1st post, 1st property: 2 duplexes but need flood insurance.

[Tyler Barnes]

I am currently in negotiations on 2 side-by-side duplexes. I think it's a "B+" neighborhood, great school district, 90k per property, roughly $15,000 in maintenance costs (new HVACs, some mold in one). Buying as a pure rental property.

I just learned that the property is in a flood zone. $1,600 quote for flood insurance per property. The numbers still work out favorably, though. $600 rent/unit, $1,000 monthly earnings. 3 units filled, 2 have long term renters. Cap rate around 7.

I would love any advice for this deal.

(P.S. first post and first rental property. Property is in Kansas City, MO area). 

[Jeff Copeland]

We deal with the flood insurance issue a lot here in Florida, and it almost always kills the cap rate. In my opinion, it simply becomes a matter of opportunity cost. 

If the numbers work, they work (and I don't have enough info or knowledge of your market to help you analyze them). 

But the real question is...Can you buy similar property(s) in a non-flood zone that will perform equally as well without paying $3200/yr in flood insurance? 

If so, then buying this one may cost you the opportunity to buy that one. 

If not, then buying this one (assuming the numbers are good) is almost certainly better than buying nothing.

However...there's always downside risk with flood insurance, so be sure to do your homework...If they remove the federal subsidies for the National Flood Insurance Program (the likelihood of which is a matter of debate), flood insurance premiums have the potential to skyrocket. If your flood rates double in five years, how does that change things? And will anyone want to buy it when you decide to exit?