PLP-046 The Pros And Cons Of Getting Flood Insurance
As with life, you can’t really predict anything. No natural disasters could save you from the possibility of acquiring damage. That is why it is important to think about insuring your properties in case calamities happen. Keith gets down to the details about flood insurance - what you need to know about it and how to go through it. He shares some personal experiences with Harvey that will give you time to reflect on the possible consequences you may meet along the way. Furthermore, he gives a great overview by covering flood insurance from the perspective of lenders as well as the state.
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Listen to the podcast here:
The Pros And Cons Of Getting Flood Insurance
Flood insurance is a topic that's near and dear to my heart for a few reasons. Number one, my wife and I went through our own flood insurance claim on our primary residence back in April of 2009. No named windstorm, no Harvey, no Rita, none of that. Just a freak springtime thunderstorm that sat over West Houston and dumped a tremendous amount of water. That's one reason. The next reason is the flood policy through the National Flood Insurance Program. You'll buy it through State Farm, Farmers, Allstate or whoever, but it's relatively cheap. They sell the policy and they will administer any claims. It's all backed by FEMA, the Federal Emergency Management Agency. That's why it's cheap. It's a government subsidized. This is one case where as an investor you have to take advantage of the subsidy and the relatively low price it would cost your borrower to have the flood insurance.
In my daytime and my real life, not just on TV, I’m a licensed insurance adjuster. I hold property casually, that is. I hold licenses in four states and reciprocity through a whole bunch of others. In the last few years, I’ve adjusted several commercial and industrial flood claims whose settlements total in excess of $160 million. I’ve seen some flood claims and what it can do and have handled a lot of other people's money during that process. The moral of the story is after Harvey, I now demand flood insurance on all of my notes. People say, “It's not in a floodplain.”
Back in 2009 when my house flooded, we were fortunate enough to have good neighbors across the street from us who only took on a little bit of water in one corner of their room. We had a young baby at the time. The neighbor said, “Come on over.” We waded across the street. We were talking with the neighbors and they asked if we had flood insurance. I said, “Yes, I’ve always had it. My dad beat that in my brain. If you're going to live in the Houston area, you better have flood insurance. There's no getting around it.” I asked them if they had flood insurance and they said, “No, we don't because we don't live in a floodplain.” I pointed to my house across the street and I said, “Neither do we.” If you live in a low-lying area or near the coast or river, you should go ahead and expect that those flood policies are going to cost more. The likelihood of a 100-year event or a 50-year event damaging a property is pretty high. If you're not in a flood zone, it is relatively cheap and you can go to the National Flood Insurance Program to find out more or call your agent and then talk to them about it. I’ll treat this like any other real estate investment. We bought the house in early 2006. It was 1,500 square feet. Nice little ranch-style home in Spring Branch area of Houston. It had an 8,500-square foot lot, 1,500 square feet of living space. We paid $120,000 for it. We lived in it for a few years before we flooded.
During those three years, it costs $300 every year for flood insurance policy. We had it at closing. I demanded it at closing and kept renewing it every year. By the time we flooded, I had paid $900 into flood insurance premiums. At the end of 2009, after the house was all rehabbed and remodeled with t...