Surprise! I need $3,300/yr flood insurance.

Goshen, NY · Member since 2017 · 60 posts · 14 votes

I am under contract for a two-family property in New York State. My deposit check has already been cashed and the appraisal was just performed for my FHA loan. I got a note from my lender today letting me know that the property is in a 100-year flood zone and I need flood insurance. This is the first time I am hearing about this.

I got a quote on a policy from my insurance agent and it will cost me $3,300 per year, or $275/month, which eats substantially into my rental profits. Any advice anyone?

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Jeff Greenberg

Real Estate Consultant · Camarillo, CA · Member since 2010 · 2k+ posts · 1k+ votes

That certainly is a good reason for retrading. On a property in Houston we knew that we were i a flood zone and one that had high winds. We fought against the lenders requirement of full replacement value of 3.2 mil on our 1.3 purchase. Our 11 Cap deal dropped to a 9 cap when we received an insurance quote at $1100 per door on a 62 unit property. Something does sound wrong with 3300 on a duplex. You should be able to get FEMA coverage lower than that.

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Bryant Weber
Springfield, OH · Member since 2017 · 9 posts · 4 votes
8y
You may want to see what your lender would charge for their forced insurance there are many cases in Florida of homeowners letting private insurance lapse and being charged lender placed insurance at a lower rate. The bank/lenders insurance is obviously going to be subpar to the coverage but it’s coverage if even for the time being. There are many cases as well were the lender placed insurance is much higher than private insurance (90% of the time). Never hurts to exhaust all options when in a pickle.
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John Thedford
Real Estate Broker · Naples, FL · Member since 2013 · 9k+ posts · 6k+ votes
8y
Originally posted by @Bryant Weber:

