Buying properties in FEMA flood zone
Real Estate Investor · Denver, CO · Member since 2014 · 4 posts · 0 votes
Buying properties in FEMA flood zone
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Real Estate Investor · Panama City, FL · Member since 2012 · 265 posts · 58 votes
12yI am a certified flood adjuster. End of last year the rates were in unsubsidized. Any policies written after middle of 2012 will require a elevation certificate. AND the rates will go up each year for the next 5 years to off set the rising cost of floods. The department of defense is the agency overseeing the nfip, nfip allows carriers to write policies for the nfip. There is no such thing as shopping around. All the prices are set solely by the nfip and are the same no matter what carrier you chose to go with. I strongly suggest you run away from any property that it's required on until this rate hike has come full term. If anybody has any questions I will be glad to try and help.
I fully believe this is a unforeseen home value crusher on the coast. I feel houses on the coast are about to be affordable to anybody that can afford 10k plus a year insurance.
44 Replies
- Investor · Charleston, SC · Member since 2014 · 92 posts · 43 votes12y
Ahh,
Just getting use to buying properties in flood zones and dealing with all the codes and regulations. It is not as bad as everyone makes it sound, but it is an extra step in the process. We assumed someone else's flood insurance when we bought are last PR and thought since it was grandfathered in it was a good flood insurance plan and probable the cheapest we could find($1500 per year). After realizing that this was a huge$122.00 dollar extra payment every month i started to look into it more. Dealing with insurance underwriters i started to learn exactly what they wanted to make the property look better in the insurance or agencies eyes. So the main thing they want here in Charleston is proof that there are flood vents in all lower elevations. For that it meant giving them pictures of the flood vents in the crawl space and adding a couple of $125 flood vents in the garage. This simple process did not cost us much but saved us around $1000 dollars per year on insurance. So yes it is an extra step, but just like anything else once you learn the step, it is just another step in the process.
- Rental Property Investor · State College, PA · Member since 2013 · 287 posts · 99 votes12y
I own a duplex in a FEMA flood zone. The only caution I would give is that the insurance can be difficult. My original plan was canceled and I'm being requested to get a FEMA Elevation Survey ($1,000) and then my insurance will be redetermined (costs probably going up). My plan is to pay off the mortgage as quickly as possible, then self-insure the property.
I don't plan to purchase any additional properties in flood zones, unless I can pay in full in cash (and it's still worth it).
- Real Estate Investor · Panama City, FL · Member since 2012 · 265 posts · 58 votes12y
I am a certified flood adjuster. End of last year the rates were in unsubsidized. Any policies written after middle of 2012 will require a elevation certificate. AND the rates will go up each year for the next 5 years to off set the rising cost of floods. The department of defense is the agency overseeing the nfip, nfip allows carriers to write policies for the nfip. There is no such thing as shopping around. All the prices are set solely by the nfip and are the same no matter what carrier you chose to go with. I strongly suggest you run away from any property that it's required on until this rate hike has come full term. If anybody has any questions I will be glad to try and help.
I fully believe this is a unforeseen home value crusher on the coast. I feel houses on the coast are about to be affordable to anybody that can afford 10k plus a year insurance.
- Real Estate Investor · Panama City, FL · Member since 2012 · 265 posts · 58 votes12y
I can also point you to a web site to be able to pull your own mapettes (flood maps) per address. If interested.
- Real Estate Investor · Denver, CO · Member since 2014 · 4 posts · 0 votes12y
Thanks everyone. Thats great insight into "flood" properties. I talked to my insurance agent and they mentioned that the property is in the flood zone classification X which means had at most one flooding in the last 10 years.
He quoted me the annual premium of $460 for flood insurance which seems to be way under of some of the numbers I see here. He said the classification makes big difference but I would have to verify his numbers just to be sure.
Bobby, would appreciate if you can send the link.
thanks
- Real Estate Investor · Panama City, FL · Member since 2012 · 265 posts · 58 votes12y
@Leonid Solomonik msc.fema.gov
Flood zone x is the lesser of the evils. However things can change that. I bought a house about 14 months ago in flood zone x for 300ish a year. The renewal came at 1400ish. They are requiring a elevation certificate that runs over 1000.00 but either way the premium is going up and will each year for the next 5 years. Don't get stuck in a house that the insurance sky rockets on you. I am going to pay this house off so I won't have to carry the insurance.
