Dealbreaker Flood Insurance ?

29 Replies

At what point does flood insurance become a dealbreaker for you? -$25 cash flow a door? $50? Looking at a deal where the insurance on the building and flood insurance are identical, doubling that cost of insurance per year. What is your take on this?

If it's $500/door but the numbers work, is it still a deal breaker for you?

What is the yearly cost of the flood insurance? 

@Sherman Dunn If you are in a flood area you need flood insurance. You should not do a deal that is so iffy it can be tanked by buying insurance-any insurance. Look for a better deal that one is a non starter. IMO

Originally posted by @Russell Brazil :

What is the yearly cost of the flood insurance? 

 $2651 

Feeling your pain. Yep, we have stupidly high insurance in SE Louisiana. Especially property insurance. Flood insurance rates actually took a major nose dive in premiums for most of Orleans Parish a couple years ago when FEMA re-drew the maps. You can't say that very often! But I don't know exactly where you are looking, so that may not apply.

If you haven't already, get multiple quotes on both. Flood insurance rates are usually identical between agents/companies because most of them are through FEMA but, every once in awhile, I've run into really outrageous rates when an insurance company is offering the flood insurance themselves.

For property, I use NREIG.  They cater to investors and are some of the cheapest rates I've found.  "Cheap" being a relative term, lol.

Here's another tip.  Also get quotes for property-only insurance and a separate policy quote for just liability.  I know that sounds counter-intuitive because things are usually cheaper in "bundles".  Oooohhhh, but not in SE Louisiana.  It can be a huge savings to buy them separately.  This is my guess.  For liability, potential weather perils don't matter, so there are tons of companies to choose from for liability-only policies.  Whereas for property insurance, there are very few players in the game for this area so the whole quote is jacked up.  Even the pieces that have nothing to do with named storms.

Also look at higher deductibles and buying ACV (actual cash value) instead of replacement value insurance.  Agents will act like ACV is the worst thing ever but, for investors, it's often a better option.  Just do your own due diligence to fully understand the differences.

That's a long answer for hopefully improving the monthly cash flow on the deal.  But, bottom line, if the cash flow isn't there.  It isn't there.  If that is what you are aiming for, it's probably not the right deal for you.

Originally posted by @Jennifer T. :

Feeling your pain. Yep, we have stupidly high insurance in SE Louisiana. Especially property insurance. Flood insurance rates actually took a major nose dive in premiums for most of Orleans Parish a couple years ago when FEMA re-drew the maps. You can't say that very often! But I don't know exactly where you are looking, so that may not apply.

If you haven't already, get multiple quotes on both. Flood insurance rates are usually identical between agents/companies because most of them are through FEMA but, every once in awhile, I've run into really outrageous rates when an insurance company is offering the flood insurance themselves.

For property, I use NREIG.  They cater to investors and are some of the cheapest rates I've found.  "Cheap" being a relative term, lol.

Here's another tip.  Also get quotes for property-only insurance and a separate policy quote for just liability.  I know that sounds counter-intuitive because things are usually cheaper in "bundles".  Oooohhhh, but not in SE Louisiana.  It can be a huge savings to buy them separately.  This is my guess.  For liability, potential weather perils don't matter, so there are tons of companies to choose from for liability-only policies.  Whereas for property insurance, there are very few players in the game for this area so the whole quote is jacked up.  Even the pieces that have nothing to do with named storms.

Also look at higher deductibles and buying ACV (actual cash value) instead of replacement value insurance.  Agents will act like ACV is the worst thing ever but, for investors, it's often a better option.  Just do your own due diligence to fully understand the differences.

That's a long answer for hopefully improving the monthly cash flow on the deal.  But, bottom line, if the cash flow isn't there.  It isn't there.  If that is what you are aiming for, it's probably not the right deal for you.

You know my dilemma looking for deals here! Cash flow is king. With that being said I’m going to offer a bit lower and see if the numbers work. If they don’t work then they just don’t work! Thanks for that info 

Originally posted by @Michael Le :

If it's $500/door but the numbers work, is it still a deal breaker for you?

 Absolutely not!

Originally posted by @Sherman Dunn :
Originally posted by @Michael Le:

If it's $500/door but the numbers work, is it still a deal breaker for you?

 Absolutely not!

I think you answered yourself in your response above. If the numbers work then they work. If they don't then they don't. Unfortunately taxes and insurance can kill numbers a lot of times but I wouldn't put any specific cost or price/unit as a deal breaker.

