So first, I'm new; keep that in mind.

Started direct mail marketing 2 months ago and have sifted out a couple leads and saw a couple houses. As of yesterday, I was about to get my first contract signed. I have negotiated with the seller and we finally arrived at an agreeable price. The deal was ok - buy it for 79k, 4-6 week rehab of about 25-30k, and an ARV of about 150-155k. The house is in a good town, but it's on a private road. The neighborhood has some very nice houses on the ends of the road but drops in quality fast as you heads towards the middle, the subject house was right at the end of the nice house area. It was a 3/1 but the seller's midway through converting it to a 2/2 and there isn't a clear path back to 3/1 or up to 3/2. Even with 2 bedrooms though, I'm confident in my numbers on the ARV so I kept going.

In our last discussion, the seller mentioned a flood insurance policy which I immediately registered as a problem. Followup questions led to her telling me she was paying about $900/yr for coverage.  Not knowing a ton about flood insurance issues, I assumed this was a small issue and used it in part to negotiate her down from the 125k her realtor told her she could get as-is.  

Although later due diligence would have caught this, and although we had a verbally agreed-to deal, I decided to contact my insurance agent. She came back with a quote of $2260 based on a value of 100k. Now the problem is getting bigger. Once she adjusts the value to the ARV of 155k, I'll probably be closer to $3000 or worse.

The air immediately starts seeping out of my balloon.  Things were going so well.  I direct-mailed people, I followed up on calls, I negotiated a deal, I started planning my answers to the Famous Four...it was all coming together.

But now I'm cutting it off.  I'll wait till I have the final numbers from my agent to save some face with the seller and help her understand what she'll be up against if she continues with the property.   General consensus seems to be that flipping in a flood-zone can result in longer holding times after rehab.  Looking at the numbers, I think once you factor in the additional flood insurance, it effectively drives my comps down by $200/$300 in mortgage affordability. Lets face it, it's a 150k home on a poor-man's river...nobody's going to just eat that extra monthly cost.  Add to that that flood zone adjustments and resultant premiums seem to be on the upswing, so the new owner would be screwed in the long-term.  People will avoid my fresh flip sight-unseen.

I searched around the forums for awhile before making my decision. Hopefully my story will help somebody else as others helped me.  I've now added flood insurance to my initial vetting rather than leaving it as just a contingency on the PSA.

I don't believe in investing in the greater fool theory, and I think I'm too early in building my  business to risk being stuck with an albatross tying up my money, eating at me with stress and holding costs, and potentially sinking my ship. I'll wait for a better deal.  More time to come up with my Famous Four answers anyway.