- Real Estate Investor · Boston, MA · Member since 2013 · 108 posts · 71 votes12y
Couple things I'd note. First, shop your elevation cert's. Everything seems to be more expensive in Boston, but I can get an elevation cert for $500. I've used the same civil engineer for a bunch of stuff, so he's probably giving me a good deal, but not half off!
Second, the point is really well made about financing and self insurance. If you need a bank loan, you have to carry the insurance. I have a deal under agreement where part of the back yard is in flood zone AE. Estimated annual cost of flood insurance is $4,500. Ouch. If I finance with a bank, they will definitely make me carry flood insurance, even though I can mitigate the risk in other ways.
If I end up holding the deal long term, I will try to find a private lender who is willing to accept the mitigation (landscaping, retaining walls, exterior French drain, potentially hold an escrow, etc) as opposed to throwing that kind of money away every year on an insurance policy.
- Real Estate Investor · Panama City, FL · Member since 2012 · 265 posts · 58 votes12y
@Tom Meade I live in the middle of no where and as far as I know (lack of research) the survey company here is the only one. I want to say they quoted me 1200. Said the office ppw has gotten intense now and it takes them several hours to write the EC.....
Also unless I'm misunderstanding your last statement, the nfip insurance doesn't cover anything that isn't under the enclosed walls of the house and garage. No landscaping, erosion or anything. During hurricane sandy they wouldn't pay for sand removal unless it was inside the home. I seen yards 4 foot deep. Not covered. It's a very limited policy. If the structure itself isn't in the flood zone it shouldn't need the coverage. Check out the msc.fema.gov site and use the magnifying glass to be sure.
- Real Estate Investor · Panama City, FL · Member since 2012 · 265 posts · 58 votes12y
also as you know I'm sure AE is considered high risk. What year was the house built? That makes a big differance too.
- Real Estate Investor · Boston, MA · Member since 2013 · 108 posts · 71 votes12y
@Bobby Beard , yes I realized after I posted that this might be one area where living in Boston may actually give me an advantage on the price of something. Survey work is much more straightforward up here, plenty of locus points (is that the right term?) and recorded land plans etc for civil engineers to work with.
Thanks for the heads up on locating the actual structure in relation to the flood zone...I'm still in due diligence on this deal, the closing is keeps getting pushed for other reasons, so I haven't sharpened my pencil on all the numbers, insurance etc. I'll need to do some more research for sure. I looked pretty closely at the maps, and don't think the structure is in the flood zone - there's a brook that runs through the backyard in a culvert underground - and I didn't realize that if my structure isn't actually in the flood zone I may not need to carry it... Thanks again!
- Real Estate Investor · Boston, MA · Member since 2013 · 108 posts · 71 votes12y
house was built in 1840 (yes, like 174 years ago) but I'm doing a gut rehab. I just looked and its really tough to tell, but it looks like the back corner of the house in in the flood zone. The map is marked - "1% annual chance flood discharge contained in culvert"
do you know what that means? I bet that's why my quote was "only" $4500 and not the crazy $10k plus that you hear about in the coastal areas around here.
- Real Estate Investor · Panama City, FL · Member since 2012 · 265 posts · 58 votes12y
@Tom Meade houses built before flood mapping 1974 everything is basically covered no matter how the house is built (pre-FIRM) therefore increasing cost of coverage I would believe. After 1974 or what ever date the community adopted the flood regulations (post-firm) has to be built to certain elevations and other criteria leaving me to believe better built and lower premiums.
The 1% thing is in relation to how they determine a flood zone rating. X is something like .02 chance annual and AE is 1% and so on.
- Real Estate Investor · Panama City, FL · Member since 2012 · 265 posts · 58 votes12y
1840!!! Sounds like a cool house!!!!
Has it flooded before? Nfip should be able to tell you that prior to purchase. I would try to call them and ask about any priors. If you find out it's flooded 10 times since 1980 that's may change your plans!
- Charleston, SC · Member since 2013 · 380 posts · 157 votes12y
I haven't checked the prices on elevation certs but I don't think they're $1,000 around here for most houses. Is your duplex a complicated property to get a certificate for?
There are other possibilities for Flood as well. Lloyds Of London is moving into the SC market for Flood ins and reports are that others will follow.
http://nl.newsbank.com/nl-search/we/Archives?p_action=doc&p_docid=14BE2100C5CA50A8&p_docnum=2
I have heard of some nightmare quotes for some properties though.
