Birmingham, AL · Member since 2012 · 12 posts · 3 votes
My friend just purchased a foreclosure. He's fixed it up and is now placing it back on the market to sell. He thought he was about to get an offer but when potential buyer called insurance agent, they told her it was in flood plain. When he purchased home, it was never mentioned that it was in flood plain and now he's worried he can't sell it. Shouldn't this have been disclosed or discovered prior to his purchase? Any advice? He's worried buyers may be scared away.
Investor · Scotch Plains, NJ · Member since 2014 · 105 posts · 50 votes
12y
@Evan Crawford Lesson learned: conduct appropriate due diligence and ask the right questions before purchasing a property. There's a ton of information asymmetry in real estate investing.
Having said that, it doesn't mean his deal will be a flop. Your friend just needs to find a buyer who also hasn't done his/her homework!
Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
12y
Yes, he should have discovered it. Its no more complicated than looking at the FEMA flood maps. I NEVER buy a property without looking at those maps.
Should someone have told him? Is there someone he can now hold accountable because they didn't tell him? Nope. Its a lesson he can caulk up to the school of hard knocks. Live and learn.
Real Estate Investor · Sebastian, FL · Member since 2014 · 812 posts · 432 votes
12y
@Evan Crawford There are different flood plains, also. Much of Florida is in one level of flood plain or another. Most of Florida needs, or should have flood insurance. The fact is that flood insurance is usually pretty cheap.
It should have shown up in the property survey, if not anywhere else. But then you have to read those things to find out what they say.
Contractor · Atlanta, GA · Member since 2008 · 978 posts · 985 votes
12y
Extra thought - in some places, like Georgia... after a major flood happened a couple of years ago, FEMA went through and redid all their maps. Properties that were previously not in a flood plain now are. I've seen several investors get thoroughly hosed by this.
Investor · Dallas, TX · Member since 2013 · 619 posts · 128 votes
12y
@Evan Crawford - your friend could try to get a surveyor to perform an elevation report. If the surveyor determines the lowest grade elevation of the property is more than what FEMA considers to be the minimum elevation in that area that would have 1% chance of flooding you could provide this report to your buyer's lender and usually flood insurance would not be required because technically the property elevation is above flood zone.
FEMA went through and redid all their maps. Properties that were previously not in a flood plain now are. I've seen several investors get thoroughly hosed by this.
I have also heard FEMA will not be subzidising flood insurance much longer so it will get expensive when that happens!
Real Estate Investor · Sebastian, FL · Member since 2014 · 812 posts · 432 votes
12y
@Evan Crawford Not doing a survey is a mistake. $250 is not a lot to know if there are issues such as encroachment (in either direction) and, as you now know, flood plain issues. I am also surprised that his insurance company didn't tell him that he needed flood insurance, mine sent a form that I had to either acknowledge the risks, or provide coverage information. They specifically stated the types and causes of damage not covered by their policy.
First, he should look at the flood map and find out whether his property is right in the middle of a 30-year flood zone or somewhere on the periphery of a 100-year flood zone. That will impact flood insurance costs, both short- and long-term. It sounds like he's hearing "flood plain" as a blanket statement, and it's not.
Second, he should find out the history of flood insurance at the property. The redrawn flood maps include more property than the old ones because, in order to pull the NFIP out of the red, more homeowners with low risk need to buy policies. If the property is in one of these newly created areas, the real cost of the coverage will be pretty low. Usually.
Third, he should find an insurance agent who has been staying abreast of the evolution of flood insurance policy. Any agent can rate a risk, but Biggert-Waters and the Flood Insurance Affordability Act have made significant public policy changes and also created a certain degree of uncertainty. Not every agent can walk your friend - or a potential buyer - through the misinformation and doublespeak to get down to brass tacks.
Fourth, he should get an Elevation Certificate done. This establishes the property's elevation relative to flood risk, and it can mitigate premiums significantly. At the very least, getting an Elevation Certificate allows him to present the risk categorically to a buyer. At this point, flood insurance rates are scary, and unknowns will likely be interpreted as a worst-case scenario.
