Dream Homes Blog 3-16-13 – Rebuilding after Sandy
Greetings NJ –
Hope this post finds you and your loved ones doing well.
Well not really nothing, but certainly less than we’ve been discussing lately. Today we’ll talk about a small, but sizable percentage of people affected by Sandy, who might not want Flood Insurance any more.
I’ll be talking about this item and a number of others at my Rebuilding after Sandy seminar this Thursday, 3/21/13 from 3-5 pm. For info and to reserve a space, go to www.foxmoorhomes.com or call me at 732 300 5619.
People who choose to do without flood insurance all have one thing in common: they have no mortgage or a small remaining mortgage that they can retire.
Fact: There is no law requiring you to have flood insurance. There is a federal law governing the FDIC (Federal Deposit Insurance Commission), which requires any participating lender who lends money in the form of a mortgage, to require that the borrower obtain and maintain flood insurance. If you have a mortgage, you need to have flood insurance.
This is an important distinction, and one worth considering.
These lucky folks with out mortgages fall into 2 categories – investors buying for cash and people whose affected home was their second, or vacation home.
If you do not have, cannot borrow, or are not getting enough insurance money to raise and move your home and remodel, or demolish and rebuild your home, your third alternative is to stay where you are and remodel. This will cost you significantly less money initially, but will affect your home value and sale viability when you sell your home.
You will also be accepting the inherent risk of living through another significant storm event – your home may flood again. That is a calculated risk. For a working hypothesis, I am assuming another event within 10-20 years with an average of 2’ of water over finished floor, as opposed to the 4’ we experienced with Sandy.
That being said, if it is your second home, or if you are buying a home for cash and renting it as an investment, you are probably looking at $40,000 – $60,000 to remodel in place. This is in contrast to the low $100,000 range to lift your existing home and in the mid to upper $100,000 range to demolish and build new. These are just some rough numbers for you to consider, so you know there is another alternative to doing absolutely nothing.
If the home is a modest vacation home built 40 years ago and is used for 4 months a year, this may be a viable option for you. If it is a rental property, an investment of $110,000 ($60,000 for the lot and $50,000 for the remodel) will produce a 3% cash on cash return (based on $1350 per month rental) and a compound return in the 18% – 20% range. This is assuming that you hold the property for 5 years, knock it down and simply sell the lot.
(Thanks Rich Kitrick, Esq. for this excellent example. There are numerous other investor scenarios that are very workable and feasible.)
Thought to keep in mind: If or when you choose to sell your home, your buyer will discount the market value by the cost of raising your home to the new advisory base flood elevations. Unless you demolish your home and either sell the lot or rebuild a new home, you will incur the cost of bringing the home into compliance with the new flood elevations.
But you will not incur that cost now, and in a rising real estate market (which we are experiencing, thank God) in 5 years your home and land should be worth significantly more.
Just some points to ponder – hope they help.
Enjoy your day.
Rebuilding NJ One Home at a Time…
Residential Construction & Development for over 20 years in NJ
314 Rt.9, Forked River, NJ 08731 Mailing: PO Box 627, Forked River, NJ 08731
609 693 8881 x 102 Fax: 609 693 3802 Cell: 732 300 5619