What gets me is how the mortgage co can insist you carry full flood coverage even though the mortgage might only be a small percent of the home value. My experience: I bought a suburban Charleston house in '90 when it was rated as in a B zone which doesn't require flood ins. Fema maps were redrawn and the house was placed in an A zone so I had to carry flood ins for ~$300/yr. Then the grandfathered subsidy went away and the rate went up to $1550/yr. I only owed $19,000 on the house at that point so I told Wells Fargo that I wanted to drop the flood coverage to $30,000. They wouldn't allow it. Even though they only had $19,000 possible risk, they insisted I carry $187,000 coverage. Doesn't seem right that I could essentially be forced to buy coverage that I don't want.
It's a 1983 house and has never flooded including during Hugo. I figure there might be rising flood waters one day that would damage floor coverings, sheetrock, cabinets but it's extremely unlikely the house would be a total loss. I ended up pulling $ from my equity line and paying the loan off and changing the flood coverage to $30,000 which now cost me $300/yr.
Flood insurance is big news here in Charleston.
- Investor · Hendersonville, NC · Member since 2013 · 754 posts · 281 votes12y
@Anthony Conwaywho are you using that offered a 2/3 discount for providing proof of vents in the crawlspace and garage? Considering that my downtown property has a quote of $1,500 for flood insurance, I might should consider your broker or underwriter. Between that and the $2,000 quote I got for $200k in replacement value and $300k in liability I am feeling fairly deflated about the prospects of this house. Oh, and $5,000 in property tax.
And I will ask my current broker about Lloyd's.
Overall, I'm going to probably hold a property that I was previously thinking of selling following a rehab. We are right above the flood plain or whatever it's called. So that's a positive for now, since now many (or most?) of the properties on the peninsula of Charleston are not above that plain. My only hope would be that the levels aren't redrawn or if they are, that I don't get caught in that net of very high premiums (perhaps some version of Biggert Waters will save me).
I would be interested in opinions, especially from Tony and @John Semanchuk about whether it would be wise to keep a property on Sumter St (at Rutledge) as planned, or to try to avoid that $5,000 or $10,000 premium in the future if new flood maps are redrawn that snags me (and therfore, probably, 80% of the houses from Sullivan's to John's Island and definitely on the peninsula. Overall, my goal is to have a good return on my money by keeping a house that I have made some instant equity in from the rehab, but I don't want to see my cash flow drop from $300 a month to negative $300 a month just due to a big corporation like Lloyd's, the Federal government, or global warming. Advice? Is is probably likely safe to bet on the Sumter St. house long-term, or foolish? There is always Summerville, or alternatively, consecutive flipping where the hold period is mere months.
- Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes12y
I haven't kept up with this, use to be if the improvements were 1' or more above the flood elevation the insurance wasn't required, is that still in effect?
I use to get flood certs as an area on a map doesn't show small knolls or hills in this area, often the homes weren't "in" the flood plain but were in the area. :)
- Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes12y
Wasn't this talked about before a few months ago that instead of FEMA insurance you could get cheaper through private insurance companies??
I remember something about FEMA flood was just a few hundred bucks and then it shot into the thousands almost overnight. Now the private insurance carriers offering flood coverage at 1,500 before were seen as godsends compared to the new FEMA rates.
Could be wrong but I thought we had a topic about this that you could buy private insurance and save now.
This FEMA thing is doing the same thing FHA loans are doing. They are back ending fees with a ton of hikes to offset past losses to try and make the balance sheet better.
- Investor · Hendersonville, NC · Member since 2013 · 754 posts · 281 votes12y
Yah @Liam Goble and @Bobby Beard there is definitely something I would seek to understand better and you two seem like you have that knowledge.
One thing that struck me was, since the property is currently owned by cash (I *was* thinking of doing a cash out refi though), perhaps I could save a minimum of $20,000 over the next decade by dropping flood insurance? What exactly is self-insuring? Is that basically just saving money monthly for repairs in case of flood?
