Any issues with buying a property in flood zone?

Question

Hello all,

I am looking to purchase a property to fix and flip. The property is located in flood zone. Are there any issues with it besides the buyer needing to get flood insurance on it?

Another question I have is when you look at comps, do you consider comps for a property that has no basement compared to the subject property with basement? How do you factor for the basement?

Thanks!

Don Konipol · Answer

Real  problem with buying in a flood plain is that the runoffs can change for any number of reasons, and FEMA can decide that the flood plain is now a FLOOD WAY.  This determination can render property virtually worthless, as building requirement for a flood way are often so expensive to implement that there is no improvement that can pay for itself.

Bill Gulley · Answer

First, I would not buy in a flood plain. Flood insurance can be as expensive as the HO policy! Depends on where it is and which flood plain, 10, 50, 100 year flood plains. We have them all here, lol. The problem is that your buyer, like you said will be required to have it which is another expense for as long as the is any loan on it. So, say $350 a year for 30 years, what's that worth companred to other comps not in a flood plain.

I owned several single family homes along a river just east of town, all were in a flood plain, but doing a spot elevation where the improvements are located showing them above the flood plain can get you out of the flood requirements. If improvements are notin the flood plain, you can be good to go. I sold those river homes and kept one, it never flooded, can't say that for a couple further down the hill..

Basements are cheaper than at grade or above grade construction and usually less than upper floors. Afinished basement done in the same manner as the at grade construction (sheet rock, unobstructed ceilings, and trim will bring about 75% per foot of the at grade structure. If the finish and quality is less, it can be about 50% of the main floor. An unfinished basement is about 25 to 30%, depending on its potential to be finished. Older homes with unfinished basements may not add any value, especially if they are wet and that can start deductions for repairs.

Basements are a local amenity, you won't find them in southern Louisiana, but in Maryland they almost build hills to have a walkout. If your subject home has a basement, the best compas will have them as well, similar in finish.

Bill Gulley · Answer

Location, location, location, price, price price, potential, potential, potential.

Three things I consider initially. With any deal, how is the location? What's the price, I have passed on homes  for a dollar! If it is in a flood plain and the area will be rezoned, that falls in potential.

Nothing is impossible, only improbable. With enough money you can do almost anything, but can you make a profit at it?

Bill Gulley · Answer

Yep, Don and Jason are right,  FEMA can dictate many things. Your Department of Natural Resources (state tree huggers) can get involved. Ever have a septic tank under water for a few days or a week? Your well water can be contaminated. City water can be contaminated too and you'll be boiling water. Floods bring all kinds of contaminates on the property, guess who gets to remove them...

You may not be able to make improvements or make any additions. I did a redevelopment phase that basically froze everything in a mobile home park that was in a flood plain, stopping anything on the exterior or on the property from being improved and in a short time, the city took the property and turned it into a park behind a new firestation.

FEMA can also limit improvements and amounts of insurance coverage. They can also decide to buy you out, and the best price will be the average of two appraisals, one of theirs and one of yours, they won't care what you did to it.

Depending on where it is, the Corps of Engineers can be involved....remember Katrina?

Three years ago we had some flooding in this area with FEMA, the Corps, DNR, and the EPA involved,  no winners, at least no winning homeowners.

As I said, if you can't get a spot elevation showing the property improvements are above the flood plain, I would pass on it.

J Scott · Answer

Agreed with Bill, though I'll add that flood insurance comes directly from FEMA, so prices will be equivalent regardless of which insurer you work through to get it.

That said, I would recommend calling your insurance agent and finding out how much the insurance will cost.  It may be as cheap as $200/year, in which case, it may not prohibit finding a buyer, but if it's much more than that, it will certainly be a factor for most buyers.

Bienes Raices · Answer

I agree. If you can still get it to cash flow with the additional cost of the flood insurance, why not? Large parts of Volusia County (where Daytona Beach is) are in a high risk flood zone and I see people buying rentals, wholesaling there, etc. I don't know about the "flood way" issue that Don is talking about, though--that might be something to investigate further.

Sharad M. · Answer

The property that I am looking to purchase is located in a flood zone and the city had a major flood in 2008. However, since the flood, levees have been built. The project was undertaken by the Army Corps of Engineers. The city has requested for FEMA's approval for a "conditional letter of map revision," which would remove the city from the flood zone.

Would you pass on the house in the flood zone? When I looked at the house this past weekend, there was water in the basement. The agent said the utilities *CAN'T* be turned on until the exposed wiring is taken care of.

Do these issues of flood zone and utilities make this house not worth the pain?

Any issues with buying a property in flood zone?

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