial policies have "flood" coverage for surface water that is the result of something like rainfall and is not the result of an overflow of a nearby natural body of water. They do this by policy definition. I put "flood" in quotes because most residential policies define flood as water that hits the ground before damaging the risk - to include what commercial policies call surface water. The reason this is done is policies are allowed to liberalize their coverage to include losses that other policies would not include.