Should we Pass on a flood zone property?

[Anthony Vespa]

we got into contract recently on a 14 unit property and go to find out its in a flood zone area (elevation cert. 22 feet). we finally received the ins. cost and flood cost on the property which came in at around  $ 19,500.00- double my estimate, so my bottom line got hurt by another 10K. Here is the real worry i have, 

Will the escalation cost of insurance out perform the rent increases of 3%? If so, my bottom line loses every year. I don't want to consider appreciation because we believe we purchased mid to high for the clearwater area. 

Here are the numbers: 

purchase price $ 900,000

25% down $ 250,000

leverage $ 650,000 = $ 4085.00 a month on a 5/25 amortization ballon. 

gross income $ 135,000.00

operating cost $ 64,000.00

net $ 71,000.00

less loan payments $ 49,020.00

net cash on cash return $ 21,980.00 8.8%

any advice would be greatly appreciated 

[James C.]

Anthony,

Is it multiple buildings? If so you may be able to go back to the title company and have them recheck the maps. They check to see what buildings are in the flood zone, and see if you can insure only those buildings. If the flood zone is only on the land, and the building(s) is/are out, then you shouldn't need flood insurance. You also don't specify what zone, and that can make a difference.

Another option is to see what you can do to engineer the land/property to make it "flood proof". This involves hiring an engineer, surveyor etc. but may be worth it in the long run.

Other than that, not much that I know of can be done. If it's a real concern, obviously walk, or get a price reduction that makes you more comfortable.

Good Luck!

Jim