You may want to see what your lender would charge for their forced insurance there are many cases in Florida of homeowners letting private insurance lapse and being charged lender placed insurance at a lower rate. The bank/lenders insurance is obviously going to be subpar to the coverage but it’s coverage if even for the time being. There are many cases as well were the lender placed insurance is much higher than private insurance (90% of the time). Never hurts to exhaust all options when in a pickle.
From my experience forced/placed insurance is MUCH more expensive. I believe they charge you interest on it as well.
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Tone Church
OP
Goshen, NY · Member since 2017 · 60 posts · 14 votes
8y
By the way all, here's the property on the FEMA floodplain map (circled in red). Blue represents 1% annual chance of flood and the brown represents .2% annual chance of flood. Red striped area represents "regulatory floodway". As you can see, I'm right on the edge.
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Bryant Weber
Springfield, OH · Member since 2017 · 9 posts · 4 votes
8y
@John Thedford That is true about forced place insurance being more expensive but it is not true about earning interest. RESPA and CFPB have very tight regulations on force placed insurance and the total allowable amount to be charged by the lender.
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Dave Dagostino
Surveyor · Naples, FL · Member since 2015 · 46 posts · 28 votes
8y
@Tone Church - I see where a few LOMA's have been done around your property. This suggests you may qualify for one also - removing the property from the flood zone and the requirement of purchasing flood insurance. Feel free to PM me as I deal with this all the time. I'd be happy to look at an elevation certificate if you have one and see if you qualify.
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Alan Francis
Investor · Oak Lawn, IL · Member since 2015 · 20 posts · 4 votes
8y
I had a similar experience in Illinois. I was buying a turnkey home, the seller didn't have any financing on the property and I was planning to close cash and add financing later. Thankfully my attorney asked about flood insurance (to that point I hadn't had any experience with flood plains or flood insurance) I asked my insurance provider to check into it for me and right away realized an A flood plain. Premium was also around 3k and ate deeply into the rental profits. We tried renegotiating the price based on the new cost, but couldn't make it work. Ended up having to walk away.
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Jeff CopelandBusiness Member
Real Estate Broker · Tampa Bay/St Petersburg, FL · Member since 2015 · 1k+ posts · 2k+ votes
8y
I'd recommend doing some extensive research on the National Flood Insurance Program and the Biggert-Waters Flood Insurance Reform Act.
Congress keeps kicking the can down the road a few years at a time. But if the federal subsidies are ever removed, that $3300 premium could become a $10k+ premium (at the same time making your property almost "unsellable" due the the cost of insurance, which in turn would kill your property value and appreciation potential).
There's obviously an annual cost associated with flood insurance. But there is also a ton of long term uncertainty as well, which has the potential to be a much bigger risk.
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Robert Murphy
Insurance Agent · United States · Member since 2017 · 115 posts · 60 votes
8y
@everyone. Wow, I am amazed by the support for this thread.
Such great advice, I am a flood Nerd and all the counsel that our wonderful community has offered is rather solid. Private Flood Insurance (options) are offered now in most states including NY, however, there is only a small hand full of agents that specialize in just flood insurance. I know a few =). As I see your property does have a few LOMA around it a savvy flood agent can quickly look at an elevation certificate and see if the LOMA option would work in this area. Most people think if they get a LOMA that they are free from the risk of flooding which is simply not true. However, you can write the government policy (FEMA or NFIP) on a PRP (Prefered rate Policy) which will give you a favorable premium and I would always recommend you have some kind of flood coverage than none. Only 10% of those flooded in Harvey had flood coverage this is very sad. Private Flood options can be almost 50% less than the government policy. I am seeing a premium of $1,025.00 for the coverage of $250K in the NY area. Note: Most private flood options will only take a property that has never had a flood loss. As for the government stepping in and helping you (elevate the building) this is usually only done when a property has had multiple losses it comes in the form of a SBA loan and can cost anyway from $50K (what I am seeing in MS) to $80K in NJ. If you want more information about this reach out and I can point you in the direction to do some more research
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Kysha Currence
Columbus, OH · Member since 2016 · 1 post · 2 votes
8y
This happened to me on my first rental investment. I spent days getting up to speed on flood insurance requirements and prices. I agree with @Robert Murphy about getting a private insurance flood quote. My insurance agent had never quoted the private flood insurance before my property but they were committed to figuring out something for me. BTW - originally my seller didn't know about the requirement because as other members mentioned, the seller owned the property outright and didn't know of the requirement. My private flood insurance cost was less than 50% of the cost through the federal government because of the latest increase in rates.
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Robert Murphy
Insurance Agent · United States · Member since 2017 · 115 posts · 60 votes
8y
@Kysha Curren thanks for the affirmation it feels good! =) You have opened up a very valid consideration often times if the property is paid off then the requirement to purchase flood insurance would never come up because - usually the only reason people are purchasing flood insurance is that their lender has required it (due to the LAW). Law says if you have a government-backed loan think federally insured lenders. So there is a chance that the seller may not have known that the property was in a high-risk flood zone (Lenders are required to run a Flood zone Determination) for every loan and if the property is in a high-risk flood zone they will require the purchase of flood insurance.
On a side note: (I would love to know lenders who are not federally insured and offering home loans anyone knows of any)
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Justin S.
Investor · Kingwood, TX · Member since 2013 · 28 posts · 7 votes
8y
As others have said you may be able to get a LOMA based on an updated EC (elevation certificate) you could have done and maybe it knocks you down from the AE zone.
Either way I would plan on having flood insurance. Can't tell you the amount of times I've gone to a street and it's a X zone and 1 person of say 10 has flood insurance. They will be getting their repairs done and the rest are out of pocket, which often results in a few walking away with big losses
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Tone Church
OP
Goshen, NY · Member since 2017 · 60 posts · 14 votes
8y
Quick update for everyone (thanks so much for all who messaged me and contributed to this thread). I am having a surveyor complete an elevation certificate next week and will be submitting for a LOMA via the eLOMA process, which is an expedited online submission that gives qualified surveyor professionals an instant determination. Even if I can't get it out of a flood zone I may be able to move it from an AE zone to an X zone which should bring insurance costs down or eliminate the need.
The seller did not have the property financed and thus did not know it was in a flood zone as they were not required to purchase insurance for it.
If it turns out that I cannot have it removed from the flood zone through the LOMA process, I am still deciding what the appropriate concession would be to ask from the seller. Anyone have any ideas?
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Tone Church
OP
Goshen, NY · Member since 2017 · 60 posts · 14 votes
8y
UPDATE: Property will not qualify for a LOMA. It is squarely in a flood zone and remain there. Would love to hear from all those wonderful contributors who have shared their valuable insights on your final vote. To try to salvage my deposit and walk away or to ask for a concession from seller and continue the transaction? $200-$300/month for insurance.
@justin s , @Robert Murphy, @Kysha Currence, @Jeff Copeland, @Alan Francis, @Dave Dagostino, @Bryant Weber, @Steven Gesis, @Carolina E., @Jeff Greenberg, @Ryan D., @Colleen F., @Charlie MacPherson, @Jay Hinrichs, @Michael Norris, @Zach Quick, @Cameron Novak, @Mike Cumbie, @Derek Lacy, @Account Closed
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Zach Quick
Investor · Bentonville, AR · Member since 2014 · 759 posts · 379 votes
8y
@Tone Church What price range and deposit are we talking about? I would walk away. Have to think about your exit strategy, so many buyers will not even consider buying it if is in a flood zone.
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Robert Murphy
Insurance Agent · United States · Member since 2017 · 115 posts · 60 votes
8y
@Tone Church, has the property had a flood loss? if it hasn't you might be able to get an outstanding price on the Private market. You can reach out to me via email and I can get help you with that if you want or you can simply search "Private Market flood insurance"
Most agents don't really specialize in flood insurance or even want to write it (the process can be cumbersome) and to make sure you are getting the best price you need to work with an expert in this product. Often times I find many errors that unaware or lazy agents quote and the clients are paying or have been paying many years for a premium that is not accurate.
I can usually spot from an elevation certificate really easily if the LOMA is an option. Has to do with (Base Flood Elevation) BFE and the Lowest Agent Grade (LAG) if the LAG is greater then the BFE you have a good chance of getting a LOMA. Even if it is just one inch. =)
There are also options to write the policy on a grandfather flood zone if that applies or "built-in compliance" again you need someone that knows how to write these policies. there please know there are options. I would be honored if you want me to look at the property.
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Tony Salemi
Mchenry, IL · Member since 2017 · 25 posts · 10 votes
8y
Walk away.....insurance this year is $3000.....how much will it be in 5 years? or 10 years. i avoid all flood plain properties. Even if it's insured, flooded rentals are a major hassle.
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Lynn McGeein
Real Estate Agent · Virginia Beach, VA · Member since 2012 · 2k+ posts · 1k+ votes
8y
I won't buy in a flood zone anymore unless it is a great price and I can pay for it without a mortgage. Flood rates are too unpredictable right now. If you feel it is a great price and a low risk area (although in a flood zone), ask the seller if they'll owner-finance long-term and not require any flood insurance. You'll risk not being covered if it floods, though, so make sure it's a good enough deal to be worth the risk.
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Tone Church
OP
Goshen, NY · Member since 2017 · 60 posts · 14 votes
8y
@zach quick $8000 deposit on a $219,000 purchase financed via FHA. Total closing costs including Downpayment will be $25k. Projected rental rates of $3,000 per month after about $6,000 in updates to home.
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Jacob A.
Tuscaloosa, AL · Member since 2012 · 73 posts · 54 votes
8y
In my opinion, I DETEST flood zoned properties. I have been in situations where I have had flood insurance go up over time due to the insurance provider. I would definitely attempt to try and negotiate something with the sellers.
A strategy I have seen used is in the contract have an addendum stating that the owner will prepay or cover the first 12/24 months of flood insurance.
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Tone Church
OP
Goshen, NY · Member since 2017 · 60 posts · 14 votes
8y
@jacob Atkinson that seems like bare minimum concession. I will have at least that much eating my rental profits for the next 30 years and that assumes the rates don’t go up. The house is 1-2 feet below base level flood elevation. Partially below ground level basement and partially above ground level. What does being in this flood zone (AE) do to the value of the home (the bank told me the flood zone doesn’t impact the Homes value in the assessment) when I would go to sell it? And how motivated does learning about something like this make a seller to negotiate accepted price and by how much?
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Tone Church
OP
Goshen, NY · Member since 2017 · 60 posts · 14 votes
8y
Originally posted by @Lynn McGeein:

