Bad idea to buy in Houston (flood areas)? How much can you lose?

Question

Is it bad idea to invest in properties in Houston due to hurricanes and the high chance of flooding? How much would the insurance be? How much can you lose if your home gets flooded? Is the ROI significantly lower and impacted than areas outside of Houston?

Brian Foster · Answer

@Tom Smith good question about investing in Houston. The answer is that to NOT invest in Houston due to fear of flooding is probably a BIG mistake as there are some very simple precautions you can take to mitigate the risk extensively. The Houston economy is one of the biggest and fastest growing in the Nation/World so it is a great place to invest if you take the proper precautions.

Here is one: http://www.harriscountyfemt.org/

This is an interactive flood zone map. We use it when we do acquisitions of properties and lots. You can see exactly where any address is in Harris County in relation to flood zones. We don't buy in Flood zones [unless we get a deal we can't pass up] and cash flows even with flood insurance.

A little about flood insurance: Protects you from rising VS falling water. Insurance in "100 year flood zone" is quite expensive, thousands per year. Insurance in "500 year flood zone" much less expensive [$400-$600 annual] on $150K property. Insurance out side of any flood zone is about the same as the 500 year zone.

Flood damage to property is expensive to repair without insurance and a decent rule of thumb is to budget $25/ft for repairing a home in a flooded area [but that can vary a lot depending on the damage]

Fred Heller · Answer

The Harris County Flood Zone map is easily available online, and it performed perfectly during Harvey. The only areas not in a flood zone that flooded were those areas that were affected by the opening of the dams.

There are two basic flood zones: The 100-year zone and the 500-year zone. I would be more cautious of the 100-year zone because it is much more likely to flood.Insurance in the 100-year zone is going to be pricey, well over $1000. I saw a quote for one property the other day that was $2800. In the 500-year zone, you're probably talking $500-$600 give or take.If you're not in a flood zone it's pretty cheap. My house is not in a flood zone and I only pay $400 a year.

Brandon Cravens · Answer

I am echoing what @Brian Foster said.  The entire city isn't in the flood plain. It may seem that way from afar on TV but I saw a statistic that only 6% of the structures in Harris county flooded from Harvey.

Tom Smith · Answer

Hi Brian, thanks for the great post. Do the insurance companies use this exact map (the harriscountyfemt.org map) when quoting you flood insurance? How much would the flood insurance be in 500-year zone and in the X flood zone on a 300k, 400k, and 500k house? Do you know how I can get accurate quotes? I am looking at properties near the Medical Center and Kirby/Montrose/Galleria areas.

Eliott Elias · Answer

You would have to check if the property first and foremost is in a FEMA flood zone. You don't need flood insurance if your property is outside its parameters. With ATLAS 14 homes that were in the 500 yr floodplain are now in the 100 yr floodplain, be aware of the flood map changes.

Barrett Bridgewater · Answer

Expanding on @Fred Hellers remark:

100 year FZ = 1% chance of flooding in a given year.  Most lenders will mandate flood insurance in these high-risk flood zones. These are more expensive policies.

500 year FZ = .02% of flooding in a given year.  Lenders do not mandate flood insurance here.  These are normally called low-risk X-Zones.  You get preferred rate policies here.

@Kevin Wood and @Frank Adams FEMA and local communities update the Flood Map periodically based on historical data.  So the maps will continue to change as weather events happen over time.  But the updates are generally many years in between.

@Brian Foster @Isstad Rashadeem @Tom Smith Consider this extra tidbit when evaluating acquisitions: determine if those flood zone properties can be reclassified before striking them off your list.  Flood Zone properties can be the best hidden deals.  Here's how:

The Flood Map is primarily 2D and doesn't take into account 3D aspects at a micro level. In other words, the map is drawn with broad strokes and has lots of inaccuracies.  Those inaccuracies create opportunities!  How?  As an engineering firm we find very often that even though a property is in a flood zone on the map, the structures are built sitting above the flood level.  For those buildings they qualify to be removed from the FEMA Flood Map and reclassified out of the 100yr high-risk and into the 500yr low-risk X-Zone designation.

At that point the lender mandates get dropped.  Now, if you think there is still a chance of flooding you can choose to convert to a cheaper X-Zone policy.   Or you can choose to eliminate that flood expense entirely and reap the rewards of the massive NOI boost that no one else knew was possible.

We do this work all day.  Happy to provide a review anytime you run into flood zone properties.

Frank Adams · Answer

A note about Houston, we lived there for 25 years and still have a house we collect a mortgage on. The house we lived in from 1988 to 1995 and collected a mortgage on until 2003 never had water reach half way up the curb in all those years. My wife's dearest friend's house, six doors up the street, flooded for the third time in 6 years during Harvey and they sold it to a CA investor for about $60K. They had paid $135K in 2002.

Another friend posted TV news footage of the neighborhood as their boat went past our friend's house. The water was almost to the top of the garage door. I'm pretty sure FEMA will update their map.

Kevin Wood · Answer

Hey we had a house flood. We made about 30k off of the flood as we got an SBA loan well over the damage done. We have over 60 doors and only had one house flood. Harvey was an anomaly. I believe that flood risk is a bit overrated as most homes in Houston if flooded would trigger government support for affected home owners. @Tom Smith I'm in Mountain View so can meet up if you want to learn more about Houston.

Brian Foster · Answer

@Tom Smith I like Ryan for insurance questions

https://www.facebook.com/Texas-Prime-Insurance-Age...

He has saved me a lot of $$s and answered a lot of questions. Very good with investment properties.

No financial affiliation at all

Isstad Rashadeem · Answer

@Tom Smith Investing in Houston is a good idea from the aspect of population and job growth.

Bad idea to buy in Houston (flood areas)? How much can you lose?

Most Popular Reply