Investor · Singapore · Member since 2013 · 1k+ posts · 3k+ votes
12y
This happened to me too. Paid cash for home in Indy. Didn't think to check for flood plain..its INDY! Found out when I tried to refinance that it was. Flood insurance was cheap but went up a lot last year. Its an extra $500 or so per year of expense on that home. I plan to pay it off faster and stop paying the flood insurance once I own it free and clear again. Learned pretty quickly to check that. Also that was the last home I was stupid enough to pay cash! Now I count on the Bank to find out these pesky details I haven't thought of.
Investor · Central Valley, CA · Member since 2012 · 6k+ posts · 3k+ votes
12y
Originally posted by @Account Closed:
This happened to me too. Paid cash for home in Indy. Didn't think to check for flood plain..its INDY! Found out when I tried to refinance that it was. Flood insurance was cheap but went up a lot last year. Its an extra $500 or so per year of expense on that home. I plan to pay it off faster and stop paying the flood insurance once I own it free and clear again. Learned pretty quickly to check that. Also that was the last home I was stupid enough to pay cash! Now I count on the Bank to find out these pesky details I haven't thought of.
OK. Gotta ask. Why would Indiana be exempt from flooding? No rivers, no lakes, no streams? No valleys or low spots below hills? Where it never rains? Where every square inch of soil absorbs water like a sponge? :)
Extra thought - in some places, like Georgia... after a major flood happened a couple of years ago, FEMA went through and redid all their maps. Properties that were previously not in a flood plain now are. I've seen several investors get thoroughly hosed by this.
Aaron: what the final exit for the investors who bought in rezoned flood plains? Couldn't they sell them to cash buyers? Or keep them as rentals and self insure?
FEMA went through and redid all their maps. Properties that were previously not in a flood plain now are. I've seen several investors get thoroughly hosed by this.
I have also heard FEMA will not be subzidising flood insurance much longer so it will get expensive when that happens!
I've seen flood insurance go up as much as 20-50 times the amount recently when a property changes hands due to this!
Investor · Central Valley, CA · Member since 2012 · 6k+ posts · 3k+ votes
12y
Originally posted by @Shawn Holsapple:
Originally posted by @Gautam Venkatesan:
Originally posted by @Aaron McGinnis:
FEMA went through and redid all their maps. Properties that were previously not in a flood plain now are. I've seen several investors get thoroughly hosed by this.
I have also heard FEMA will not be subzidising flood insurance much longer so it will get expensive when that happens!
I've seen flood insurance go up as much as 20-50 times the amount recently when a property changes hands due to this!
I've heard this as well and don't doubt the extreme cost for flood insurance in some areas after a disaster. But exorbitant insurance costs and/or inability to insure eventually trickle down to re-sale values. Properties impossible to insure become impossible to borrow on and thus the market value is set by cash buyers willing to self insure (usually landlord buyers). I admit it would be rough to be caught in the transition. But I would like to know how investors caught in the transition are exiting in these situations.
I work one farm where the houses were built in the 1920-1940s without foundations. No cement perimeter, no piers. Just wooden footers straight to the ground. Most are still standing just fine. The values are so low it's rarely worth adding the foundation.
For years, the financing on them was limited, but available, as the lack of foundation was "customary for the area". So right through the Bubble you could get a BofA or Wells Fargo loan on them. That's all over now and it's cash buyers only. But at least we can buy insurance on a $30-50K investment. I'm very curious what happens in flood plains where the cost of insurance makes no sense.
First, he should look at the flood map and find out whether his property is right in the middle of a 30-year flood zone or somewhere on the periphery of a 100-year flood zone. That will impact flood insurance costs, both short- and long-term. It sounds like he's hearing "flood plain" as a blanket statement, and it's not.
Second, he should find out the history of flood insurance at the property. The redrawn flood maps include more property than the old ones because, in order to pull the NFIP out of the red, more homeowners with low risk need to buy policies. If the property is in one of these newly created areas, the real cost of the coverage will be pretty low. Usually.
Third, he should find an insurance agent who has been staying abreast of the evolution of flood insurance policy. Any agent can rate a risk, but Biggert-Waters and the Flood Insurance Affordability Act have made significant public policy changes and also created a certain degree of uncertainty. Not every agent can walk your friend - or a potential buyer - through the misinformation and doublespeak to get down to brass tacks.
