Renting to tenant in flood zone

[Anja Brey]

Hi all, 

We are thinking of buying a 2 story victorian at the edge of a flood zone. The house will require us to get flood insurance as the owners. We want to rent out the ground studio unit to tenants and were wondering whether we should disclose the flood area zoning to the tenants and require them to have flood insurance, which might make it hard to find tenants as it increases their living costs. 
Any input and thoughts are appreciated. 

Thanks, 

Anja

[Marcia Maynard]

In this case, I believe the property owner should buy flood insurance (in addition to a fire policy/landlord policy/umbrella policy) and the tenant should buy renter's insurance. You are insuring your property/liability and they are insuring theirs. 

Renter's insurance is quite inexpensive and will benefit not only the tenant, but also you if an incident occurs on the property that was the tenant's fault. Renter's insurance covers their personal property (belongings) and their liability, as well as temporary living expenses in the event the property is damaged and becomes inhabitable.

Let them know if the property is in a flood zone, but also let them know historically how often it has actually flooded.

[Kameron Ballentine]

I have worked on floodplain maps in the past, and can tell you that flood insurance is not a typical business because it's administered by the federal government.  If flood insurance is required, it is pretty expensive.  Typically flood insurance costs range from several hundred dollars per month to a few thousand dollars per month depending on what type of floodplain the house is in.  If you going to buy the property, make sure that you know how much the insurance is going to cost, and that you've factored it into your analysis.  The fact that the property is in the floodplain decreases it's value significantly. 

Flood insurance is required if your going to get a federally back loan (basically, all mortgages are federally backed).  If you decided to stop paying flood insurance at some point along the way, then the mortgage company can foreclose on the property.  Furthermore, if you get the required flood insurance it will only cover structural damage, but will not cover incidentals (T.V.s, personal items, etc.) To cover the personal items requires a separate policy that can be very expensive.

In answer to your question, I would look where the house is in the floodplain (i.e. is the house on the edge of the floodplain or does it extend well beyond the property).  If its on the edge of the floodplain then the risk may not be as great, and you probably wouldn't need to require the tenant to get a separate policy.  I would get them to sign a document that states that you have notified them of the fact that they live in a floodplain and they are aware of the risk.  They can then make the choice in regards to insuring their personal stuff.

[Derek Lacy]

Knowing there is a significant hazard and not disclosing will get you in lots of issues. With that being said you are the investor so do what you feel is best. Me... I'd never buy in a flood zone or the edge of a flood zone. 25%+ flood damage happens in "not a flood zone". So a 100 year flood plain (1% chance) is where they require flood insurance. I would suggest never buying in anything less than 10,000 year (0.01% chance).

[Sarah Ziehr]

I believe you will have a hard time finding tenants who will rent out the space. 

[Anja Brey]

Thanks, all!

[Rebeca Randle]

I can't even believe an Investor would even consider NOT letting the tenants know about a property being in a flood zone. As former real estate investors my husband and I always did full disclosure. Anything else is very dishonest.