Rental Property Investor · Fort Wayne, IN · Member since 2014 · 251 posts · 129 votes
Hey BP nation.....I need your input!
In response to y most recent Yellow Letter campaign, I had a owner call me looking to sell a duplex that is in GREAT condition and cashflows VERY well. We have not yet decided on price or discerned what he wants out of it, but he is looking to get out......may consider seller financing as well, if I am interested.
Here's the issue: The Duplex is in a flood plane with a creek in the back yard. Of course, I realize that should I purchase this property with a mortgage, flood insurance will be mandatory. So that said, assuming it still cashflows well with the cost of flood insurance, is flood insurance enough security to cover the inevitable flood damage that will come at SOME point in this long-term hold? Would you do it? What advice do you have? Thanks!
Investor · Prairieville, LA · Member since 2015 · 311 posts · 424 votes
11y
Caution and due diligence on the flood zone would be warranted. If built after 1978, then an elevation certificate is required. This can cost hundreds of dollars. If built prior than 1978, then one is not needed and the insurer uses a standard rate. A bad elevation, i.e. the structure 2 or 3 feet below the flood plain, would lead to flood insurance in the thousands that would make the purchase less profitable or even lose money.
Caution is warranted because the flood program is directed through the federal government and rules can arbitrarily change overnight. I have seen property become nearly worthless and unmarketable due to a change in the rules. This scenario, however, has come after some major event.
If you are worried about flooding, then you should check with residents of the neighborhood, or any other source, how often the area floods. You may find that it has not flooded in a hundred years.
You also may run into issues with your mortgage company requiring a certain amount of coverage. On occasion, they have required coverage of 200 to 300% of market price.
With all of this being said, you can still make money if the numbers work. Get in touch with a good insurance agent for detailed guidance and pricing.
Investor · Prairieville, LA · Member since 2015 · 311 posts · 424 votes
11y
Caution and due diligence on the flood zone would be warranted. If built after 1978, then an elevation certificate is required. This can cost hundreds of dollars. If built prior than 1978, then one is not needed and the insurer uses a standard rate. A bad elevation, i.e. the structure 2 or 3 feet below the flood plain, would lead to flood insurance in the thousands that would make the purchase less profitable or even lose money.
Caution is warranted because the flood program is directed through the federal government and rules can arbitrarily change overnight. I have seen property become nearly worthless and unmarketable due to a change in the rules. This scenario, however, has come after some major event.
If you are worried about flooding, then you should check with residents of the neighborhood, or any other source, how often the area floods. You may find that it has not flooded in a hundred years.
You also may run into issues with your mortgage company requiring a certain amount of coverage. On occasion, they have required coverage of 200 to 300% of market price.
With all of this being said, you can still make money if the numbers work. Get in touch with a good insurance agent for detailed guidance and pricing.
Under the Bigger Waters Federal Law, flood insurance premiums will continue to rise until the program pays for it self. So todays rates will be higher in the future.
There are ways to mitigate the flood issue, like a recertification of elevations, filling in the basement, or raising the house, but all are costly in one way or another. There's easier fruit to pick.
I heard a smart CPA/investor present a case for buying flood properties on the cheap because of the flood insurance for cash, not getting a mortgage and self insuring. I'm not sure that works for most properties. His focus was Fl beach properties.
Investor · Vancouver, WA · Member since 2013 · 3k+ posts · 4k+ votes
11y
All depends on the final analysis. Look at the cost/risk/benefit. There are many people who intentionally build on a floodplain and realize quite a profit before losing the structure. Very common with commercial properties. Some floodplains are more prone to floods than others. I wouldn't shy away from it just because it is in a floodplain, but I would definitely do my research to determine the risk I am taking and what it would take to mitigate that risk.
The same could be said for properties at risk from tornados, hurricanes, tsunamis, earthquakes, landslides, and wildfires. Or even erupting volcanos!
Investor · Vancouver, WA · Member since 2013 · 3k+ posts · 4k+ votes
11y
@Drew Wiard, et al. Here is a link to some definitions and other factors to consider. Not all floodplains are the same and not all risk is the same. (This is from our county resources, your county might have something similar.)
Rental Property Investor · New Martinsville, WV · Member since 2012 · 105 posts · 44 votes
11y
If you are paying cash or seller financing and the numbers are there MAYBE. If you are getting a mortgage and requires flood insurance NO...for now.
Read up on Biggert-Waters. Personal residences were given a delay on premium increases. Anything out side of a personal residence: rental properties, vacation homes, commercial real estate are still going to continue to have premiums rise.
I can relate. I am in a community along the Ohio River where flood insurance claims are almost non-existent, but flood insurance is required for about half the town. I have to walk away from decent properties from time to time due to the fact that down the road I don't know if I could sell the property if I wanted to exit.
Until Biggert-Waters and the FEMA flood insurance mess is resolved I am steering clear.
Flood water is not the problem its the government trying to make up for misappropriated spending through FEMA. Example: my personal residence had a flood insurance premium of about $800 per year. Basement will get water through sewer when lots of rain mixed with snow melt. After Biggert-Waters my new premium was $2500 per year. After getting the elevation certification the premium went to $7,851 per year! Called the bank and told them they were about to be in the real estate business. Lender agreed to allow me to get insurance from a company in Florida for about $755 per year. I was zoned in WV the same as properties on the coast.
New Orleans, LA · Member since 2015 · 14 posts · 9 votes
11y
Take my words with a grain of salt (very new to re investing), but I think flipping might be something you should at least consider if you're really intent on this prop. Buy and hold seems very dicey. Otherwise, I would just walk away. As David Krulac said... easier fruit to pick. Good deal or not. All it takes is one good flood and even the math still made sense after a big flood... there's still the actual clean up, repairs, getting it in rent shape again and the general hassle that something like that would entail.