All Forum Posts by: Sherman Dunn

@Sherman Dunn I definitely avoid properties that are not in flood zone X (flood insurance not required). But you could come across a deal where the numbers would work even if the house requires flood insurance.  Seeing that this thread is old did you end up buying that building?

Turned out to be a non-starter, Anthony. It’s still on the market though, been there for quite a while now. 

I am in the process of purchasing a duplex in a flood zone. However we are planning to do sort of a hybrid BRRRR, long term with a substantial amount of equity at purchase. If our main strategy was to sell quickly I would probably move on to another deal.

@Sherman Dunn We have a lot of flood zones in NJ, too.  It's a non-starter for me if I am flipping the property.  I always have my insurance agent check that before I even go visit a property.  However, if I am buying as a buy and hold, and the numbers still work for me with the insurance costs then it's fine for me.

If your pro forma margins are indicating only $25-$50 of cash flow, that is too thin, assuming you are considering it as a rental. In other words, it's not worth it. Your hazard insurance has the possibility of varying that much from year to year here in Louisiana, ($300-$600), thus negating your cash flow. 

In response to the comments regarding selling a home that needs flood insurance, it does make it harder, but people down here want to live where they want to live and regularly buy homes that need flood insurance. Heck, most of South Louisiana is one type of special flood zone or another requiring flood insurance.

Definitely. Since the flood of 2016, I may consider changing the per door criteria while analyzing that I deem feasible, due to the increase in flood insurance lowering cash flow by quite a bit on a few properties we are looking at. But absolutely factoring that into the potential offers. 

@Sherman Dunn it's usually a deal breaker if there are similar deals down the block that aren't in a flood zone. Even if the deals in the flood zone are a little better, you are still better off avoiding them. It's extra risk (because insurance companies aren't in the business of paying out claims), and hassle, that's why they might be cheaper to begin with.

If it's $500/door but the numbers work, is it still a deal breaker for you?

Feeling your pain. Yep, we have stupidly high insurance in SE Louisiana. Especially property insurance. Flood insurance rates actually took a major nose dive in premiums for most of Orleans Parish a couple years ago when FEMA re-drew the maps. You can't say that very often! But I don't know exactly where you are looking, so that may not apply.

If you haven't already, get multiple quotes on both. Flood insurance rates are usually identical between agents/companies because most of them are through FEMA but, every once in awhile, I've run into really outrageous rates when an insurance company is offering the flood insurance themselves.

For property, I use NREIG.  They cater to investors and are some of the cheapest rates I've found.  "Cheap" being a relative term, lol.

Here's another tip.  Also get quotes for property-only insurance and a separate policy quote for just liability.  I know that sounds counter-intuitive because things are usually cheaper in "bundles".  Oooohhhh, but not in SE Louisiana.  It can be a huge savings to buy them separately.  This is my guess.  For liability, potential weather perils don't matter, so there are tons of companies to choose from for liability-only policies.  Whereas for property insurance, there are very few players in the game for this area so the whole quote is jacked up.  Even the pieces that have nothing to do with named storms.

Also look at higher deductibles and buying ACV (actual cash value) instead of replacement value insurance.  Agents will act like ACV is the worst thing ever but, for investors, it's often a better option.  Just do your own due diligence to fully understand the differences.

That's a long answer for hopefully improving the monthly cash flow on the deal.  But, bottom line, if the cash flow isn't there.  It isn't there.  If that is what you are aiming for, it's probably not the right deal for you.

What is the yearly cost of the flood insurance?