What's the scoop on flood plains?

Question

I am looking at purchasing a home in KCK which is close to the river. I've seen a couple of comments saying that buying in a flood zone has been a mistake or the fact that they didn't find out a purchased property was on a flood plain totally killed their deal and their cash flow. I hardly know anything about how flood plains impact REI and am seeking some wisdom on this subject.

1. How much can insurance go up just for the flood factor?

2. Why would buying in a flood plain be a disaster? If you have flood insurance, it should be okay right?

3. How can I verify whether a house is in a flood plain before purchasing a home?

Any other knowledge on flood plains and RE would be greatly appreciated.

Thanks,

Carlos O.

Jeremy Shepherd · Answer

@Carlos  O.

Here is my advice on flood plain properties...avoid them until FEMA figures out mapping from the Biggert Waters Flood Insurance Act of 2012. Read up on this piece of legislation.

Quick story about my personal residence about 1/4 of a mile away from the Ohio River in WV. When there is rain mixed with heavy snow melt the sewers in my town will back up putting water in my unfinished cellar once in a great while. This is my personal residence and is mapped in the same flood zone as properties that are ocean front. My flood insurance was normally about $755/year. In December of 2013 I received a letter from Allstate letting me know my premium was going up to approx. $7,900 per year due to the Bigger-Waters legislation. It has since been delayed by congress and I was able to get insurance through a private insurer out of Florida underwritten by Lloyds of London, but it covers nothing and only satisfies my lenders requirement to have flood insurance and that was about $1k per year.

Biggert-Waters is delayed for four years while FEMA remaps and does research. This was supposed to be done before Biggert-Waters was passed in 2012. I personally do not think it will be done properly and we will be fighting the same thing in the future. I do not have a problem paying flood insurance, but I should not be at the same risk as hurricane areas.  A scale of risks needs put in place with private insurance companies. Also the delay only covers primary residences I believe. Not investment, commercial, or vacation homes.

Anyway, I personally avoid investing in properties in the flood plain because of my experience with my personal residence. If you can pay cash or buy on a land contract then flood insurance isn't required, but if you ever want to sell the property and a potential buyer needs to get a mortgage the flood insurance issue may scare them away. I couldn't sell my house now if I wanted to for anything near what I paid for it, but sure enough, my property taxes increased ten percent this year.

Remember flood insurance is a government program. Two scariest things to hear, "I'm from the government and I'm hear to help."

Colleen F. · Answer

Just thought I would add this site also explain flood mapping changes in case that is relevant.

https://www.floodsmart.gov/floodsmart/pages/flooding_flood_risks/map_change.jsp

Petar Skobic · Answer

Jeremy Shepherd  thanks for the Biggert-Waters Flood Insurance Act info! This changed my thinking on flood plains.

Carlos O. · Answer

@Colleen F.

I just got the flood map from FEMA and checked freeflood.com like @Dan Perrott suggested. The property is a bit shy of 1.5 miles from the KC river and rated as C by Freeflood. So it's not on a flood plain.

Jeremy Shepherd

I did a bit of research on Biggert-Waters and found the delay you were talking about. For any of those interested, Congress passed a law to delay the charges and also really helped out (for once) with the outrageous prices increases, check out what the NAR summary here http://www.realtor.org/topics/national-flood-insurance-program-nfip/legislative-analysis.

Carlos O. · Answer

@Dan Perrott

I will definitely check the site out. Thanks a lot for sharing that!

Jeremy Shepherd

8K for flood insurance a year wow! That is crazy. Anything remotely to that will definitely roll me under the bus on some of these properties I am looking at. The properties look decent on paper, but they have been on the MLS for about 3 months. The properties range from 50-70K and will cashflow about over $100 with 20% down. I'm trying to find out what is wrong with the properties. If they were really good deals, I think they would have been gone by now.

Colleen F. · Answer

You need to look at what flood zone they are  in,  my guess is that is what is wrong with the properties.  The zone dictates the cost and the zones are changing. Look at the website it will explain a lot.  In any event I wanted to be sure you are clear on the fact that flood insurance is a separate insurance from homeowners.  So the 2-8 thousand in flood insurance is  on top of your homeowners.  We currently have a flood damaged property and need to retain flood for a couple of thousand on it until selling but can't get homeowners because it lacks a CO.  It is a different circumstance but has taught me alot.  If something is in a flood zone unless you are sure it won't flood and can afford to self insure I would not bother at the moment. The changing landscape will definitely impact your costs and it also impacts resale value. Also do you want to get a call from the tenant that  the basement is flooding because the electric is out and therefor your sub pump is off?

If you are in the unique circumstances that it is in the zone but does not flood,  you can buy somehow without any flood insurance, you plan to hold, it cashflows well and maybe you can get a deal- go for it. Otherwise a house with a real flood issue will be a losing proposition.

Dan Perrott · Answer

Take a look at the following website.  It allows you to enter an address and it will provide the latest FEMA information on the property.    It is a wealth of information about flood zones and what a lender may require.  You will need to call a flood insurance provider for quotes.  You will need to create an ID with the site.  I have never had an issue with the site.

www.freeflood.net

I do agree that being in a flood zone could kill cash flow if you are not careful.  Look at your numbers carefully.  Call for quotes for flood insurance.

Hope this helps.

What's the scoop on flood plains?

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