A dream of many investors is to purchase property in exotic locations like Florida. The warm air, closeness to the ocean and Gulf of Mexico and booming tourism industry help keep investment properties rented year round. While making a monthly cash flow is a great idea, due dilligence can uncover one of the drawbacks to owning property in potentially hazardous weather conditions. The average insurance policy provides zero protection against damage or loss that stems from a hurricane or comparable act of god. Any rental property can be damaged by sudden rain, wind or hail and could seriously affect the living conditions of a tenant. Many people getting into real estate often ask should I buy flood insurance for my Florida investment property.
What are Flood Zones?
Flood zones in Florida are certain areas that are judged to be high or low risk levels. If a property is located in a high risk level area, the insurance permiums could be higher as well as the risk of damage to the property in severe weather. The National Flood Insurance Program is the regulatory agency created by FEMA that oversees the judgment of what is or is not a high risk flood zone. Severe weather like a hurricane or storm surge could bring expensive damage to property. When researching a property to purchase, it is always a good idea to survey flood zone maps so you understand if a property is high or low risk.
To Buy Insurance or Not
Any person can be affected by flooding or water damage. Personal possessions as well as those owned by a tenant can be lost. As the owner of an investment property, you could have expensive damage to fix or a potential lawsuit brought on by an angry tenant. Most types of flood insurance can be purchased from average insurance companies and there is no such thing as a specialty company that offers special flood insurance. Any agent that handles losses and claims in a populated area prone to flooding can explan flood insurance premiums to you.
Prices often vary and you can even buy a policy through the NFIP. The costs can range from around $500 dollars each year up into the thousands if you don't shop around. Most companies have limits on the amount of flood insurance loss protection that can be paid out. The typical policy is $250,000 with an extra $100,000 of loss or damage coverage for personal property. Policies usually need to be renwed at the close of each fiscal year.
One thing to keep in mind when considering purchasing a policy is the curing stage. Most insurance policies have a declaration of a "right to cure" before payouts can be made. These usually range between 2 weeks and 30 days. A problem or event that happens before these time frames are surpassed might not be covered under a newly purchased policy.
It is always a good idea to protect your investment and your possessions. It helps to get quotes from 4 or 5 companies that offer flood insurance to allow you to plan in advance for the annual premium payments. Earning monthly income from an investment property is a great way to build a nest egg and every nest egg needs financial protection.
