Deep in talks with an owner on a property in a major metro in the northeast, but the property is in a flood zone. The property has huge upside and shouldn’t be that hard to fill, so the only concern I have is the flood zone. Are flood zone properties selling and what cap rate would you pay for a flood zone park with lots of upside in a great metro?
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I’ve had a tough time getting a “rule of thumb” answer for expected increase in insurance costs to insure a park in a flood plain. Would love to hear back from those on the forum who own in one.
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The cap rate for a park in a flood zone ZERO!!! We HAD a MHP in a partial flood zone and when it happens the people lost all their possessions and YOU knew it would flood how do you response to them. At the time of refill we had to sell one of our best parks as a package to get rid of the flood zone property. At the time of buying the park had little prior damaged and we thought not a problem. We tried selling it to the county but was not interested but since a recent major flood the property was put in a wet land program and NO more mobile homes or RVs allowed!!! The property was in Mo. on Bull Creek—never again see the anguish of good people–the property became a curse!!!
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That sounds terrible, very sorry to hear that. Was that property in a 100 year flood plain or something more frequent?
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Some 40 years ago the flooding at that property was just about 1 foot of flood water at the max and thus we had no concern for the future and not listed as a 100 year flood plain. As watersheds experience more development areas flood today that 40 years had NO problems and in the mid west we are experiencing much greater rainfall in a short amount of time. The last time the mobiles had water water up to the electrical wall plugs and and HUD condemned then but the sharks came to rehabilitate the damaged homes from over 500 miles for resale–??? ethical??? would they tell future owners the homes were condemned and were once flooded???
Areas that presently flood will become more of a hazard–beware!!! Why knowing buy TROUBLE!!!
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I have owned commercial non MHP property in a flood zone and had a really hard time exiting. It just creates a ton of headaches and risk you cannot control.
If you can bulkhead 20 feet around the park on grade maybe that’s an answer if they’re giving the thing away, otherwise I’m staying far away.
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What type of engineer would make the most sense to contract with to get an estimate for how to mitigate the flood zone concerns? Environmental Engineer? Know anyone who has gotten the flood zone scarlet letter removed through successful mitigation?
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A geologist or engineer who’s specialty is fluvial geomorphology. Many jurisdictions have strict guidelines on what can be done in floodplains. Many require a no-rise certification for any development in the flood plain as a prerequisite to any development. The basic idea is that your activity must have zero impact to upstream and downstream flood levels. A dike or berm or any other filling activity by its very nature cant meet this criteria. The ability to build dikes, berms and fill in the flood way is going the way of the dodo bird. This old way of doing flood control was a game of ping pong ball and requires all parties to manage and maintain all their dike and flood control structures. Doing this simply shifts the problem downstream or upstream to someone else. That is the real risk in a floodplain if anyone changes or fails to maintain their structures all parties are impacted in an uncontrolled and unpredictable way. Every floodplain is different and there are vast differences between them. Its really hard to make a blanket statement about investing or not investing from a risk perspective but the simple designation as floodplain by fema makes your life more difficult in terms of insurance, mortgages, building permits and resale.
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We used a hydraulic engineer who had to model the flow of water during an event to calculate the extent to which we had to have detention, foundation type (for commercial construction), and calculate the net impact of water by any of that construction was zero.
This was $5,000, and does not address the civil engineering components that would facilitate the dirt moving to be correct.
City of Houston required this before they would give a construction permit. We did not seek a LOMA or LOMR afterwards as the result of the analysis torpedoed the feasibility. Lesson learned.
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If you’ve got only a few homes in a park below the 100 year flood plain elevation, you could consider having each raised. The other alternative is loss of income insurance including flood as a covered peril. It generally costs 4 - 5% of annual revenue - or about 10x the cost of loss of income coverage for wind, hail, and most other perils. So the ownership cost and risk are higher for flood zone parks.
I’ve yet to see a park located in a flood zone where the seller disclosed the cost of loss of income coverage including flood - most likely none have it due to the cost.
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@KurtKelley Where would you recommend to start on getting a flood zone property evaluated by a professional, and getting the insurance company the information needed to write up a thorough policy? The FEMA maps are not very detailed, and I think a lot of us investors have a hard time knowing where to start in terms of assessing possible long terms impact and what our insurance cost multiplier might be for having a flood plain property.
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I recommend two things. 1) Contact your insurance agent. They can review the flood maps they have and give you a better idea of how much of the property is within a 100 year or worse flood zone;
- Contact a local surveyor and have them provide you with an “Elevation Certificate” (about $500) for one of the lowest homes in the park. This Certificate will give you three exact elevations:
A) The elevation of the 100 year flood zone at that exact point
B) The Elevation of the ground beneath the home
C) The Elevation of the bottom of the manufactured home (usually 2.5’ higher than the ground)
Ideally, you want B higher than A. You certainly want C higher than A. The cap rate on the property should reflect the flood risk.
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Like Kurt said, a local surveyor is a good place to start. I am a civil engineer and have completed a number of Elevation Certificates for manufactured homes over the past two years. Each City has a little bit different interpretation of the rules, but in general you will need to raise the home to sit 1’ above the 100-year flood elevation. I recently worked in a community where that meant adding 5’ tall foundations!
Average cost for new home foundations in a flood zone have been in the $9k-$12k range per lot.
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This would be my idea as well. Raise the homes, either by raising the ground under them or jacking the homes up higher. My guess is that there are building codes for this and an inspector might have to approve. Maybe they could even be strapped down so they don’t float away!
I have experience in a park where most of the homes are in the FEMA floodplain. Even when there is no flood, the ground can still be wet. There is one part at the very back where it has pooled up and we are working on drainage. Moisture speeds up the deterioration of infrastructure that is park ways or all underground.
The upside is that we have many homes that are located beside a nice creek, nice to listen to and keeping surrounding temperatures down in the summertime.
I’d suggest factoring the flood risk and flood insurance into the purchase price, then moving forward. Note the risk to prospective tenants, but focus on the upside.
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I wanted to post a photo of a recent flood plain installation that was completed in Illinois. The 100-year flood elevation of this lot was 4.5’ above the ground level. This home had to be raised to 5.5’ to meet permitting requirements. Raising a home has to be seen to really be appreciated! Not only do you have the filled and stacked block, but you have 30" diameter, reinforced concrete foundations in the ground, and tie-downs.
FEMA requirements don’t give cities much choice in requiring that new homes meet flood plain requirements. FEMA threatens to pull flood plain insurance from cities that don’t follow the rules. That basically makes any home in the city ineligible for a mortgage if they are located in the flood plain.
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Could you please explain your last sentence further? Do you mean that all homes are ineligible for a mortgage even if they are propped up a foot above the BFE or just those that are not? Are you talking mobile homes or all homes, including stick-build homes? Thanks for your insight!
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What was the cost to do all this? Almost everything is possible with enough money but how is this economical? You need a ladder to get to the front door 
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That is epic! A home with a view.
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There is a lot that goes into this, but my understanding is if a city does not enforce FEMA’s flood plain requirements, then FEMA has the ability to not offer flood insurance in that city. FEMA refers to it as “suspension”. If FEMA won’t sell flood insurance, then individuals within that city can not purchase flood insurance, stick built or manufactured.
A lot of federally backed mortgages require homes within a flood plain to purchase flood insurance, if FEMA has suspended your city, then you’re stuck. It’s the big stick that FEMA uses to enforce their regulations. I’m not sure they have used it in a long time, but mostly because cities toe the line.
You’re completely right. I don’t see how any MHP owner would actually do this unless lot rents are north of $600 per month…or maybe you also own and operate an engineering + construction company?
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