Flood insurance on a flip?

Question

I’m looking at a flip that’s located in flood zone AE. I’ll be doing it with a fix and flip loan and plan to be out of it in about 3 months. Do I need to buy flood insurance on it?

Mike Klarman · Answer

Depends on the lender.  Some require it if designated any other flood zone other than X.  If it is in a flood zone, you will be required to get it.

Bob S. · Answer

why not, its peanuts, only for 3 months

John Mocker · Answer

Michael,

I would get quotes for Flood and figure in the cost.  It is likely, if this a bank loan, that they will ask for Flood Insurance even while you are flipping the property.  I have had to write flood for clients that were renovating to hold the property and also for clients who were flipping.

The good news is, with all the Private Market Flood companies out there, the cost is not as bad as it was in the past.  Make sure your agent has access to many different Flood Carriers.  The one that will work out best for you on this property may be completely different for a different location.  The Private Market Flood carriers each have their own rating programs.  I've found that, with just the address, we have been able to get quotes for the bulk of these companies so you will not have to jump through all the hoops you had to with the FEMA National Flood Insurance Program.

Ben Guttman · Answer

Some Builders Risk Policies offer a Flood Endorsement   check out usassure it's a Zurich product

Andy Sabisch · Answer

As William said, you need to assess YOUR situation as they are all different.  We have one property that is on a creek and is an AE zone property . . . but the property has 3 acres and the house is much higher.  The seller we bought it from had been in the house for her entire life (rare huh?) and only had water at the basement once in that time (82 years).  We went with flood insurance because of the AE rating for the lender but were able to survey it and have that adjusted.  Others are in the middle of AE zones and have gotten water in recent years so those need the flood insurance.  ALso having quotes and information available for possible buyers is a great approach and one that will show them that the insurance is not daunting - and the range of quotes you will get are HUGE.  My wife's brother got a quote of $12,000 / year and walked away from a house they liked as a result and then found out that Neptune woudl have insured it for $1800 / year.  Shop around and at least provide that to buyers.

William Harvey · Answer

@Michael Furey I agree with @Andy Sabisch. It is a calculated gamble. My first flip was in a flood plain....The 100 year map had the corner of the deck in the flood plain, but common sense showed there wasn't really any real danger of flooding and the property never had any issue in the past with this. In this situation we decided to forgo flood insurance and it all worked out. But like Andy mentioned, it is a gamble if you do this and you should try to make an intelligent decision.

One more thing to note is that it would probably make sense to "tee" everything up with an insurance company regardless of whether you get the policy or not. First time buyers (and most buyers in general) are nervous nellies, so if you can show them "hey, it's in a flood zone, but only slightly and here are a few insurance providers that you can reach out to" then that'll be helpful. We've found that when we guide the buyer and are proactive, things go much smoother. Hope this helps!