That might be a winner (and @John Semanchuk feel free to chime in here as a contractor) because I have piers/foundation that has been in functional operation since 1875 when it was built (it's a "Freedman's Cottage") and though they needed repointing very badly when I got the place, they are now repointed successfully (so I believe). Then, to that existing 950'sq. the GC added about 550'sq. and that was new concrete footer + concrete block. Apparently you have to have a certain robustness to your builds around here due to hurricanes, earthquakes, and salt air, so I am thinking the foundation is probably fine. We sit at 13" - though I confess I forget what that refers to. I do know our elevation certificate found us to be at +1" above the flood plain. The crawlspace is very open (mostly lattice and piers) and Sumter doesn't really flood much at all (and they are about to complete that fairly serious underground floodwater channel or whatever it's called, reducing flooding in much of the peninsula and rapidly increasing the de-flooding of the peninsula in case of a major flood secondary to a hurricane or tsunami I would imagine). So I guess this is a lot of info, but I'm thinking perhaps with a raised building and a decent elevation I might could just have fire/earthquake/wind/hail/liability coverage for $2,000 (or hopefully less when I shop it around) and save the $1,500 a year on that flood rate. Can anyone in their right mind do such a thing (i.e., take such a risk) or is that stupid? I think that if there is a 1% chance of flooding per year and I sock away $10,000 a year in reserve funds, that is responsible, because my hunch is it would just be replacing subflooring and flooring and generally dehumidifying rather than something much more catastropic, and I still should ideally have wind and hail coverage via my other policy. On the other hand, apparently I couldn't cash out refi if I did such a thing.
- Investor · Charleston, SC · Member since 2014 · 92 posts · 43 votes12y
@Jason Merchey as of this week i just called to make sure there was a check written out of escrow to Progressive home insurance for FEMA flood insurance for 533.00 per year. I think as long as the property is cash flow positive with flood insurance then buy and hold is fine. I personally think in Charleston just banking on appreciation in the next 5-10 years we should be safe. There is so much growth coming to this city in the next 20 years the main thing that scares me is the city infrastructure not being able to handle it. But i know it is frowned upon to base a deal on appreciation, so i have been saying as long as it cash flows with different exit strategies then hold on for the ride.
- Charleston, SC · Member since 2013 · 380 posts · 157 votes12y
Originally posted by @Jason Merchey:
Yah @Liam Goble and @Bobby Beard there is definitely something I would seek to understand better and you two seem like you have that knowledge.
One thing that struck me was, since the property is currently owned by cash (I *was* thinking of doing a cash out refi though), perhaps I could save a minimum of $20,000 over the next decade by dropping flood insurance? What exactly is self-insuring? Is that basically just saving money monthly for repairs in case of flood?
That might be a winner (and @John Semanchuk feel free to chime in here as a contractor) because I have piers/foundation that has been in functional operation since 1875 when it was built (it's a "Freedman's Cottage") and though they needed repointing very badly when I got the place, they are now repointed successfully (so I believe). Then, to that existing 950'sq. the GC added about 550'sq. and that was new concrete footer + concrete block. Apparently you have to have a certain robustness to your builds around here due to hurricanes, earthquakes, and salt air, so I am thinking the foundation is probably fine. We sit at 13" - though I confess I forget what that refers to. I do know our elevation certificate found us to be at +1" above the flood plain. The crawlspace is very open (mostly lattice and piers) and Sumter doesn't really flood much at all (and they are about to complete that fairly serious underground floodwater channel or whatever it's called, reducing flooding in much of the peninsula and rapidly increasing the de-flooding of the peninsula in case of a major flood secondary to a hurricane or tsunami I would imagine). So I guess this is a lot of info, but I'm thinking perhaps with a raised building and a decent elevation I might could just have fire/earthquake/wind/hail/liability coverage for $2,000 (or hopefully less when I shop it around) and save the $1,500 a year on that flood rate. Can anyone in their right mind do such a thing (i.e., take such a risk) or is that stupid? I think that if there is a 1% chance of flooding per year and I sock away $10,000 a year in reserve funds, that is responsible, because my hunch is it would just be replacing subflooring and flooring and generally dehumidifying rather than something much more catastropic, and I still should ideally have wind and hail coverage via my other policy. On the other hand, apparently I couldn't cash out refi if I did such a thing.
Jason, If they've been just re-done, then your piers are probably adequate.
I do have a number of clients who choose to forgo flood insurance. One of those owns a multimillion $ place on Bull St, one on front beach on Folly Beach, one on a tidal creek on James Island and something on Edisto Island that I've never seen. She doesn't carry flood ins on any of them and points out that they've mostly been here longer than she's been alive. (50+ years)
I can't recommend that approach but some people find it acceptable. (do you feel lucky today?) What you might think of since you don't have a mortgage is what I did (as outlined above) and just carry a policy with much lower coverage. Figure out what kind of damages you might *most likely* expect with rising waters and just carry enough to cover that. It might be the way to go if it makes the difference between cash flow + or not. I think that would stop any chance of a cash out re-fi thru conventional financing though. (I'm not sure if that's true, check with mortage people)
I think your choice of area is a good one. Barring any Black Swans, that area should appreciate nicely in the coming years. As long as you have + cash flow and don't have a better use for the cash, I'd hold. It does involve taking on risk though.
