Would you buy and hold rentals in or near TX 100 yr flood plain?

Question

Hello experts,

I'm looking at a couple of duplexes that look good on paper in terms of numbers and cashflow for a buy-and-hold rental investment, and are in a strong rental market. However, these units are right on the border of the 100 year floodplain in Texas, based on the city's floodplain management office. The seller has provided the elevation certificate and the insurance quote on it is 2x what it would be on a similar property that's far from the floodplain.

If you've had experience in investing properties in or near floodplains, I'd love your input on how it's been for you, and the risks you considered when buying them.

Thanks!

Nitin

Account Closed · Answer

Yes, if the flood was last year. Looks like you are in San Diego. Doesn't San Diego have earthquakes and canyon fires and pollution from Fukishima and traffic and taxes and crows? (The crows are the worst, nasty creatures.) Sure, unless you can tell the future.

Chris T. · Answer

@Nitin Dhiman

Not an expert but I would not personally. Most landlord insurance do not cover flooding, so you would have to budget for that.

In addition, when you decide to sell, your buyers would be limited as well.

So when you do your comps, make sure they're accurate (in similar flood zones as well), not your typical comps.

Nitin Dhiman · Answer

I don't live in the area near the property so I don't "have to" invest in flood plain areas. I was just looking at it from the "invest in what others won't" angle, but this one doesn't look like it's worth the risk or hassle.

Thanks everyone for your responses. I really appreciate your input and for keeping my head screwed on straight. This is why I'm on BP!

Nitin

Bill S. · Answer

@Nitin Dhiman so this is my 2 cents. If you can buy out of the floor plain then do so. When you have a property in the flood plain it's not if you get flooded, it's when you get flooded. Some areas (like the Outer Banks of NC or New Orleans) will be flooded. If you live/invest there, it's part of life. At the same time if you have a choice, ALWAYS chose outside of the flood plain. Know this, the flood plains were first defined about 50 years ago (in the West there was at best 80 years or so of data when the analysis was done). As time has passed, we have acquired more rainfall data and the flood plains get updated (get larger in most cases). That trend is likely to continue.

Stanley Parsley · Answer

We just bought a property on the Galveston island last year

there was a policy we had put together for flooding and flood plain and 100 year flood proxy

big deal- not really because in some locations are all flood plains for instance new Orleans is under the sea elevation

just figure what your flood insurance costs and add it like was mentioned

one thing they haven't got yet is zombie apocalypse insurance- maybe we should put together a binder for that- bet people would buy

enjoy

Rogers Smith · Answer

In south Louisiana we get a 100 year flood about every other year. For almost every property flood insurance is required, so it simply becomes a part of your cash flow model. Likewise, home buyers generally budget for flood insurance. I am structuring some lot purchases right now which are in flood zone A. I will build the houses on piers, and maintain floor insurance.

Bottom line, if the investment cash flows with flood insurance included, I would not walk away simply because of the 100 year flood plain.

Ralph R. · Answer

@Nitin Dhiman  I survived a 100 year flood in Colorado (killed 300 people)  Its called the big Thompson Flood.  google it. and they just had a 500 year flood a  3-4 years back,  in the same area.  it took out the 100 year flood proof hiway they re built the first time!  They do happen!!  You cant get a permit to rebuild in some areas of that 100 year flood plain, and in all other areas of it banks won't lend unless you have flood insurance.  If you want a house you may or may not be able to replace or you cannot sell cause the bank wont lend against it then its ok.  For any increase in value, or any quick exit its a huge risk.  I placed an offer on a house in my area.  The numbers were pretty good.  Then the bank called and said a 100 yr flood plain ran through about 1/2 the house.  They would finance it with proper flood insurance.  a call to my agent and the flood insurance increased the insurance cost from $450 a year to$1450 dollars a year. I was really glad we did our DD. The cost of flood insurance shot that deal right out of the saddle!!  That house will be difficult for that guy to sell.  He got it cheap from an estate (no loan) held it a couple years and his price to me was darn good.  He was as shocked as we were when we found out about the flood plain.  you cant tell it when you drive by it at all.  The flood plain is a couple blocks wide and includes a school right next door to the house.  Now he's caught.  He needs to sell or finance it and the rent won't cover that flood insurance, and leave much cash flow.  If it does flood theres no guarantee the city will allow him to rebuild it.  In that case the best he could hope for would be to get his equity back from the insurance company.  If that's the best place I could find to invest my money I would sure look at changing  my thinking and or strategy!  RR

Jason Hirko · Answer

@Nitin Dhiman Yes, I have a few. After hurricane Ike and Gustav, I bought one that was literally impossible to insure for a few years after, because a lot of the insurers pulled out of the worst hit counties on the coast. But I bought the house for about what a few years' premium would have ran, so it was a good risk

Glenn Matthews · Answer

I agree with @Chris T. Insurance is going to be your biggest hurdle.

Would you buy and hold rentals in or near TX 100 yr flood plain?

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