Fourth, he should get an Elevation Certificate done. This establishes the property's elevation relative to flood risk, and it can mitigate premiums significantly. At the very least, getting an Elevation Certificate allows him to present the risk categorically to a buyer. At this point, flood insurance rates are scary, and unknowns will likely be interpreted as a worst-case scenario.
And the moral of the story is to Not buy in a flood zone...would these properties also be a bad investment for buy and hold investments as well or just for resell ?
@Evan Crawford Not doing a survey is a mistake. $250 is not a lot to know if there are issues such as encroachment (in either direction) and, as you now know, flood plain issues. I am also surprised that his insurance company didn't tell him that he needed flood insurance, mine sent a form that I had to either acknowledge the risks, or provide coverage information. They specifically stated the types and causes of damage not covered by their policy.
Ok Walt, so I know this property IS in a flood zone up front,,,Good or Bad investment for buy and hold ? If I'm understanding correctly you have a property/properties in a flood zone. Is it about getting the proper coverages ? Please advise
@Evan Crawford Not doing a survey is a mistake. $250 is not a lot to know if there are issues such as encroachment (in either direction) and, as you now know, flood plain issues. I am also surprised that his insurance company didn't tell him that he needed flood insurance, mine sent a form that I had to either acknowledge the risks, or provide coverage information. They specifically stated the types and causes of damage not covered by their policy.
Ok Walt, so I know this property IS in a flood zone up front,,,Good or Bad investment for buy and hold ? If I'm understanding correctly you have a property/properties in a flood zone. Is it about getting the proper coverages ? Please advise
It depends on which flood plain. I suspect most of Florida is in the 100 yr. flood plain. And if you anticipate the costs then the numbers just have to justify it. Based on the comments above I would estimate it on the high end, But I would not rule it out. At $500/yr it definitely could be a deal breaker on a marginal performer, or it could be trivial on a true winner.
@Evan Crawford Not doing a survey is a mistake. $250 is not a lot to know if there are issues such as encroachment (in either direction) and, as you now know, flood plain issues. I am also surprised that his insurance company didn't tell him that he needed flood insurance, mine sent a form that I had to either acknowledge the risks, or provide coverage information. They specifically stated the types and causes of damage not covered by their policy.
Ok Walt, so I know this property IS in a flood zone up front,,,Good or Bad investment for buy and hold ? If I'm understanding correctly you have a property/properties in a flood zone. Is it about getting the proper coverages ? Please advise
It depends on which flood plain. I suspect most of Florida is in the 100 yr. flood plain. And if you anticipate the costs then the numbers just have to justify it. Based on the comments above I would estimate it on the high end, But I would not rule it out. At $500/yr it definitely could be a deal breaker on a marginal performer, or it could be trivial on a true winner.
Ok thanks, I appreciate the advice. Just didn't know if I should stay away from these properties or not. Will talk with my Agent regarding Insurance costs.
SFR Investor · Dallas, TX · Member since 2011 · 604 posts · 243 votes
12y
About 20 years ago a house I lived in when suddenly declared "in a flood plain" and my mortgage company demanded I get flood insurance, I freaked out, called my insurance agent, who was also on the city council,,it turned out the back 2' of the property were in the flood zone,,nothing close to the house. It was resolved and the house was marked outside of the flood plain (there was a storm ditch running in the area behind the house, guess that was the problem.
As others have said, see exactly where the property is in relation to the flood plain and what flood plain
About 20 years ago a house I lived in when suddenly declared "in a flood plain" and my mortgage company demanded I get flood insurance, I freaked out, called my insurance agent, who was also on the city council,,it turned out the back 2' of the property were in the flood zone,,nothing close to the house. It was resolved and the house was marked outside of the flood plain (there was a storm ditch running in the area behind the house, guess that was the problem.
As others have said, see exactly where the property is in relation to the flood plain and what flood plain
andy
Thanks Andy, I'm sure this one is. I spoke with the Owners who had a flood several years ago. Everything was covered by their insurance but THEY SAY it's the cause for why they foreclosed. (I'm sure more to the story).