Most people would jump at the chance to own a property by the sea or a river. If you’re one of them, keep in mind that such places typically have high flood risks. Secure one without due diligence, and you may end up losing more than what you gained in the long run. Find out why a real estate investment group in the US always advises investors to be careful when purchasing these types of property.
Why Investing in Flood-Prone Properties is a Gamble
Investing in a property in a flood zone is risky due to the following reasons:
- Flood risk levels change over time.
Just because the property is at a low-risk flood zone when you bought it, doesn’t mean that it’ll have that status indefinitely. Flood risks change over time.
States located near bodies of water are the ones most at risk. You could buy a property with low-risk, only for its area to be remapped into a high-risk zone later.
- Coastal flooding is imminent if current environmental trends continue.
A study by the National Oceanic and Atmospheric Administration (NOAA) predicts that by 2050, around 386,000 homes will likely be below sea level. It will displace approximately 40 percent of the US population and lead to the loss of up to $106 billion worth of coastal property.
The study’s prediction gets bleaker by 2100. If nothing is done to mitigate the effects of climate change, around 2.5 million properties worth $1.3 trillion would be at risk of inundation. Securing a coastal property today may mean becoming a part of these figures.
- Low flood risk does not render flood insurance irrelevant.
As real estate education often reiterates: a risk, no matter how small, is still a risk. It’s not something that should be ignored. A study revealed that more than 20% of insurance flood claims come from areas with low flood risk.
Also, if you are planning to secure a flood-prone property with the help of a lender, it’s highly likely that you’ll be required to secure flood insurance. The flood risk puts the property’s collateral at stake. Lenders require insurance to diminish the risks.
Smart Strategies Before Buying a Property Near or In a Flood Zone
If your heart is set on owning property near a body of water or in a flood-prone area, don’t worry. You can lessen the risks that come with its purchase. Follow these smart strategies before securing it:
- Get to know the area’s flood history. Is the property in a low-, moderate-, or high-risk flood zone? How and when did it earn its flood risk status? Establishing these facts about your potential property will help you gauge the costs of its purchase and insurance. If you came across the property through your real estate investors association, ask whoever’s involved for insider information about the area.
- Study the area. While you can’t prevent flooding due to natural disasters, there are ways to predict the possibility of flood risk level changes. Study local politics. Pay attention to upcoming rezoning and development requests during city council meetings. The construction of new roads and districts are some of the most common causes of flood risk changes as they reduce the amount of land that can absorb water. Avoid places with a lot of plans in the works.
- Have the site surveyed before closing. Get an elevation certificate as well. The documents and information that you’ll get from getting these done will help you gauge future flood risks.
Understand Before You Invest
Purchasing a property in a flood zone, high-risk or otherwise, is a delicate venture. It’s why any credible real estate investment group will recommend looking before leaping. Find out as much as you can about the property. Before signing anything, make sure you fully understand the risks of securing it.