A flood is a dangerous and widespread occurrence that can cause extensive damage. Flood risks are on the rise, leading to more expensive real estate investments in some areas like coastal cities. These floods could cost investors billions of dollars annually if they aren’t properly managed by taking precautions against them.
The “land obs 50 value” is a statistic that shows the expected value of land based on flood risk. This means that if you are an investor in real estate, it is important to know these risks and how they can affect your investments.
Scientists believe that some of the severe weather events that are happening more often are related to climate change. Numerous households have been devastated financially by floods, wildfires, hurricanes, tornadoes, and fatal winter storms.
Increased flooding poses a danger to the viability of certain coastal communities. Homes in floodplains are overvalued by $43.8 billion, according to a Stanford University analysis of property records, since purchasers don’t take the price of insurance into account.
According to a recent NPR investigation, the Department of Housing and Urban Development has repossessed properties in floodplains and resold them without revealing the danger of flooding to the purchasers.
Any wise investor will include considering a home’s susceptibility to flooding in their due diligence. Fannie Mae and Freddie Mac are governed by the Federal Housing Finance Agency (FHFA), which said in January that those companies should consider the financial risks presented by climate change.
Investors must take the cost of insurance into account when estimating the price of a rental property in a flood zone. Investors who are thinking about purchasing a home subject to rising seas need to make plans for flood insurance, just as it makes sense to invest in catastrophe insurance.
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What is a flood zone defined as?
A floodplain, or Special Flood Hazard Region (SFHA), is an area that has at least a 1% risk of surpassing base flood heights in any given year or flooding over 6 inches, according to the Federal Emergency Management Association’s (FEMA) Flood Insurance Rate Map.
Risk ratings for various grades of flood zones are varied. According to NFIP rates, the average cost of flood insurance in Texas is $634 per year. The location, elevation, style of construction, and whether the home is a main or secondary residence all affect the prices.
The most a residential structure may be covered for under an NFIP flood insurance policy is $100,000 for contents and $250,000 for the building.
Based on NFIP prices, North Carolina residents pay $718 annually on average for flood insurance. According to NFIP rates, the cost of flood insurance in Florida may vary from $190 to more than $2,000 per year, depending on how near the ocean a house is.
Flooding is not protected by homeowner’s insurance.
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How to determine if a building is in a flood zone
There are tools available to investors looking to determine if a property is in a flood plain. In general, listing agents must also provide such information.
Although there are a few tools available, Flood Factor, created by the First Street Foundation, is the most user-friendly. Simply enter a location, and the website will create a report outlining the property’s potential for flooding over the next 30 years as well as the potential flooding in the surrounding area.
FEMA has its own flood map tool, however the organization often updates its maps later, so the data may not be as up to date.
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Why all houses should have flood maps checked
A home should not have a flood risk if it is sufficiently far from the shore or a river, according to common sense.
However, this is no longer a certainty due to the increase in catastrophic weather occurrences. According to statistics from Climate.gov, flooding on an unprecedented scale occurred throughout the United States in 2019, with towns suffering $10.8 billion in damages as a result of flash floods and storm-related flooding.
The Mortgage Bankers Association commissioned a paper in September that foresaw the possibility of more destructive natural catastrophes. The National Flood Insurance Program (NFIP), which assists property owners, renters, and businesses, has already been severely strained by this fact.
Many homeowners have defaulted on their mortgages as a result of the NFIP’s extreme financial strain since their payments either don’t materialize or the NFIP only pays out a paltry amount in response to a claim.
For instance, a family in Florida’s Escambia County bought a house that had flooded six times since 1995. The NFIP has settled every claim, but they have never provided enough money for the family to flood-proof their house, leaving it vulnerable to flooding again and time again.
The NFIP has already paid out more than the asset is worth.
The National Oceanic and Atmospheric Administration estimates that the 2018–19 hurricane seasons cost the U.S. $136 billion in damages.
Given how closely tied flooding is to hurricane damage, calculating the flood amount is more challenging. Although secondary flooding from severe weather was not taken into account, NOAA estimates that flooding alone cost the United States $6.2 billion in 2019.
According to a Reuters research, the cost of flood damage to the United States is expected to rise by 61 percent over the next 30 years.
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Cons of making investments in floodplains
An investment property in a flood zone is a depreciating asset since climate effects are becoming worse and experts predict that flooding will become worse in the future.
The location of the item, how desirable the place is, and how quickly climatic effects rise all affect how long the asset will last.
Another possible drawback is the higher cost of flood insurance that comes with buying investment property in a flood zone. Annual insurance payments, which may be in the hundreds of dollars to thousands of dollars, must be taken into account by an investor.
Insurance premiums in Texas’ major cities may cost anything from $400 to $1,100 annually.
The likelihood of the property flooding, including the harm done, the losses, and the difficulties of repairing the harm, must also be considered.
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advantages of investing in a flood zone
Flood zones are often found on riverbanks and coasts, which are popular locations for real estate development despite the danger. The risk could be justified by the potential short-term gain. Take Charlotte, Tampa, and Houston as examples of places where housing values have increased significantly and rental income has remained high despite weather-related catastrophes.
A prospective buyer must determine their level of risk tolerance, like with other investments, and take appropriate action.
The original version of this item was published on MYND.co, and MediaFeed.org syndicated it.
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