Under contract on a Home in Flood Zone A - should I bail on the contract?

Question

I am under contract on a home that I plan to rent out- numbers look solid, but I just learned that it's in flood zone A. It is lakefront, but I'm wondering if I should bail. Insurance changes the numbers enough that it's less interesting and I'm worried about resale. Wondering if anyone has experience either way with properties in flood zone A?

Chris Seveney · Answer

I would also look at the property and how it is built. Is it up on stilts but in a flood zone, is the area prone to flooding?

If the insurance makes the numbers not work then yes walk, but if its more about the risk of being in a flood zone - 1/2 of florida is probably in a flood zone and its all about how comfortable someone is with the risk.

Raymond J. Rodrigues · Answer

@Katie Camargo where are you purchasing? Try to get an idea on what the flood insurance premium cost will be from now, rather than too late in the process. I've seen insurance premiums for flood go up to 5-6k on a regular single family home depending on the area.

Jorge Vazquez · Answer

Hey Katie, I totally understand why you're thinking about backing out; flood zones can be a concern! From my experience, properties in Flood Zone A aren't always dealbreakers, especially when they're in desirable locations like lakefronts. If the numbers still look good even after adding the insurance costs, it might still be a solid investment. It's all about carefully weighing the pros and cons. Consider the potential risks like higher insurance rates and any limitations on renovations due to FEMA’s rules. If you're comfortable with these factors and the cash flow remains strong, it could still be a great opportunity.

Doug Smith · Answer

I think that's entirely up to you and your math. I am sure you're aware of the FEMA 50% Rule for renovations of properties in certain Flood Zone's, so I won't insult your intelligence by going into it. I've learned over the years that real estate investment is simply a math problem. Either the numbers work or they don't. I was at a CCIM luncheon recently and some of my lender buddies and I were discussing that many of their banks are getting out of multi-family because of rising costs to manage the properties...including taxes and insurance. I think the same would apply here. I live in Tampa, FL and we just got hit hard with Hurricane's Helene and Milton...Hurricane Sara is lurking out there. Insurance rates stand to rise dramatically, so the question is "will the insurance rates go up enough see rentals go into negative cash-flow situations?" It's certainly something you should consider, but at the end of the day, it's a just a math problem.

Katie Camargo · Answer

@Raymond J. Rodrigues - it's a house near Charlottesville, VA and that's solid advice. Appreciate your and everyone elses advice, very helpful!

Under contract on a Home in Flood Zone A - should I bail on the contract?

Under contract on a Home in Flood Zone A - should I bail on the contract?

Most Popular Reply

5 Replies