I'm guessing your 1875 place isn't elevated all that much. What the flood is based on for each individual property is called the Base Flood Elevation or BFE. If your property is in an AE13 zone for instance, then the finished floor needs to be 13' above the BFE or your flood is going to be considerably higher. You'll need the elevation cert to determine just how high your lot is. Talk to a good insurance rep for the details... I'm no expert.
- Investor · Hendersonville, NC · Member since 2013 · 754 posts · 281 votes12y
Hi John. Yah I am at 13" exactly. I heard that makes my chances decent that I don't pay higher premiums now, and possibly perhaps in the long run. As you know, the NAR was all over Congress re: Biggert Waters and they seem to have responded, so maybe that signals good things for flood insurance premium subsidization in the future.
Thanks for the feedback on location. Yah, I wouldn't want to live there just yet, but I guess that's not how a lot of Charlestonians think, so it's fine with me. I think I will take a gamble.
You are right, and wise to note that my flood insurance premium was based on $200,000 of replacement cost (1600'x $125/foot). I should probably cut that down coming from the assumption that fire could destroy the whole thing, but flood is unlikely to. I also need decent liability, so I shouldn't tinker with my hazard insurance. I still have to deal with my first quote being $2,000 for hazard, as the agent said that the original structure was built in the 19th Century, and that is simply part of their calcs, even though I spent $100 per foot to rehab and add on.
As a contractor, with a 3' high crawlspace, a 13 zone rating, and so on that barring a Cat 5 hurricane or tsunami, my damages due to a freak event or water pipe break should probably be limited to $30-50k? I have to assume it's drywall and insulation repairs, because Romex can get wet, concrete drys out, major wood framing members will do okay if just exposed to water for an hour, etc. I bet that would get me closer to $5-600 a year, so thanks for the idea.
- Charleston, SC · Member since 2013 · 380 posts · 157 votes12y
The NAR is a powerful lobbying group but I don't think they'll get subsidies back in place. It does look like they'll get a 4 year reprieve on the BW act being enforced though. Who knows what will happen within that time.
Unfortunately, another thing that's happening aside from the BW act, is that FEMA has been redrawing the flood maps. So if your finished floor is at 13' above BFE now, it doesn't mean it will be in the future. The aforementioned house I own on James Isl was in a B zone when I bought it. Now it's AE 12. I have another house 4 doors away from that one and it doesn't require flood ins (B zone). It's ludicrous that flood for the one would cost $1550/yr and the other doesn't require it. The street is flat. Flood ins is often illogical in that way.
I don't think Sumter + Rutledge is a bad place to live by most hipster's calculation. 30 years ago I wouldn't even have considered working up there.
I think you should figure on Insulation, flooring, sheetrock, first floor cabinets, possibly doors and maybe outlets (would ins co/building dept make you replace them if exposed to salt water?) How high up are outdoor HVAC units? Ductwork? Water heater? The place I own is on a slab and probably more susceptible but less valuable.
Talk to the neighbors and find out if it floods around there already or if things flooded during Hugo or anytime for that matter.
- 12yMike HurneyPro MemberReal Estate Investor · Boston, MA · Member since 2009 · 2k+ posts · 542 votes
@Jason Merchey Several years ago my insurance carrier said I could only get LLoyd's for a coastal property in Massachusetts, $2200 vs $1100.
Then two years later, shopping, I found Narragansett who came through at $1200. Their criteria seemed to be within 300 feet of the coast.
Now with @Bobby Beard
msc.fema.gov
(Thanks) it appears I'm back in the flood plain.
- Specialist · Rockland, MA · Member since 2010 · 7k+ posts · 2k+ votes12y
They are redrawing the flood zones here. I last heard a $2,500 per foot below the plain. Some redraws have the house 10-15 ft. below the plain. The redraws are including many areas not previously in the plain.
They are starting along the coast but will do rivers ponds lakes.
Based on the shooting insurance costs putting houses on stilts have become cost effective.
Paul
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