4 Simple Rules When Buying a Home Near Flood-Prone Areas
Insight Doing BusinessStreet Smart

4 Simple Rules When Buying a Home Near Flood-Prone Areas

Purchase these properties wisely in the face of weather threats.

Houstonians get nervous every spring because frequent torrential downpours often result in serious flooding. This year, Houston is still recovering from Hurricane Harvey and must already start planning for a new hurricane season, which officially began June 1.

For real estate investors, these issues are top-of-mind when considering homes in flood-prone areas of the country. Purchasing properties in these areas can still be a wise decision, even when a location faces the threat of flooding. Following these four guidelines when making investments in flood-prone areas can help protect your investment and optimize your returns: 

1. Identify Your Home’s Floodplain

When you identify a prospective home for your portfolio, identify if your home is in a floodplain and, if so, to what extent. This helps you determine the home’s flooding risk and the cost of flood insurance. FEMA offers a free online flood map to help you clearly see if your home is located in a floodplain.

Sometimes homes fall right on the line between two plains and you need an elevation certificate to get an accurate insurance estimate. It costs a few hundred dollars and adds a few days to your closing timeline, but it’s worth the investment.

Flood-Map-Houston
Using the interactive maps at FEMA.gov, an investor can learn many site-specific pieces of information about a property, including whether the home is located in a floodplain and what level of flood risk is associated with that address.
Above, you can see a close-up of the FEMA flood map of the Houston, Texas, area and all of the information available on the FEMA site.

2. Check Your Flood History

After you identify the floodplain, check the flood history through your insurance carrier. Even if the home isn’t in a flood zone, insurance costs increase significantly if there have been multiple flood claims in the past, regardless of the water source.

Sellers may also report if and when a flood event has led to an insurance claim. Note: Current owners are only obligated to disclose their first-hand knowledge. If your seller isn’t the sole homeowner, then they may not know, or may not disclose, that information.

If records indicate a previous flood, verify the reason and the resulting impact on the property. A home could have flooded from pipes that burst rather than from a storm. It’s critical to understand what has happened prior to making an offer.

3. Get a Site Survey and Elevation Certificate Before Closing

All lenders require an acceptable survey prior to closing, but they don’t ask for an elevation certificate unless the home is in a floodplain. If you are paying cash for the house, then no one requires these materials. For situations where sellers don’t possess an acceptable survey and elevation certificate, simply ask the title company to arrange for one.

These tools are good indicators for future flooding risk. Of course, flood maps will tell you if your home is located within a 100-year or 500-year floodplain, but an elevation certificate will provide the base flood elevation and other figures for the home in relation to the ground.

4. Buy Flood Insurance

This may seem like the most obvious tip, but it is extremely important to purchase flood insurance at closing, whether your home is located within a floodplain or not. Houston investors, for example, should never make a purchase without flood insurance even if it is not required in the area.

Hurricane Harvey was a devastating example proving floods can happen anywhere. In fact, according to FEMA, more than 20 percent of flood claims come from homes located outside of a high-risk flood zone. Given the low cost of flood insurance for homes outside the floodplain, it’s not worth the risk to go without it.

Your ultimate goal is to purchase properties and profit from the investment. Admittedly, some of these suggestions come with a financial cost. The more deals you do, however, the more likely you are to experience a flood claim. Invest in areas that buyers and renters want to live in but go the extra step and protect that investment.