Hi everyone, I found a property that looks like it might be a decent buy, the catch though is it's in a high risk flood zone because it's on a creek. Just wondering what adjustments I should be making to my model to account for the additional risk?
It looks like it has about a 14% chance of flooding in a given year and a 61% in a five year period per FEMA. I'm thinking I should take the deductible for the flood insurance and multiply it by the annual probability of flooding to get an expected annual cost due to flood damage. Does this method make sense and is there anything else I'm missing?
Also, would taking mitigating steps (i.e. building a retaining wall or regrading) increase the property value or just help reduce the risk to my bottom line?
Investor · Kingsport, TN · Member since 2016 · 412 posts · 254 votes
5y
In summary, run. Flood insurance is 2-3x more expensive than regular coverage. Outside of that, why would you want to purchase a property as an investment that you know has a solid chance of flooding. How many times would you expect insurance to cover flood damage before they said no more? Are you comfortable paying for your tenants relocation during renovations? Paying for all property expenses while your units vacant and being ripped apart while the contractor takes months to renovate it? Save your sanity. Buy investments, not problems.
Very good points. Thank you! That's what I was leaning towards. It's hard to walk away when everything out there is getting snapped up in a few days, but you're right - it's cheap for a reason.
Surveyor · Dothan, AL · Member since 2014 · 425 posts · 391 votes
5y
@Matthew Mehring
Are you talking about the land or the structure? The structure may have been removed by a LOMA. Do you know if other properties nearby have ever flooded? Sometimes you can pickup good buys in a FZ if you can due your homework.
Insurance Agent · Norwalk, CT · Member since 2016 · 2k+ posts · 1k+ votes
5y
Matthew,
Flood Insurance is an expense to be figured in like Dwelling/Fire Insurance in a rental situation. If it is a flip or a house you will be looking to resell shortly, the Flood Insurance may cause you trouble then because it may cause some buyers to pass on it.
To figure the actual cost of the Flood Insurance, have your agent shop it around to all the "Private Market" Flood Insurers (they are not part of the National Flood Insurance Program from FEMA). I've found that they can often offer much better rates (especially in the river flood situations)