Congress passed the “Biggert – Waters Flood Insurance Reform Act of 2012” last July. As a result, beginning October 1st, 2013 many property owners are going to experience substantial increases in their monthly flood insurance premiums. This may have a huge impact on any land parcel located in a FEMA flood zone. If flood insurance becomes extremely expensive, the land becomes very undesirable. Regardless of the fact that it may never have flooded or is not likely to ever experience a flood, if the FEMA map says it’s in a flood zone, you are required to buy the expensive flood insurance.
As land investors who may own land in a flood zone, how does that effect us? If our vacant land floods it really cant hurt us right?
We are not required to carry flood insurance on our land, however, if you ever plan to build any type of structure, cabin or home, the future lender will require that you carry and maintain flood insurance or they will not make the loan . As land investors, we expect substantial long term appreciation from our “Magic Circle” land (land located on the outskirts of cities). However if our land requires flood insurance and that flood insurance costs upwards of $12,000 per year or even much more in many cases, our land becomes very undesirable for building. We may not ever be able to sell it.
Can you imagine buying a lot, building a home and having to deal with this?
You build a home on a beautiful lot and have a mortgage loan of $150,000. Your total monthly payment with principal, interest, taxes and insurance is approximately $1,100. Since you bought or built after 7/6/2013 when the new flood reform act went into effect, you will be required to pay the new flood insurance rates. Your flood insurance could easily be $1,000 per month or more. This makes your total monthly house payment $2,100 per month instead of only $1,100 had your lot was not been located in a flood zone.
Basically the US government has been subsidizing flood insurance for years and loosing billions of dollars. Something had to be done. As land investors, it is important to be aware of this in order to make the best decisions about our properties.
Barring any congressional action, here are parts of the Biggert-Waters Flood Insurance Reform Act that will become effective October 1st, 2013:
• Owners of homes in flood zones that were subsidized with lower rates could face an annual rate increase of 20 -25% every year for the next 5 years.
• Anyone who bought a subsidized home after July 6, 2012, loses the subsidy upon the next renewal. This means their flood insurance rates will at least quadruple.
• Owners of businesses with subsidized policies and those property owners with severe repetitive losses will see rates rising 25 percent a year until their premiums reflect true market risk.
While western land parcels can be in a flood zone. it is primarily coastal cities that are effected by this change. Florida is especially impacted and I know many land investors have been attracted to Florida land parcels for the close proximity to the beach.
This is one of the many reasons that we prefer western land for long term investment, enjoyment and appreciation. As always, feel free to contact me with any questions about buying, selling and investing in land.
If you own property that you think may be in a flood zone you can visit the following websites for more information: