Flipping a house in flood zone

[Tuval Barnea]

I'm under contract on a house in Atlanta that I'm planning to flip, the house is in a flood zone because of a small Creek that runs in its back yard, however it is located in an amazing area with huge potential.

I am considering 3 options and would like to hear what the BP community think:

The house is 3/1, 1000sqft

1. Doing a cosmetic flip, adding another full bath and staying within the current structure. That option should yield around 15-20% of the investment.

2. Adding 500sqft and doing full rehab on the existing house. The investment here is nearly twice than option 1 but so is the potential profit, the problem is that for such project I will have to pull specific flood related permits and I have no experience with it so it will surely take longer and probably will eat up my potential profit.

3. Tearing down the existing structure and building a beautiful modern 2500sqft house that is above flood zone. That option is the most expensive and costs nearly twice as much as option 2 but again, the potential profit here is roughly 50% more than option 2. It will also require special permits and more time.

What would you do? Take the risk and invest big bucks to get bigger bucks or do something minimal and get out fast with less money but also less complications?

And another question, would you buy a house in a flood zone or does it scare you away?

What scares you more, having the actual house flooded (1% chance) or having to pay for the flood insurance?

Would love to hear your thoughts