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Updated about 8 years ago, 09/22/2016
Bet you've never had this question before!
I'm sorry if this is in the wrong forum, I couldn't find a category that fits so I figured I would post in the most popular one.
I have a property under contract that I want to use as a rental. My initial projections showed a 7.1% cap rate, 19% total equity return, and an equity internal rate of return (IRR) of 23%. This also showed cash flow at 4118/year - 343/month. This seemed like a pretty stellar single family rental up front. Unfortunately, I just found out it needs flood insurance and the flood insurance premium is 2700 per year! This changes the numbers to:
cap rate: 5.5%
total equity return: 11%
IRR: 19%
cash flow: 1418/year - 118/month
Now I understand these are still decent numbers, but I want to do everything in my power to get back my original numbers! The flood plane is in two parts on the map: one very very light blue and one a dark blue. The dark blue portion is only over the back yeard, while the light blue portion covers the house and the street in front. I assume the light portion would be cheaper flood insurance because the flood plane is less "severe." I'm thinking of doing some creative landscaping in the back yard to create a 'barrier' between the back yard and possible flooding. This could be a stem wall or, more likely, building up the outer perimeter of the back yard 3-4 feet with retaining walls on both sides and having a two tier back yard. I think this would be attractive and it would also prevent severe flooding of the back yard. I'm in Colorado Springs and this particular flood plane is nowhere near a burn scar or anything to make me think flooding will be bad and I'm not even sure why this flood plane is there.
So my question is this, do you think landscaping measures can eliminate my need to insure for the severe flood plane and allow me to insure for the lesser of the two evils?
I'm also curious if I could legally subdivide the parcel due to its size (pretty big for an urban parcel) and by subdividing, lose the requirement to insure the sever flood plane. Any thoughts?
Thanks!
Ryan
PS - I've attached a picture of the flood plane map so you can see the delineation between planes. The green box is the approximate shape and size of the parcel I'm purchasing.