Desperate Seller, Rental in Flood Zone

Member since 2020 · 62 posts · 5 votes

Hi folks,

I have a seller that is very desperate to sell their home. The thing is, the home is in a flood zone AE - EL 4. I know AE is bad, but I'm not sure if this is a "problem solving" situation or a "walk/run as fast as you can the other way" situation

Thoughts?

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Chris SvendsenPro Member
Front Royal, VA · Member since 2016 · 306 posts · 240 votes
4y
Personally I would run. Flood insurance not cheap and a problem I just don't want to deal with.
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Mason Hickman
Real Estate Agent · Sandwich, MA · Member since 2014 · 974 posts · 636 votes
4y
@Abe Alam
Flood insurance will only continue to increase. When running the numbers, does it work with the flood insurance premiums? I personally would have some reservations assuming a long term hold but if it’s a good deal, it may be worth scooping up and holding short to medium term.
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Jonathan GreeneBusiness Member
Real Estate Consultant · Madison, NJ · Member since 2016 · 6k+ posts · 7k+ votes
4y
Multiple articles just came out about a huge jump in flood insurance, at least in the Northeast. I would only buy in a flood zone if I was paying cash. It's not a horrible investment play, leaving the basement unfinished, because you buy a house at a discount in a flood zone, but it rents are market because there is no downgrade to the tenant on the quality of the rental because it's in flood zone. Many flood zones don't flood and during a major weather event, plenty areas flood that are not even close to a flood zone so it would depend on how desperate and the numbers and flood history.
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Patti RobertsonBusiness Member
Property Manager · Virginia Beach, VA · Member since 2016 · 2k+ posts · 2k+ votes
4y
What everyone is saying above about buying in a flood zone is true, if the property is on a slab. If the property is on a crawl, mitigation can be done, which will reduce your flood insurance. One think I learned from another investors mistake in my market is that when a flood claim is made, the insurance companies report that to the city building permit department. The city keeps track of cumulative flood claims for the property, regardless of ownership, and if the claims reach a certain percentage of the tax valuation and permits have not been pulled, the city will require the property be brought up to current zoning standards. In the scenario I was involved with, an investor purchased a brick side-by-side duplex with cash. He didn't research the flood zone, and because he was using cash, there was no mortgage company to check or require flood insurance. He hired my company to manage it and when we called to schedule the rental inspection we were told we have to first call the permit office. That's when we found out that flood claims exceeded the limit without permits being pulled. To be used, the property had to be brought to current zoning, which means the brick building would have had to have been raised. If the owner had purchased FLOOD insurance, he would have qualified for some FEMA grant funds to help with this, but he had no flood insurance. He ended up having to sell the property to a builder who tore the duplex down and built a new construction house. Very expensive to learn, and I am thankful I learned it from someone else's mistake!
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John Mocker
Insurance Agent · Norwalk, CT · Member since 2016 · 2k+ posts · 1k+ votes
4y
Abe,
While the information about Flood Insurance rate increases is accurate, it is only referring to the National Flood Insurance Program (NFIP) from FEMA. There are now "Private Market" Flood policies that are cheaper than the NFIP for a lot of properties. If you are considering the purchase you should get an agent(s) to rate multiple Private market pollcies to see where those rates are. I suggest getting multiple quotes because each Private Market has their own proprietary rating algorithms and I've seen big diffences for the same property in different companies. Just finished one where the two best rates out of ten companies were still $1000 apart. Many private markets can rate based on just the address.
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