Questions about Investing in a Flood Zone / Flood Plain

3 Replies

We just got a great deal under contract, with the one caveat being that it's in the 100 year flood zone.  

At a high level, this will be a buy-and-hold rental for us.  The property is newer house (2001) and has never flooded.  An elevation report has never been done, but the county maps place it on the 100 year flood plain (these maps will be updated next year).  We will pay in cash.  We will shell out the money for an elevation report during our due diligence, and will get flood insurance (we will back out if the flood insurance is simply too high to sustain).

But my question and thoughts are two fold, and I'm looking for thoughts on both...

First, as a landlord, what additional information do we need to do to rent the property?  Our plan is to have a signed 1-page addendum stating that the property is in a 100-year flood zone, and to encourage the tenants to get renter's insurance with a flood rider.  This would be included as part of the lease.  We do not expect the flood plain issue to affect rental amount or the number of prospective tenants interested.

Second, what challenges will this present in the future when we try and sell it? Will it affect the sale price, and if so, by how much?  Will it affect the time to sell, and if so, how much?

What else are we missing?  Looking for some guidance on this!

Hi Jeremiah,

The reality is that every property is in a "Flood Zone".  The difference is whether or not the property is in a high hazard floods zone or not, typically identified as a flood Zone A or V and their derivatives.  Sounds like your property IS in one of these high hazard zones.

You will find the cost for insurance will be pretty prohibitive, especially if you do not have a good elevation certificate and do not qualify for a reduced rate.

Because you are paying cash, you do have the benefit of not being required by your lender to carry flood insurance.  Anyone obtaining a loan in the future or if you ever pull equity out of it, will be required to carry it once the lender see's the property is in a high hazard flood zone.

This is what can affect your resale value and/or days on market when attempting to sell in the future.

You should ALWAYS require tenants to carry renters insurance.  The flood rider may be a turn off to many.  It may not be necessary for you to make a big deal of the flood zone issue with your prospective tenants.

The other thing is that Flood Insurance is a Federal program so coverage options and premiums will be the same, all things being equal, no matter where you obtain the coverage from, should you choose to do so.

I hope that helps!

Ivan

Thank you @Ivan Oberon 

I did some additional digging.  Here's what I know:

First, you can not get flood insurance without an elevation report.  These reports are done by a surveyor with a special designation and kept on file as public record by the county.

Not all 100 year flood plains are created equal.  In fact, the term "100 year flood plain" is very misleading.  In actuality, the 100 year flood plain is a discrete value, and properties significantly higher than, or lower than this level still get the AE label, and titled the 100 year flood plain.

This means that insurance can vary crazy amounts!!!  My property will cost 171 annually!  If it were 6 feet lower, or right about the discrete 100 year flood plain level, it would have been in the thousands.  If it had been lower than that, rates skyrocket quickly.

So, even though my property is classified as high risk on the 100 year flood plain category of AE - the actual threat of flooding and impact on rent or future sales is negligible.  

That's good @Jeremiah B.  You were fortunate with this property for sure.

Good luck!

Ivan

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