Author Topic: Opinions wanted on 2 unit in flood zone  (Read 2769 times)

Arbor33

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Opinions wanted on 2 unit in flood zone
« on: July 10, 2013, 12:43:21 PM »
Here's the deal. This area of town floods almost every year and each year people try to bail on their houses in the area. The property is pretty nice. Something that would only need some cosmetic updates if it were in another area of town. That being said, it's listed for about 1/3 of what it'd sell for in other areas and needs a new furnace asap.

  • 2 Unit with 2 bedrooms in each
  • Very desirable school district
  • 2 stall garage
  • Large yard

Let's say I purchase it at $20k and I get $600/unit which is a fair estimate for the area.


Gross Monthly Rent $1200
Assumed Monthly Vacancy Expense$-50(One month vacancy for one unit)
Monthly Tax Expense $-300
Monthly Insurance Expense $-168(Assumed $68 home ins, $100/month flood)
Monthly Utilities Expense $-160
Monthly Maintenance Expense $-100(probably higher with flooding)
Gross Monthly Expense $-728
Gross Monthly Income $1150
Debt Service $0(Assuming cash purchase)
Cash Flow$422
Cash Flow % 1.88% /Month22.51% /Year

I don't claim to be a pro with numbers so feel free to correct my formulas if the math doesn't look right.

Does something like this appeal to you more experienced investors? It seems like it'd be a bit of a headache to file claims each year and deal with higher turnover rates due to flooding affecting tenants.

Do you guys automatically look away from deals like this despite the low risk of investment and 22% return rate? If so, why?

Kazimieras

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Re: Opinions wanted on 2 unit in flood zone
« Reply #1 on: July 10, 2013, 01:06:14 PM »
I would avoid it for the reason you first said - the area tends to flood every year.

Many insurance companies (at least in my case in Canada) would not cover the unit, and even if they did, the premiums would be insane. Also ignore that if you didn't disclose to your tenants about flooding, you may be liable for their stuff. So it isn't worth the risk and I wouldn't bother with the math unless:
  • You can put it on stilts somehow
  • It is insurable

There is a reason why it is selling for 1/3 what it would sell for in other areas.

GuitarStv

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Re: Opinions wanted on 2 unit in flood zone
« Reply #2 on: July 11, 2013, 08:38:35 AM »
Room for rent - waterfront property, several weeks a year!


Seriously though, regular flooding is a nightmare for maintenance.  Pass.

freelancerNfulltimer

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Re: Opinions wanted on 2 unit in flood zone
« Reply #3 on: July 11, 2013, 08:48:48 AM »
What kind of flooding? Is the house built above grade? Does the house of a history of flood damage?

I live in a part of town that floods a lot. I have flood insurance. It's also a very desirable area to live despite the flooding. Pretty much all the house are built up and the flooding is generally just in the streets. We had a bad time last year with flooding and it came up to the bottom of our front steps. There's a ton of street parking and my husband's car sustained some water damage. Having off-street parking is important when the streets flood.

Do you know what the usual flooding is like? Is the area desirable despite the flooding?

SunshineGirl

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Re: Opinions wanted on 2 unit in flood zone
« Reply #4 on: July 11, 2013, 08:50:32 AM »
Never buy in a flood plain! Never!

freelancerNfulltimer

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Re: Opinions wanted on 2 unit in flood zone
« Reply #5 on: July 11, 2013, 09:20:47 AM »
Never buy in a flood plain! Never!

I wouldn't say never. You need to know more about the area. I have an Apartment I rent out in a flood zone. It's a great rental. It's built above a garage and is far enough off the main street (where most of the flooding happens) that it is very unlikely to receive flood damage. The flood insurance is $40/month for the unit. If the house was build directly on the ground and the flooding wasn't contained to the street level, then yes it would be a bad rental to own.

TrulyStashin

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Re: Opinions wanted on 2 unit in flood zone
« Reply #6 on: July 31, 2013, 09:13:16 AM »
This gave me chills.  In 2002, my (now) ex and I bought a lovely house on 2 acres in a flood plain.  We figured it was a manageable risk so long as we had flood insurance.

What a nightmare.  It flooded twice in 2003.  After the first flood (heavy rain, nearby creek) I was afraid every time rain was forecasted.   Would the rains be enough to flood it again?  You can't know.   The second flood came with Hurricane Isabel and the house was under 6' of water for two days.  We never moved back in.  I found and fought for a hazard mitigation grant from FEMA that eventually bought out my house and 3 others (cheaper to buy and demolish than pay claims year after year).

It took two years for us to recover.  It took longer for me to stop being afraid of the rain.

DO NOT BUY IN A FLOOD PLAIN.   Flooding is not a manageable risk. Especially with climate change causing unpredictable weather patterns we cannot know what to expect in the future based on past patterns.