Remodeled house in flood plain

4 Replies

I am trying to decide if I should sell or rent out a house I remodeled in a newly re-zoned flood plain. I would rather rent it but the flood insurance goes up substantially each year from what I understand?

If I sell it I would be facing the selling costs and capital gains? (house has not been rented yet). Would it make sense to rent for a period of time to be able to 1031 to another house?

Is anyone familiar with flood insurance on rental homes?


Some of our rentals are in a flood plain.  I don't worry about it too much where I live.  Yes, flood insurance costs have increased, but if you call around to your insurance companies, ask them if they carry the flood insurance from Lloyds of London.  It's a lot cheaper and your lender should accept it.

Thanks I’ll check into that. I got a quote from my agent and it wasn’t much $700 a year.

He warned me that it could be as high as $8000.00 a year eventually.

@Eric D. get out any way you can. Flood insurance is destined to go up, because the gov has realized that it is insane to rebuild homes that flood on a regular basis. You might be in a "dry floodzone" but you'll get hit never the less. Flood insurance is mandated by your lender.

Here is the math: $50 in monthly flood insurance equal about $10.000 less in home value. Why? To keep your PITI the same you have less money going towards principal and interest and more to insurance.

If you don't want to pay Realtor fees and save on taxes you can sell it with a lease option to a tenant. Make sure you disclose that the property is in a flood plain. It is a material defect and failure to disclose could get you sued at the end. The good thing about a lease with option to buy is that your tenant buyers will be less picky about this than regular buyers. Also it will make a 1031 easier, because you have more control over the timeline.

@Marcus Auerbach, Thanks Marcus, 

If I did do a lease to own would the sale date be on the start of the lease or when finished? 

It looks like about 20k of capital gains would be due on a regular sale.

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