Looking at a MHP, 31 lots + 55 rv sites. It is in a 100 year flood zone from a creek on the back of the property. Is this something to completely stay away from? What are other considerations? How do you price out such a thing? Any thoughts and opinions would be greatly appreciated!
Not necessarily a deal killer but you need to know your state’s and the local municipality’s requirements. Here in my area of NC where I have parks, you can’t put a new home on a new pad in a 100yr BUT if you’re replacing an existing home you’re grandfathered in. Sometimes there are time restrictions on replacing a unit as well i.e. 180 days.
I’m very much an “ask for forgiveness rather than permission” person when it comes to municipalities but in this case, I’d gather all info during DD and push for maximal CYA.
Prime example - I’m one of the larger setup outfits in our area and got a call from a park that a group bought and they have about 30 units in the 100 year (I actually passed on the deal 4 years ago because there were so many units in the 100 yr). The municipality is coming back and retroactively making them raise all the units so the bottom of the frame is 12" above the 100yr flood level and engineer the setup to what is almost the equivalent of a FEMA set. Personally, I don’t think they have the grounds to do that since the units have been there 30-40 years but that’s an example of the potential exposure you have. In our experience, most municipalities say “jump” and expect you to say “how high?” whether they have the grounds to do so or not.
At a minimum I would get something in writing that states the existing units are grandfathered and can be replaced if necessary. I would also push to have that letter state the requirements for setup when/if you do replace units. If you do this and they decide to move the goal post down the road, you have the grounds to fight it.
Additionally, if you have a lender involved, you may be buying flood insurance and/or business loss of income insurance. You should be able to get out of flood insurance if you don’t own the units because there is no insurable basis (my scenario). BLI may be a smart move, even if not required, if you have a substantial amount of units in the 100yr.
Hope this helps!
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Thanks so much for your response. This park is in an area that doesn’t have much zoning or ordinances, but that is certainly something to be aware of.
I figured there would be extra insurance involved. It’ll most likely be a seller finance deal, but eventually will refi with a lender. I guess I’m also concerned with liquidity of such a property.
In your experience, does the floor zone decrease value? If so, how much compared to a similar park not in a flood zone?
If you would be comfortable having your house and family in that flood zone, go for it. We have had a park in a flood zone seller say no big deal. A year later 75% of the homes experienced major damage plus good people losing their homes and belongings. We would never consider a MH Park but would a RV park possible since they are supposed to be easily moved
I would avoid. With all the storms and hurricanes these days insurance companies are looking for ways to get out of major storm liabilities. Municipalities are going to be sharpening their pencils on development and existing development. Lastly… you want to be able to build your park up and make it a going concern to hopefully sell it some day. Just cause you can buy it today may not mean you can sell it down the road.
Bought my first deal in a flood zone when I didn’t know better. “It never floods” until it does. A year after we bought, a 500yr flood event happened and about half the park was lost. Set me back probably ten years in my investing journey. Good news is I learned a lot and made it through to the other side of the mess, but I wish someone had told me to just stay away from flood zones, so that’s my advice to you. Plenty of other deals out there to be found! Best of luck:)
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Thank you for your response, I agree.
Thanks for sharing your story…especially with how crazy weather has been lately!
I can’t speak to that since I’ve not yet been on the exit side of a floodzone deal. When we’re evaluating them we consider the following:
- Can we insure the risk?
- How much of a risk is there? 100yr? 500yr?
- What is your real exposure? A prime example of this - We own a park that has a creek flowing right along the backside of some of the homes. Its not floodzone per USGS but on a practical basis it does flood every3-5 years. After talking to the owner during acquisition we uncovered that a substantial part of the issue was actually some boulders down stream (not on our property) that prevented the stream from flowing freely when inundated. We were able to contact the property owner and pluck the boulders out with an excavator. We’ve not had any issues since.
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That’s a really thoughtful perspective—thank you for sharing!