I won't buy in a flood zone anymore unless it is a great price and I can pay for it without a mortgage. Flood rates are too unpredictable right now. If you feel it is a great price and a low risk area (although in a flood zone), ask the seller if they'll owner-finance long-term and not require any flood insurance. You'll risk not being covered if it floods, though, so make sure it's a good enough deal to be worth the risk.
From what I have been told by local surveyor that has been in the immediate area for a long time, it has never flooded, including after Hurricanes Irene and Sandy, in which there was a lot of flooding in the area. Owner-financing is an interesting idea to explore.
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
8y
Originally posted by @Tone Church:

@zach quick $8000 deposit on a $219,000 purchase financed via FHA. Total closing costs including Downpayment will be $25k. Projected rental rates of $3,000 per month after about $6,000 in updates to home.
wow 8k non refundable EM on a 219k purchase that's way higher than we see in our market.. who thought of that one. we would usually be 2k to 2500 for that price point max.
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Ola Dantis
Multifamily Syndicator · Houston, TX · Member since 2016 · 1k+ posts · 2k+ votes
8y
@Tone Church Reading all the awesome insights, I would suggest that you seek Seller concession at this point; however, you should be quick to walk away if the flood insurance premium is such a high risk to your monthly cash flow now, and more likely with any future premium hikes.
Hope this helps, Tone. Goodluck and let us know what you end up doing. Thanks! - Ola
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Ryan D.
Rental Property Investor · San Jose, CA · Member since 2013 · 188 posts · 228 votes
8y
@Tone Church - I'd say the best action is straightforward: factor in the additional monthly cost of insurance into your cashflow/performance analysis, and then see by how much you need to lower the purchase price to still meet your minimum ROI criteria. If this number is realistic, then negotiate with the seller, otherwise walk away.
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Tone Church
OP
Goshen, NY · Member since 2017 · 60 posts · 14 votes
8y
Update: I negotiated a $17,000 concession and found flood insurance (from a resource someone here provided me via private message) that cost half as much as I was originally quoted and after a year with no claim will go down to 1/3 of original quote. Moving forward with the purchase. Thank you so much to all who provided valuable insight.
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