Cap rate adjustment for part of the park being in a flood zone

Hello,I found a 30 lot park with 6 lots in a flood zone. At what cap rate does this become a great deal?Park is in a major metro - demand for affordable housing is through the roof. Test add pulled 50 calls in 10 days. Park is a little low on the rents - could easily push them $50 over 2-3 years. If I would normally aim for a 10-12 cap - what adjustment would I make to account for the flood zone?Tenants pay all bills except water sewer and trash. City water and sewer. Seller will do owner carry. Thanks!

Before carl beats me to it – Can you live with it if the tenants whose homes are in the flood plain move out?  If so, just don’t cap them in the income.  I.e. it’s a 24-lot park.  Next question – are you going to refill those lots (or is someone else going to) or are you going to “seal them up” or trade them for some other land, or something else?If the lots get re-filled, and the homes get washed away whose stuff is missing?  Are you going to feel bad?  

No I’m not going to feel bad. I am just trying to adjust the cap rate to account for the risk. I can always refill the lots should it happen. It did flood in 84 but the city then built a gigantic sewer retaining thing right next to the park and it has not happened since. However if i go to sell the park I will be punished for the flood zone on the sale so I need to account for it now. 

Personally, I wouldn’t be interested in renting a lot or a POH to a tenant knowing full well that sooner or later they would be flooded.  I think that this global warming thing is a lot of hooie, but floods come and floods go, I have seen them and have been in them having grown up in SW Ohio.  Rivers flood, it’s largely our fault, and even the experts like the US ACE and the Bureau of Reclamation have limitations.The best thing to do in my mind is to make an offer at a 10 cap on the 24 lots with the intention of redlining those 6 lots in the floodplain.  You could then convert the 6 lots to open space, surface storage like for travel trailers or construction equipment, or trade or sell it.  Making money is great, it’s one of my favorite things to do, but not if it comes to the detriment of someone else or at their expense.  The ‘gigantic sewer retaining thing’ that you mention, is it a retarding basin for a combined storm water and sanitary sewer system?  If so, and retarding basins and combined sewer systems are very common in eastern MSAs, you may be able to get the floodplain designation removed from this property.Bottom line, as Brandon says above and Carl says elsewhere on this forum, it’s just plain not right to rent lots to people knowing that they will eventually suffer major flood loss.  Jim Allen