I have spent most of my career, especially these past few years advising folks to run far and run fast away from owning property in a flood zone.?ÿ Because, my impression is that FEMA is forcing flood insurance premiums to start to go so high as to ultimately encourage any buildings in the flood zone to be abandoned. Is this an unreasonably extreme impression??ÿ
You see, I find myself considering a purchase of property in downtown Franklin to support a cottage type business for my wife to run.?ÿ We would own the real estate together.?ÿ Her business would pay us rent.
Roughly 1/3 of the available sites are in the flood zone.?ÿ I have already had an early informal conversation with our local flood plain administrator.?ÿ She was on duty during our Great Flood of 6-7-8 (June 7, 2008).?ÿ All those properties in the mapped flood zone suffered flood damage.?ÿ Even 1~2 feet above the main floor elevation in many cases.
We are also going to consult with our local flood insurance agent expert..
Your thoughts??ÿ Run far??ÿ Run fast?
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I'd say your advice to other folks is sound and you should follow it.
Get a quote from a local broker who offers insurance through the Natural Catastrophe Insurance Program (Lloyd's of London).?ÿ Also make sure your lender (if any) will accept that insurance (mine does).?ÿ In my case, NCIP is half the cost that NFIP insurance would be, covers the full value of my house, and also covers damage from earthquakes and mudslides.?ÿ It us run by actual insurance people with razor-sharp actuaries, so the political influence is zero.
If NCIP won't insure you, that probably means you?ÿdefinitely shouldn't buy...
If it flooded once, it will flood again. Hard taking our my own advice at times.?ÿ
I'm in favor of a requirement to mark the all-time high water mark on poles, buildings. etc.?ÿ Anyone buying property below that mark better have a very good understanding of the risk and reason for buying.
if you buy with cash, you can forego the insurance.?ÿ If you expect it to flood again, come up with a plan to demo the damage and replace and factor those costs in for each time it floods.?ÿ There are codes for building in the floodplain.
Your risk but if you purchase flood insurance, the amount of the premium over a 20 year period might be the similar to the purchase price.?ÿ And flood policy payouts do not necessarily make you whole.
I think I would pass.?ÿ However my old boss built a home on stilts for his son, where the road frontage was well above the flood zone, which allowed him to construct a walkway/ramp to the house, and he was able to run all the utilities serving the house under the walkway.
It's just part of the business plan. Cost of building and maintenance are going to be higher, so the location has to offer a near certainty of generating more traffic and revenue than a safer location. The additional sales have to be directly attributable to the location and have to more than cover the additional costs in order to maintain the margin you need. For example, if your costs are $1000 a month more and you want a gross margin of 50%, then you need an additional $2000 per month in sales that are directly attributable to the location; sales that you wouldn't get in a safer place.
For example, about a hundred miles from me, there is a big, very nice restaurant at the very edge of a major river. It just has to be in a flood plain, but it has a dock and small marina, sells gas to boaters. It gets boaters cruising up for dinner or breakfast, traffic it wouldn't get if it weren't on the water. Directly uphill is a major condo project with a connecting road, a huge source of business available exclusively to the location. Flood every 5 years? Not a big deal.
Bottom line is, regardless of where you put it, it has to be profitable. Some locations are more expensive but at least as profitable as others.
It's the profitability you want to concentrate on. The location should maximize that.
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Like you, I promote people avoiding the flood plain as a standard rule.?ÿ For the vast majority of cases, it simply makes financial sense.?ÿ Even if you can pay cash for the property, you still can suffer damages.?ÿ I recommend flood insurance to all my clients who learn they are out of the flood plain, but very close, and describe cases where the actual flood of 2007 was from 2 feet to 8 feet higher than the record BFE for that location.
On the other hand, if this is a steel, brick. block building with electrical outlets, etc. significantly higher than the BFE, go for it.?ÿ Plan to relocate certain things to minimize actual damage.?ÿ That is, move the electrical breaker panel, hot water heater, etc. to an elevation that truly should not be flooded.?ÿ During times of suspected flooding, remove valuable items to a different location, don't just move them off the floor and onto counters or tables. (Had a friend in an automotive shop lose equipment because that was all he did and the water got 18 inches above the counter tops.)?ÿ Many times thousands of dollars of valuable product, equipment, information can be loaded out in less than 15 minutes.
The other item to consider is the future sale of the property.?ÿ Will it sell easily??ÿ Doubtful.?ÿ Would you carry the note for the buyer?
Brad,
Looking at pictures of downtown Franklin and the 2008 flood, I wonder why the city/town would even promote development in the floodplain.?ÿ Many communities have discouraged same and reached out for grants to purchase properties and turn them into green space.?ÿ Our small city?ÿ promotes commercial development in the floodplain as it was the rivers that were the transportation corridors that early cities were built around.
I have property in the floodplain and 'flood proofed' same with minimal flood ins premiums.?ÿ Backwater or fringe floods can be designed around but not floodways.?ÿ If still considering, you should get a deep discount on the property as insurance and construction in the floodplain is expensive.?ÿ Like others have said, make sure you gain the traffic/income to support being downtown in the floodplain.
Compare a 5/10/20 yr plan for income and expenses and future sale of the property versus purchasing an existing building outside the floodplain.
We have lots of businesses in our town where the kids have flown the coop and a spouse, looking for something to do, entices the other spouse to purchase a building so they can turn their hobby into income producing business.?ÿ There is a life expectancy for those business and it is not long.
Lots of tax advantages for owning commercial properties.?ÿ Consider moving your office into the new building as would be much easier to obtain financing.
<2 cents worth of experience
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I'd be in the group to avoid the flood zone except for particular circumstances
'to support a cottage type business for my wife to run.'
A happy wife makes for a happy life!
Buy with cash.?ÿ Mortgage something else if money is needed.?ÿ The last four farms I have purchased were handled that way.?ÿ After 39 years of buying property I am down to a single property with a mortgage on it.?ÿ That is not my house property.?ÿ It was bought with cash made available via an existing mortgage on a different property that had been nearly paid off.
I am considering taking two farms, having them appraised at current values, then mortgaging them to give me money to invest in higher risk investments of my choice.?ÿ Not all of it at once, but as I see excellent opportunities come along.?ÿ Probably help out some young people with great potential but inadequate credit.?ÿ I remember far too well borrowing money at 18.5 percent back in those days.
Wow!