@Sherman Dunn it's usually a deal breaker if there are similar deals down the block that aren't in a flood zone. Even if the deals in the flood zone are a little better, you are still better off avoiding them. It's extra risk (because insurance companies aren't in the business of paying out claims), and hassle, that's why they might be cheaper to begin with.

Originally posted by @Jeremy Marek :

@Sherman Dunn it's usually a deal breaker if there are similar deals down the block that aren't in a flood zone. Even if the deals in the flood zone are a little better, you are still better off avoiding them. It's extra risk (because insurance companies aren't in the business of paying out claims), and hassle, that's why they might be cheaper to begin with.

This is definitely something that I’m coming across in the area. 

@Michael Le exactly! I’m going to add those details into the offer.

Agreed with the above. Here on the water a lot needs flood insurance, I’m paying 4000 for some props flood insurance, and another 2500 liability. But again, if the numbers still work it’s all good.

I’ve had a flood surveyor come and do a flood certificate,  where they survey everything ( usually looking at where the ultities are in the building and go from there. I’ve received their report and filed for a LOMA, aka flood map amendment, due to what the specialist had concluded. This costs up here 500-1000$; doesn’t mean they will find anything. But in the case I did it, it eliminates the need for flood, basically you telling fema their map sucks. Good luck! Def shop the quotes around, and try a private flood insurance company.

I tend to stay away from flood prone properties.  In Louisiana, that is common, but many of the houses are built on foundations that account for this. 

@Sherman Dunn

We looked at a potential flip, until we figured out it was in a flood zone. SF house, 1100 sq ft, flood ins quote was $3000. We figured a big turn off to potential buyers, so we passed.

I believe that if you can make the numbers work for what you're looking for it shouldn't be a problem. Having said that, you have to consider at some point selling the property. You should factor the exit strategy and see how much longer it may be on the market or at what cost (price reduction) will it be when someone doesn't like the fact that it requires flood insurance. I don't think there is a set price at which someone can tell you its a deal breaker. Have your own parameters and stick to them. 

Flood zone is a hard pass for me, but I have many other options in my area. 

@Michael J Callinan yes, and considering that selling this property is the owners exit strategy, there is a lot to think about while making this offer.

If flood rates were set, you could make a more informed decision, but they haven't really solved the flood insurance problem, and my rates doubled over 3 years after being stable for the 6 before that, so flood zones are out for me unless I can afford to pay cash for the property and don't mind taking on the flood risk, myself.  

Sherman,

There are several non-NFIP (National Flood Insurance Program) Insurance options that may be cheaper for you.  Have your agent look into them and check with your lender to see if they will accept a non-NFIP policy

If your pro forma margins are indicating only $25-$50 of cash flow, that is too thin, assuming you are considering it as a rental. In other words, it's not worth it. Your hazard insurance has the possibility of varying that much from year to year here in Louisiana, ($300-$600), thus negating your cash flow. 

In response to the comments regarding selling a home that needs flood insurance, it does make it harder, but people down here want to live where they want to live and regularly buy homes that need flood insurance. Heck, most of South Louisiana is one type of special flood zone or another requiring flood insurance.

I am in the process of purchasing a duplex in a flood zone. However we are planning to do sort of a hybrid BRRRR, long term with a substantial amount of equity at purchase. If our main strategy was to sell quickly I would probably move on to another deal.

@Sherman Dunn  We have a lot of flood zones in NJ, too.  It's a non-starter for me if I am flipping the property.  I always have my insurance agent check that before I even go visit a property.  However, if I am buying as a buy and hold, and the numbers still work for me with the insurance costs then it's fine for me.

Originally posted by @Clint Galliano :

If your pro forma margins are indicating only $25-$50 of cash flow, that is too thin, assuming you are considering it as a rental. In other words, it's not worth it. Your hazard insurance has the possibility of varying that much from year to year here in Louisiana, ($300-$600), thus negating your cash flow. 

In response to the comments regarding selling a home that needs flood insurance, it does make it harder, but people down here want to live where they want to live and regularly buy homes that need flood insurance. Heck, most of South Louisiana is one type of special flood zone or another requiring flood insurance.

Definitely. Since the flood of 2016, I may consider changing the per door criteria while analyzing that I deem feasible, due to the increase in flood insurance lowering cash flow by quite a bit on a few properties we are looking at. But absolutely factoring that into the potential offers. 

Originally posted by @Tahra Wright :

@Sherman Dunn We have a lot of flood zones in NJ, too.  It's a non-starter for me if I am flipping the property.  I always have my insurance agent check that before I even go visit a property.  However, if I am buying as a buy and hold, and the numbers still work for me with the insurance costs then it's fine for me.

Thank you for the response!

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